How To Increase Your Profits As a Managed Service Provider

Companies spend 80 percent of their IT budgets on keeping their basic infrastructure running. However, that's dead money because it doesn't contribute to the growth of the business. That's why small and midsize businesses, with constrained IT budgets and limited internal IT expertise, are increasingly focusing on those IT initiatives that drive the value of the company and are delegating the remaining tasks to service providers who can perform these tasks more efficiently. Such tasks include managing networks, providing hosting services, running software applications and email services and delivering IT help desk support.

Related: How To Use E-Mail Marketing to Grow Your Managed Service Practice.

As a result, the managed service providers (MSPs) market, already around $55 billion in 2010, is poised to reach $86 billion by 2016 according to research firm Visiongain. The barriers to entry for becoming an MSP are low and many VARs and distributors in the technology and networking industry are looking to become MSPs to forge tighter relationship with their clients, as well as enjoy a continuous revenue stream. But most VARs and distributors struggle to make the transition, and many new entrants to the MSP business struggle to grow.

The key to becoming successful in the MSP business requires creating the right value added services that clients need and then having the operational capabilities to deliver them cost-effectively. All while meeting or exceeding contractually committed service levels. However, most MSPs don’t invest enough in their business processes to differentiate on one or more of more of these capabilities. In addition, while such proficiencies will enable an MSP to sustain existing customers and reduce churn, they still need to find a way to scale intelligently and profitably—to serve more customers, add new services or expand regionally, while managing costs and improving service levels. In this article, I will share a simple framework that shows how MSPs can leverage information technology to build differentiated operational capabilities that will help them to successfully compete and scale their business.

MSP Process Model

Let’s take a close look at the business process model for an MSP. The following schematic captures the core business processes for an MSP.

Click image for full-sized view.

The MSP first must identify and design its key service offerings. Then, it needs to build repeatable and effective process to market and sell their services to prospective clients. Once a contract is signed with a client, an overall plan for resources and delivery is created.

Typically the first step for the MSP in the delivery process is to transition the client’s internal systems to its own environment. For example, that may include auditing their current environment and identifying gaps such as lack of anti-virus on the PCs; taking over client’s existing systems such as Web site or email and hosting them on their servers, rationalizing some of their systems using consolidation and virtualization, and integrating the applications and systems with their remote systems monitoring and IT management technology.

Once the transition is completed, the MSP needs to have systems and capabilities to deliver the services with the right uptime; bill the customer accurately based on resources consumed, as well as the contract terms; and provide an environment to capture client issues and resolve them in a timely manner. Margins are thin in the MSP business. Ability to continuously measure everything, analyze the issues and use the information to improve business processes is critical to staying competitive and ahead of the pack.

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