Why MSPs Must Focus on Sales, First and Foremost
Sales are the lifeblood of every business, but they’re especially important in a managed services model. While technology, support and customer service are critical factors, nothing provides more profitability and long-term viability than the continuous addition of new accounts and devices under management.
A concept often associated with the managed services model is “doing more with less.” MSPs – particularly those associated with the legacy break/fix model – can service more customers with fewer resources in less time. However, many MSPs fail to take the next step in connecting the dots to revenue: “earning more with less.”
Managed services enable solution providers to make more money because they have already paid for the service-delivery capacity; they simply need to extend utilization to an optimal level to achieve the best return on investment and profitability quotient.
In other words, the more customers you have, the more money you make.
Every service provider faces the same economic equation. Infrastructure requires an initial, unfunded investment. When the service becomes available, it takes time to sign accounts and start generating revenue. During this initial build-out period, a services business must cover expenses with little to no revenue. On average, it takes nine to 12 months for a service provider to recoup investments and become profitable.
“Wow” you say. Yes, it’s a challenge, but one worth the risk. Once a services business becomes profitable, it almost never turns back as long as the business remains competitive and adapts to meet evolving clients needs.
Look at it this way: If you have capacity to support 100 customers but only have 20 active accounts, 80 percent of your capacity is unused and non-revenue producing. What makes managed services different from product sales is that the addition of new accounts usually doesn’t cost anything in terms of additional resources. In fact, the first few accounts that come in the door often pay the cost of day-to-day operations; the rest are nearly pure profit.
By focusing first on sales and continuously adding new accounts to your roster, you will significantly increase your profits because your expenses remain relatively flat. Even better, increasing capacity is much less painful on your wallet because the profits can be used to pay for the expansion.
Of course, you can’t guarantee that existing account revenue will remain constant. Which is why sales doesn’t stop with the signing of a contract. You must continually revisit existing accounts to mitigate attrition and even expand their spending. When a customer buys your service, they are more likely to buy additional services over time. This is called ARPU (average revenue per user), and good services companies are always trying to increase this number.
Maybe your managed services business can survive on zero-growth. If you sign up two or three dozen accounts, you can make a pretty good income and be profitable because you won’t need to invest in additional service capacity. But getting by isn’t always the best strategy as it leaves your business vulnerable to market fluctuations and competitive disruption. We’ve all seen companies implode because they simply could no longer compete or they didn’t have the financial strength to survive a downturn.
There is no argument that technology, quality of service, engineering skills and customer support are all important factors in running a managed services business. Yet, none of these attributes matter if there isn’t a steady stream of customers coming through the door and supplying the fuel (money) to run and grow the business. Sales are the first priority, period.
Steve Ricketts, VP of Marketing, Continuum, which provides an end-to-end intelligent remote monitoring and management and business continuity platform backed by a 24/7 Network Operations Center (NOC) that enables MSPs to profitably backup, monitor, troubleshoot and maintain IT environments.