One of the biggest challenges MSPs face when developing an offering with a fixed monthly price--or, “all you can eat”--is accounting for unpredictable expenses. Here are three key points and best practices for satisfying customers’ needs without compromising profit margins.
There are two primary reasons end users sign up for managed services contracts: They want less downtime, and they want predictable monthly IT expenses. If an MSP can’t address both needs, it’s going to remain stuck in the break-fix world.
One of the biggest challenges MSPs face when developing an offering with a fixed monthly price (known as “all you can eat,” or AYCE) is accounting for unpredictable expenses, such as software license renewals, computer and server replacement costs, cloud storage costs and IT labor costs.
If the MSP sets the price too high, the customer may prefer to stay with the former break-fix program or shop for a less-expensive managed services program elsewhere. If, on the other hand, the MSP fails to accurately gauge a customer’s “appetite” and sets the price too low, the MSP’s profit margins will quickly be eroded, which can lead to serious financial issues over time.
Following are three key points and best practices that MSPs should follow to create an AYCE managed services offering that satisfies customers’ needs without compromising profit margins.
1. Recognize the Managed Services Honeymoon Period
Even if you do a thorough job upfront performing a network assessment and interviewing a managed services candidate about its IT environment and challenges, there inevitably will be things that get missed. For example, perhaps a mission-critical application is overlooked or a server that sporadically overheats and shuts down without warning is missed.
Most MSPs expect this “honeymoon” period to entail a lot of extra work upfront as they make improvements and replacements to the customers’ IT environment and assets, followed by a quieter and more profitable experience after this period.
The important thing to remember is not to create a long-term fixed-price agreement with a customer based on the state of their IT infrastructure during the “honeymoon”--especially if this is the first time the company is entering into a managed services agreement. Instead, be upfront about the fact that you’re going to need to get their IT environment up to par first so they can experience the uptime you’re both striving for--and that it may take a few months before they start paying a monthly flat rate.
2. Don’t Become a Cloud Storage Micromanager
Another obstacle MSPs need to take into account with their AYCE managed services offerings is cloud storage. If you want to roll your cloud BDR (backup and disaster recovery) service into your monthly fixed price plan and your cloud service provider charges per gigabyte, you now have a big responsibility on your hands. Not only do you need to gather a year’s worth (minimal) of historical data on your customer’s storage habits; determine which additional applications, files, and images should be backed up to the cloud; and try to predict how the customer’s data needs will grow over the next 12 months, but you also may need to take into consideration what happens if the customer exceeds a data threshold that leads to a price adjustment. One way to avoid this complicated and time-consuming process is to partner with a cloud service provider that charges a flat rate for cloud storage, regardless of the number of employees or devices that are being supported.
3. Watch Out For Oversimplified Managed Services Models
When it comes to selling subscription-based IT and professional services, there are multiple approaches used by service providers to present an AYCE plan that’s a win for them and their clients. Some of the more popular models include the “per device” model, the “tiered” model and the “à la carte” model.
While each of these pricing models has its benefits, they all share a common downside, which is a tendency to drive the sales conversation to the topic of price instead of value. When price becomes the primary focus, the end user will inevitably cut corners, which can hurt them--and you--down the road. For example, the customer may opt to have you manage its desktop PCs, servers and printers, but “hold off for now” on laptops, tablets and smartphones. But we all know that you will inevitably get the call when one of these unsupported devices stops working or gets a virus. It’s very important for the service provider to lay out the risks and responsibilities of only partially managing the customer’s IT environment.
A better approach is to offer a value-based plan that includes your recommended bundle, as opposed to putting all the responsibility on the customer to pick and choose what it thinks it needs or can afford right now. It’s also important to factor in the extra labor costs required during the initial three to six months of the business relationship known as the honeymoon period.
The most important takeaway is to remember that doing managed services right doesn’t mean that someone has to win and someone else has to lose. The best plans comprise bundled service offerings that provide a high level of business availability at a price that’s considerably less than the cost of downtime, which is a win for you and your customers.
Rob Merklinger is vice president of sales at Intronis, Boston-based provider of world-class backup and data protection solutions for the IT channel, and is an experienced software sales leader with a proven track record for driving success and developing sales talent.