Managed Services Rewind: From Applications To Value Pricing

elliot markowitz

Let’s start with what managed services really means. “Managed services is the practice of transferring day-to-day related management responsibility as a strategic method for improved effective and efficient operations inclusive of production support and lifecycle build/maintenance activities,” according to Wikipedia. “The person or organization which owns or has direct oversight of the organization or system being managed is referred to as the offerer, client or customer. The person or organization that accepts and provides the managed service is regarded as the service provider.”

It’s wordy, but it’s simple. The goal is to provide a stream of recurring revenue for your company and entrench yourself deeper into your customer’s business. All positives, right?

But for many a solution provider, there are a few stumbling blocks to making the transition: Solution providers are confused regarding which applications or services they should push to a managed services model first, and whether they should build their managed services business first by transitioning current customers or going after new accounts. Then there is the question of pricing — what should a solution provider charge for said service?

Let’s hit the stumbling blocks quickly, one at a time. First, any solution provider worth its weight in salt already provides proactive management, automated maintenance, patch management, reactive support, help desk service and network monitoring and remediation. At some level, the solution provider should also be involved in vendor management, strategic planning and include security services.

So what is missing? Raffi Jamgotchian, president of Triada Networks, a Northvale, N.J.-based solution provider specializing in the financial sector, believes solution providers should set their sights on the line-of-business applications as a possible entry point to build their managed services business model. At a basic level, he said, solution providers can support the applications as they do their vendors — examples include printer/copier maintenance, phone/communications or Internet services. This way solution providers can be aware of issues related to the applications that may affect their infrastructure choices while also preventing the application vendor from muscling in on their turf, Jamgotchian said.

And how does a solution provider determine what to charge for these services? They first must realize their costs and then go from there, Jamgotchian said, noting this will evolve over time. However, he also advises these services should reflect the value of what is being provided. It’s a slippery slope: solution providers don’t want to cannibalize their business and undercharge, so they need to evaluate the worth of the service carefully and price them accordingly. It’s a value-pricing approach vs. a cost-plus approach.

And finally, which customers should a solution provider target first? While it can be difficult to change the way a solution provider does business with its existing accounts, a level of trust and a history of service already exist. While some solution providers believe in starting a new business model with new accounts, Jamgotchian said migrating current customers first is the way to go because of that already-established relationship. Plus, the entire point of the transition is to convert business from a transactional model to a recurring-revenue model, so the solution provider’s existing base will need to be addressed at some point.

Knock ‘em alive.