Managed Services Sweet Spot: Small Businesses With 20 to 100 Employees
Small businesses with 20 to 100 employees are the most ideal targets for managed service providers, according to Dan Shapero, senior VP of marketing at Kaseya. Dan made that statement during lunch with me on July 21. I was quick to agree with Dan. But why? Was I guilty of shaking my head in agreement without really crunching the numbers?
Is there a solid, logical reason why MSPs should target small businesses with 20 to 100 employees? Actually, yes. Here’s the quick reasoning.
Before I get into the math, please don’t consider the scenarios below universal truths. MSP pricing and customer settings can vary greatly. But the hypothetical examples below help to explain why small business with 20 to 100 employees could be your ideal customer target.
Now, the reasoning: Imagine if you charged $100 per desktop and server per month to manage a customer network. That may sound like a high cost-per-system, but let’s assume your managed services include a wealth of capabilities (security, storage, patch management, etc.).
Now, the math:
- For a 20-person company, the annual cost to the small business would be $24,000 (the math: $100 X 20 people X 12 months) — or about $2,000 per month.
- For a 100-person company, the annual cost to the small business would be $120,000 (the math: $100 X 100 people X 12 months) — or about $10,000 per month.
For the MSP, $2,000 a month (for 20 seats) is a nice baseline starting point for engaging a customer. Anything less than a 20-person company, Shapero says, and a managed services engagement might not be worth your time.
On the flip side, small businesses with 100 or more employees may not be very interested in managed services. The reason? Once the MSP engagement costs $100,000 or more per year, it becomes easier for the small business to justify a full-time IT hire rather than MSP services.
Again, the thoughts above are generalized, and I realize your experiences may vary greatly. Still, the key question: Is 20 to 100 seats the MSP market sweet spot? Or are you having success in even smaller (or larger) customer settings?
We’re finding this to hold true in a lot of circumstances, but there are a few instances where the 100+ market is bearing our prices and seeing Managed Services as a great solution. Mostly because when we engage a client with 100+ seats, they have multiple locations and remote offices in which hiring a full-time IT staffer isn’t reasonable given travel and an ‘in-house’ person isn’t as productive and responsive as an MSP.
We are also seeing the 20-100 seat marketplace as being the sweet spot for our Managed Services offerings. We have seen clients in segment either having no IT staff or a jack-of-all-trades running their IT services. Many feel their major need is technology guidance. We have seen that one of the major drivers beyond the standard MSP services (server and desktop management, patch updates, etc.) that get us subscribers is the Virtual CIO component (or quarterly review and planning.
These clients understand their individual businesses, but do not have the person on staff to map their processes and business goals to their technology needs. By including as part of our service meeting with the companies on regular intervals and developing a technology roadmap, it has allowed us to increase our close rate and lengthen the agreement terms to 3 and 4 year intervals. When pitching IT strategy in addition to support, we have found that clients agree that it will take beyond a year to achieve their IT goals due to factors on their end (budget, stakeholder acceptance, product evaluation).
Using Joe’s pricing strategy above, and a 50 seat environment, you would be looking at a roughly $5000/mo. cost or $60k a year. I would look at this as about the average loaded cost of a Jr. to Mid-level IT professional (certainly this could be debated). Our clients have been buying into the value of getting access to full IT staff with expertise in all areas of technology and developing a strategic direction for about the cost of a single resource.
Brian, John: Thanks for the great perspectives. Just to clarify, the blog entry wasn’t “my” pricing strategy. It was based on a conversation I had with Dan Shapero at Kaseya.
And I certainly agree: The blog entry was meant as a “general” guide rather than a firm set of rules for pricing and target customer size. John’s point about managing larger customers that have highly distributed office settings (and therefore can’t have IT on site in every location) is just one great example of how MSPs can profit by targeting midsize firms rather than small business.
my question for you guys is what about smaller like 5-20 employees? wouldn’t any company that has enough employees or enough information to justify their own server (at least one) be a candidate? I’m just curious……
I think that the 5-20 employee market is an easy are for a full outsource managed services solution. The challenge with a company this small though is that they don’t often value technology enough to make the financial commitment required of a managed services contract. If you find a company that is committed to technology then you will have a good customer even if they are less than 20 employees. The margins in fact can be greater at this level as they generally are not in to shopping around as much.
Also I think that we have found a sweet spot in the 100-500 + companies in offering specific services such as just NOC or just Help Desk services. With these size companies they are having to hire experts to support their business applications and do not want to put resources to the maintenance of the systems or perhaps the desktop maintenance. This allows us to come in and be a part of their IT department, we are the help desk or the “network team” and they are the strategic team.
In response to Stufinancestech’s reply, we do have a fair amount of clients in the 5-20 range. What we have been realizing is that it costs as much to support those clients as it does a client in the 20-50 PC range in many cases, of course at a smaller monthly billing rate.
Echoing Lane’s comments often we will find they do not have the dollars to commit to stabilizing their infrastructure and our role becomes more of band-aid for sins of the past within their network. It has also been our experience that clients of that size have some unrealistic expectations regarding uptime and response SLA’s and will remind you of the “bill they pay” when an issue arises on their network.
We have seen that it is easier to standardize in an environment of more than 20 where there is less customization going on at the individual PC level. Additionally, they see the value of having a provider to reach out to in times of crisis that is truly interested in solving their problems in a timely, realistic fashion. Now that being said I have a few smaller clients who truly believe in technology and we have a great working partnership.
I like the approach that Lane described to overcome the perceived threat of the MSP, that we are here to eliminate IT staff. An approach where we can fill a void for a client with an existing IT staff in areas of WAN management, Helpdesk, or NOC can go a long way to creating the partnership with the IT staff and have them become an advocate for other offerings in our portfolio of services.
I can’t help but chime in. I am just getting into the MSP industry but from a network engineer’s perspective managing several offices of 250 seats or more, I can tell you that once an IT staff overcomes the fear of job replacement – there are huge opportunities and value for the MSP at this level.
Monitoring, Alerting, Help Desk, Security and Patching are essential but if any IT support person has time to juggle it all and do it right, then they are working 100 hours a week.
The fact is, MSP’s could be a very valuable partner even for large business and as the industry grows and matures, I forsee a time when we all work together to satisfy the client – whether they are 200 seats or larger.
A firm like Real Time Data Services can provide a nice “turn-key” hosted deployment for the 2 – 20 employee market provising all applications on a remote server and avoid the need for any sophisticated on prem servers etc…while being afforded the 24×7 help desk that comes with the service anyway.
Brian, when you talk about infrastructure stabilization for smaller clients, do you think a program that rotates hardware out for new every 12-36 months at very inexpensive rates (like 7 or 8%) would help with the stabilization? My program of this type has only a 10k minimum. I was just curious. I know it helps you guys since you have newer computers in the networks to manage so you get fewer nuisance calls…..
Stu
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Stu- We are starting to roll out plans for replacing hardware (generally 3 years) and are providing that service as a Complete IT offering, combining our traditional MSP services with our providing the hardware as a service which does aid in stabilization of their computing environment.
The issue we have seen with the fewer than 20 seat environments is we see a trend of significantly more helpdesk calls per user in these smaller settings, driving cost per PC higher. Likely, the reality that causes that trait is the smaller the environment, the more critical the IT systems are for each individual user. Not a bad sales opportunity, but often hard to get the client to ante up for the level of service that is required. It has been my experience around 20 seats is where the balance of revenue vs. support burden tends to break even and become profitable and productive for all parties concerned.
I will drop you a line to coordinate a call, I am interested in hearing what financing plans you might have available.