Not all recurring revenue is created equal.

Jeff O'Heir

October 4, 2023

5 Min Read
Monthly recurring revenue
dizain/Shutterstock

Recurring revenue is the holy grail all channel leaders chase, whether they operate a pure-play MSP or a VAR that wants to diversify by growing their managed services practice. The same is true for agents and technology advisors that want to create recurring revenue streams around communications and collaboration services. Whether responsible for sales, operations or the entire organization, all channel leaders are focused on adding recurring revenue but have to make sure they get the right kind and the right mix.

Kujawa-Peter_Service-Leadership.jpg

Service Leadership’s Peter Kujawa

The secret many top-performing MSPs and partners know is that all recurring revenue is not created equal — some drives profitability, but others don’t.  In “The Secret to Adding the Right Kind of Recurring Revenue,” a standout session at Channel Futures Leadership Summit, Oct 30-Nov. 2, in Miami, attendees will hear from Peter Kujawa of Service Leadership, a ConnectWise solution, which benchmarks the global industry every quarter. Kujawa will show what top managed service performance looks like when it comes to generating profitable recurring revenue. Attendees will hear the practices of the best-in-class and how to design go-to-market strategies that can accelerate growth while bringing in the right recurring revenue to drive greater profitability for the business.

We recently caught up with Kujawa to ask him a few questions about his session.

Channel Futures: What are the basic steps an MSP should take to begin assessing the right mix of recurring revenue services?

Peter Kujawa: First and foremost, technology service providers need to understand the differences in revenue types and what their revenue is comprised of. This might seem basic, but in our world it is more complex than it might appear. For example, many providers I talk to use the terms “recurring revenue” and “managed service revenue” synonymously. However, while all managed service revenue is recurring revenue, not all recurring revenue is managed service revenue. Recurring cloud revenue, for example, is not the same as managed service revenue, even though many MSPs treat it as such. It has lower margins and, generally, margins that are not set by the MSP.

Get in on The New Style of Leadership. Register now for the No. 1 channel event for current and future leaders. Hear industry experts and meet with more than 150 sponsors and exhibitors serving the channel at the Channel Futures Leadership Summit, Oct. 30-Nov. 2, in Miami Beach.

CF: Can you illustrate or describe what a top managed service provider looks like?

PK: For us, top MSPs are those that are able to consistently deliver the highest profitability every quarter.  In our experience, those businesses are built in a way to deliver high-quality customer and employee experiences and grow sales the fastest. It is a widely held but factually inaccurate statement that you can’t deliver those things and profitability. If you run your MSP in a certain way, you can.  We refer to this as high Operational Maturity Level (High OML).

CF: Can you name the three top elements of a strong go-to-market strategy that can accelerate growth while bringing in the right recurring revenue to drive greater profitability?

PK: To be most successful in managed services, the top three OML traits to focus in on are:

  1. Have a defined value creation strategy. Do you know what you are trying to build in the next five and 10 years, or are you just focused on one year at a time?

  2. Do you have a target customer profile? And how disciplined are you with knowing who your customers are? Every size business needs managed services, but the top MSPs know that they need to design their services for a narrow enough range of clients so that they can support them with common technology, processes and people. It seems counterintuitive, but the more you are focused on a smaller size range of clients, the faster you will grow.

  3. Do you have a tech stack that is limited to one vendor per part of the stack, well defined, and in place with all of your managed service clients? Having fewer vendors to support leads to greater efficiency, higher ticket resolution and overall better quality, in addition to needing fewer higher level techs on your technical team. Higher-performing MSPs learned this lesson years ago and have become really good at “rip and replace” during onboarding.

CF: Why at this stage of the game is it important for MSPs to know all they can about choosing the right mix of recurring revenue and how to properly manage that side of the business?

PK: We are in the golden era of our industry. Our data show that 2020-2022 [were] the three best years ever in our industry. Unfortunately, our data also show that about 25-30% of the industry is losing money in any given quarter. MSP owners work too hard to not be successful and there has never been a better time to do well. It is critical to understand how to do so.

CF: The Channel Futures Leadership Summit and MSP Summit feature many compelling panels. Why should MSPs attend your session?

PK: In the early days of managed services, questions around what drives higher quality, and ultimately higher profitability, used to be a matter of trial and error — and a lot of theory. Because we benchmark the industry every quarter, we know what drives success and what doesn’t; in other words, what works and what doesn’t. If you are looking for practical, data-driven suggestions that you can begin implementing in your business immediately to become more profitable, then this is the session for you.

Want to contact the author directly about this story? Have ideas for a follow-up article? Email Jeff O’Heir or connect with him on LinkedIn.

Read more about:

MSPs

About the Author(s)

Jeff O'Heir

Jeff O’Heir is a journalist and editor who has spent much of his career covering the business leaders, issues and trends that define the IT and consumer technology channels. His work in print, online and on stage has showcased, educated and connected small and large solution providers, MSPs, channel pros and vendors. During his career, Jeff has also covered engineering technologies and breakthroughs, crime, politics, food and the arts.

Free Newsletters for the Channel
Register for Your Free Newsletter Now

You May Also Like