Why isn’t every VAR a successful managed service provider (MSP)? There are many paths to success, but aspiring MSPs also make many common mistakes that hinder their abi

February 23, 2009

2 Min Read
How to Fail As An MSP (Common Mistakes to Avoid)

By Peter Klanian 2

Common Managed Services MistakesWhy isn’t every VAR a successful managed service provider (MSP)? There are many paths to success, but aspiring MSPs also make many common mistakes that hinder their ability to become profitable. Interested in becoming a successful provider of managed services? Then read, learn, and avoid these common blunders.

Error 1: Sell the latest hot technology – even if it’s unfamiliar: You need to sell managed services that center around the technologies you’re already familiar with and where you already have technical expertise. If your organization is strong in networking, sell a managed network service, or provide a managed firewall or router offering. Don’t try to cover a customer’s entire environment unless you can back it up with in-house expertise.

Error 2: Vertical shmertical – you errantly insist one size fits all: Similar customer organizations often need similar products, so you may be selling with a vertical industry focus already. This becomes even truer with managed services, because you’re more tightly integrated with the customer’s business. Business integration, regulatory issues, and the long-term commitment that a customer makes when purchasing managed services mean you need to market yourself based on relationships.

Error 3: You stick with your existing sales strategies: Typical product sales are well defined and happen over a short period of time. There’s little commitment by the customer to the reseller. In contrast, a managed services sale is a solution sale. There’s a substantial commitment on the part of the customer, over a lengthy period of time. Accordingly, your sales team needs to be able to operate in this different environment to be successful at managed services.

Here are some questions you should ask yourself about your existing sales team:

  • Are they familiar with the basics of solution selling?

  • Can they sell to non-technical people at the customer, e.g. an executive?

  • Can they build a long-term trusting relationship, not just a transactional one?

  • Do they understand the value proposition – the business value of managed services?

  • Can they be trained on all the above?

Error 4: You keep your sales compensation plan as is: Selling a managed services contract is harder than selling most products, and it takes more time. On the other hand, there’s a reliable recurring revenue stream with higher margins. A product-oriented compensation plan won’t work, but here are some techniques that will:

  • Pay higher commission rates – pay based on margins.

  • Pay commission on the basis of the contract term – typically one year – up front.

  • Pay when customers renew.

  • Supplement with bonuses, at least initially.

Next time, we’ll discuss several more mistakes companies need to avoid in order to become successful MSPs.

Peter Klanian is a senior channel sales manager in the Dell Global Services organization at Dell Inc. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship.

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