Top 3 Managed Services Success Inhibitors Vex Some Partners

If you haven’t realized what might be tripping up your MSP business success, a new Techaisle study might be able to help you out.

The inability to 1) balance product sales and service revenue, 2) adjust to a customer-centric approach, and 3) align recurring and non-recurring revenues, are the top three channel partner managed services success inhibitors, the research and consulting firm reports.

Techaisle’s Anurag Agrawal

While these aren’t the only areas that might cause partners to stumble, or succeed if they get it right, they’re the top ones to watch for, per Anurag Agrawal, Techaisle CEO, who points out that his company has been surveying MSPs since 2008.

“While some years that we track MSPs the challenges remain the same, other years they change. But, these three challenges keep percolating to the top,” he told us.

Diving a bit deeper into the study results, Techaisle notes the following about the top three stumbling blocks:

A big misconception about MSPs is that they’re primarily focused on delivering services to customers, or all that they do is offer services. That’s not the case. MSPs see demand for both services and products, and successful ones respond to both.

What makes MSPs successful in this area is the extent to which they lead with services, and how that plays out when looking at the services-to-product sales ration.

“Successful MSPs lead with services, while channel businesses that are not successful at selling managed services lead with and derive the greatest proportion of their revenue from product resale,” Agrawal said.

In fact, Techaisle research shows that successful MSPs have a revenue mix of 48 percent product, 52 percent services. Looking at that revenue based on contracts, 59 percent comes from services-led contracts and 41 percent from product-led contracts.

“What we find is that there’s got to be a balance between bringing in recurring revenue and non-recurring revenue,” he said, or else partners will chase signing up more and more customers without realizing that they’re more focused on a sales process than …

… satisfying them.

Rather than try to be all things to all customers, more successful MSPs refine and deliver tightly defined, standardized services, or more discrete services, to a broad range of customers.

Techaisle research suggests that being more service-centric than customer-centric is more advantageous to partners; however, a recent survey suggests that there’s an inability to change internal support processes among both “successful” and “unsuccessful” MSPs, holding them back in making the shift to a service-centric approach.

Among successful MSPs, 42 percent are constrained by the inability to change, while 55 percent of unsuccessful MSPs can’t make the transition to becoming more service-centric.

Agrawal pointed out the difficulty of providing a standardized – yet disctinct – managed-service offering while meeting specific customer needs.

“We’re saying that you need to specialize and that you need to offer discrete services, and slowly expand your portfolio when a one-off customer comes along — that’s if it makes sense to do so, and if that solution can be expanded to other customers,” he said.

Finally, partners who are unable to move to a recurring-revenue model face a huge stumbling block when it comes to offering managed services. These partners tend to be fixed on being paid after a product is sold or a project is completed. To make the transition to a managed-services model, there are conditions that some partners just aren’t familiar with, such as requiring that management change the metrics it uses to understand the business; new finance operations; changing the ways sales teams are compensated, or as Agrawal puts it, “new operational norms throughout the business.”

Many channel partners see the allure of offering managed services; it’s just that they don’t know how to get from A to B.

In addition to the three most common stumbling blocks for successfully delivering managed services, channel firms also face difficulties around developing SLAs, which is a requirement for delivering packaged managed services; having a sales team that can articulate the managed-service value proposition; offering training for the sales team so they understand compensation and a recurring-revenue model; meeting customers’ unrealistic demands, and demonstrating value to SMB customers, the target of the Techaisle survey.