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MSPs Brace For Sales Hit As Pandemic Sparks Customer Layoffs
‘At the end of the day, its going to be a few thousand dollars a month in reoccurring revenue that is going to vaporize,’ says Richard Delaney, chief technology officer at Delaney Computer Services, a solution provider serving New York City and New Jersey.
As the number of unemployed workers climbs on a state-by-state basis, MSPs across the country are bracing for reduced seat counts and a hit to their recurring revenue as a result of the stepped up measures taken to stop the spread of the deadly coronavirus pandemic.
While just last week, some MSPs said they were counting on the regular monthly cash bump to get through the next few weeks, others said the lean times are here already.
“There are lots of reductions in contracts being haggled right now,” said Richard Delaney, CTO of Mahwah, N.J.-based Delaney Computer Services. The solution provider also serves New York City, an area hard hit by the coronavirus. “I've been keeping in contact with my clients. Have there been any losses yet? No. Are there going to be? At the end of the day, it’s going to be a few thousand dollars a month in recurring revenue that is going to vaporize.”
Delaney said he learned early on not to focus on just one industry, so like a fund manager, he has differentiated his customer portfolio to prepare for the bad times. One MSP he is in regular contact with lost 400 seats over the weekend, so Delaney said he knows some reductions are inevitable.
“We tend to focus on insurance and finance sectors. Insurance is fine right now,” he said. “The law offices are not. The courts are shut down, so law offices are at a stand still. I have some clients who are restaurants. They’re going to be devastated.”
Mark Essayian, president of KME Systems Inc., a Lake Forest, Calif.-based MSP, said thus far, two of his clients have cut seat counts. He said the key for his business has been reaching out to those companies that he believes could run into problems and starting the conversation early.
“We have two clients who all they do is outdoor party events. We called both owners. We said ‘Look, let’s sit down and figure out what we’re going to do,’” he told CRN. “These are small companies. It’s a mixed bag for us. We’re just flat out being candid. We’re saying ‘How is your business? What can we do to help? Do you have all your staff still working?’ If not we’ll reduce their seat count.”
He said one customer normally has 10 employees, but only six are currently working due to the virus, so it was an easy fix to reduce the cost by four seats. However, he said businesses should plan to get hit with deeper cuts as the pandemic wears on.
“I have a CFO, I said, ‘Let’s plan for what a 20 percent reduction in our contracts are going to look like,’” he said. “You have to plan, or you are just a fool. Southern California is a good economy, but it is hurting, like the rest of the nation.”
Ben Niernberg, executive vice president with MNJ Technologies, a Buffalo Grove, Ill.-based MSP said there is a concern about the cash flow issues that could emerge as money goes out and customers take longer to pay.
“We’re really watching cash flow very closely,” he said. “I just got an email from an account about needing to stop payment on something. It was a small payment, but we are starting to see some of that. I think a lot of that will have to do with the type of service provider you are.”
He said MNJ Technologies sells many edge-based solutions – as opposed to desktop management tools – which gives the business some cover from the ebbs and flows of the larger economy, but there are few touchstones for the pandemic environment.
“I think the issue is we just don’t know,” he said. “We don’t know how long this lasts. We don’t know what the plan is going to be. We’re contingency planning right now for a recession. We are creating sales strategies, marketing strategies around ‘What do we do?’ and ‘How do we do it?’ And how do we continue to grow? How do we continue to support our employees? Those are real conversations that companies are having, and they’re scary sometimes.”