Managed services are now commonplace in the channel. After years of experimentation and debate, we’ve achieved near universal acceptance for what constitutes a managed service. Yet, solution-providers-turned-managed-service providers continue to struggle with the transformation of service delivery and adjusting their businesses.
I started writing these seven laws of managed services nearly two years ago after observing interesting performance trends of solution-providers-turned-service providers. The seven laws aren’t really laws but observations backed by scores of conversations with MSPs (managed service providers) and empirical research conducted by Channel Insider. By no means am I so arrogant to believe that these are definitive. Rather, I hope they serve as a guide and rally point for how solution providers can best capitalize on the market opportunities and efficiencies that come with making the leap to managed services.
1) Managed Services Cost of Delivery is Inversely Proportional to Profitability
This is fairly simple: The more managed services you deliver, the less expensive delivery becomes, making it more profitable. Managed services aren’t like hardware and software sales that have fixed costs and can be priced on a per-seat or per-note basis. With managed services, a solution provider can deliver the same service to 100 clients as it can for one—with the same resource. As more clients sign on for managed services, costs decline and profitability increases. Simple, until you consider Law #2.
2) The Value of Managed Services Has a Half-Life
As costs decrease and profits increase, MSPs must be mindful of the perceived value of the service to the client. Assuming that the provider does nothing but fulfill its obligation to the client, the client’s perceived value of the managed service will diminish by half—for each year of the engagement. If the perceived value is 100 percent on day one of the contract, it will be 12.5 percent of the original value by the third anniversary. Some providers believe—and some industry analysts advocate this position—that managed services means you no longer have to touch the client. Nothing could be further from the truth, which is the reasoning behind Law #3.
3) Managed Services Will Bring You Closer to Your Clients
Maintaining the value of managed services in the eyes of the client means doing more than delivering quarterly performance reports. Value to the client is helping them manage their business better. Service providers have insight from multiple points, giving them the ability to score operational performance and benchmark specific services and infrastructure needs for individual clients. Service providers can see into clients’ operations and anticipate the need for changes and improvements. The net result is taking the trust adviser relationship to a whole new level, and oftentimes, opening up new product and service opportunities—Law #4.