In my recent travels, I’ve been able to have conversations with our partners around the globe. And no matter where I go, I’ve heard one thing consistently: Managed Service Providers (MSPs) face a range of challenges in today’s market, and profitability is at the top of the list. It’s not something I take lightly, and I’m guessing you feel the same way. So I’d like to share my thinking with you here.
I’ll outline the main profitability issues facing MSPs in the SMB segment, then explore ways to overcome those issues and remain competitive in the market.
The accelerating drive from customers to Managed Services is a double-edged sword. The opportunity is growing but so is the competition. With more and more companies entering the space, MSPs need to differentiate themselves and stand out from the crowd. The increased competition puts pressure on MSPs to react with lower prices putting pressure on profitability and cutting into acceleration budgets.
Then there’s the rising cost of technology mastery. MSPs have to keep up with the latest advancements to remain relevant and the cost of training/retaining specialists is increasing. It’s a delicate balancing act MSPs perform today, weighing the cost against the profitability of new technologies. It takes planning, prioritization and agile execution.
Just as MSPs are working to navigate market competition and rising costs, customers are also demanding more services and more value. As businesses become more dependent on technology, they look to MSPs for sophisticated solutions that help them achieve their own business objectives. MSPs that fail to deliver sufficient value, business impact and a seamless experience to their customers will lose business to their competitors.
So what are MSPs to do? Can they really manage to do more with less? Yes! As competition, costs and customers change, so can MSPs!
Here are three key ways to make it work:
1) Focus on delivering customer outcomes rather than just providing services.
Emphasizing outcomes means talking about experiences, not just the details that underly them. What would you rather shop for: a new phone data plan or a new smartphone that can help you find a new restaurant, track your stress level and identify that new tune playing in your favorite coffeehouse? An emphasis on outcomes is the most powerful, most tangible way/s MSPs can demonstrate value to their customers and set themselves apart from their competitors. To do this you have to start by defining your offer and translating this offer into language, descriptions that abstract the technology and talk to the business impact. I’ll be sharing more on outcomes in future posts, so stay tuned.
2) Adopt a tiered pricing model.
This lets an MSP adjust prices based on the value they provide to their customer. The more value they can offer, the more they can differentiate and the more likely they will retain customers. Tiered pricing can help MSPs increase revenue, calibrate cost models and scale their capabilities while showing their customers a clear commitment to delivering value.
3) Partner and specialize.
Partner with other companies in the ecosystem to meet customers’ demand for more comprehensive solutions. Specialize in the service areas where they have unique capabilities. We are in the Age of the Partner and working together, each partner can leverage its expertise to deliver better customer outcomes while expanding service offerings and keeping costs stable. A strategic set of services lets MSPs increase their profits; it also lets them tap into new markets.
In a nutshell: in order to compete in today’s market, MSPs need to be proactive in addressing profitability challenges. Focusing on customer outcomes, adopting tiered pricing models and embracing partnerships will help MSPs stay profitable, offer enhanced value and tap into new markets. And that’s a win for everyone.
If you’re interested in learning more about the evolving roles of services and MSPs in the channel, let’s keep talking! I am posting a series on the topic on LinkedIn and I invite you to attend the upcoming Channel Partner Expo keynote featuring Janet Schijns, CEO of JS Group, and me. Our session is called “The Age of the Partner: How Services Deliver Client Outcomes in New Ways via the Ecosystem.” We’ll share insights on recent and upcoming changes in technology and discuss how MSPs can adapt to remain profitable. You’ll come away with practical strategies you can implement right away to drive up your service revenue potential.
So be sure to join us at the Channel Partner Expo and MSP Summit at the Venetian Convention Center, Las Vegas, Nevada, May 1-4, 2023. You can also meet up with key Cisco leaders from our Partner Organization: Kristyn Hogan, Elaine Goodman and Leonard Thompson. Come visit our booth #1831. I hope to see you there! Register for Channel Partner Expo here.
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