Channel Insider content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.

Although solution providers are entering the managed service arena in droves, those who want to grow and thrive must count on automation rather than increased headcount as a business strategy, according to a Managed Service Provider (MSP) Benchmark Study released by San Mateo, Calif.-based managed services vendor Untangle this week.

“The most compelling and interesting thing in the study, not to say that it is new, is the automation threshold at which point MSPs have to start automating or they get into an efficiency bind and won’t be able to scale,” said Charles Weaver, president of the MSPAlliance, the International association of Managed Service Providers, based in Chico, Calif. “That’s an important finding.”

The survey, which was conducted by the Pacifica Group, garnered input from more than two hundred MSPs. MSPs surveyed reported that they had been able to scale their businesses by increasing employee headcount only in the earliest stages of their business, while serving less than fifty customers or managing 500 devices. The study found that an MSP can efficiently manage 10 to 20 devices per employee manually in this earliest stage. 

 To get over the 50 customer barrier, MSPs need to invest in automation technology, such as monitoring and management, and standardize their processes to achieve the next level of growth.

“For the last five years, automation has been the cornerstone of how a good MSP achieves scalability,” said Weaver. “In theory, if an MSP achieves automation, they will make money.”

MSP experience bears these findings out. “We established more than two years ago that automation was a requirement rather than something that was nice to have,” said Greg Donovan, chief executive officer at Alpheon Corp., an MSP based in Morrisville, N.C. The 26-person company currently has more than fifty customer contracts and is managing nearly 10,000 devices, with a ratio of 940 devices to one employee, Donovan said.

Further, the survey found that MSPs are best served in automation on an as-needed basis, rather than sinking huge capital investments up front, largely since business growth can be slow. In fact, just 13 percent of companies delivering services for less than five years had brought on more than fifty companies, while only 30 percent of those in business for six to ten years had reached that benchmark.

“These findings us rethink how one should invest in the business,” said Greg Cohen, marketing manager at Untangle. “We found that MSPs starting out should be measured in their up-front technology investment. They should expect their growth to be measured and they should temper their investment to match that.”

 Further, the study found that pricing have held steady in the market although pricing models vary widely. “In talking with our own MSP partners, and aspiring MSPs, they have expressed that they had a hard time figuring out what their pricing model should be,” said Cohen. “In this survey, we found that there was an immense diversity in pricing models which makes it very hard for customers to do pricing comparisons.”

For customers, though, bottom line cost has proved more important than the details when it comes to price. “We’ve got a couple of competitors in our market space and every one of us has a different model of how we come up with bottom number,” confirms Donovan. “At the end, we find customers look at the bottom line of what it’s going to cost them each month.”

Other findings of the study were much less surprising. For example, the survey confirmed that the MSP model is growing in popularity. Two thirds of those who responded reported being in the technology resale business for more than six years, but one-third entered the managed services fray in the past year. 

For small customers, MSPs provide an entree into the most up-to-date technology. “These are rapid trends,” said Cohen. “It shows that MSPs are not complacent and are not standing still.”

Nearly 40 percent of those surveys, for example, currently offer VoIP services and another 27 percent anticipate adding VoIP offerings within the next year. Sixty five percent said that they offer web content filtering today, a figure that will rise to 84 percent in the next year.