New research offers insights into how some of the most successful managed services providers (MSPs) and value-added resellers (VARs) transitioning to the recurring revenue model are conducting business.
Asigra Inc. presents 2020 Managed Services Landscape, a report by IT research firm Enterprise Strategy Group (ESG) and research partner Pax8. One of the goals of the report, based on surveys with 346 respondents and more detailed interviews with a dozen or so high-profile MSPs, was to identify the business practices of businesses growing and building value at the highest rate.
The Services Top Managed Services Providers Deliver
ESG asked MSPs in the survey which three services they provide that they consider the most strategic. The most common response was IT services at 53 percent, followed by:
- Software as a Service, 41 percent
- Cybersecurity, 41 percent
- Business continuity, 26 percent
- Networking, 21 percent
- Public cloud infrastructure services, IaaS, 21 percent
- Servers, 14 percent
- Public cloud backup, 14 percent
- Desktop, 12 percent
- On-premises, 8 percent
- Business applications, 8 percent
- Data storage, 6 percent
- Database, 6 percent
- Converged or hyperconverged infrastructure, 3 percent
Equally as important as what MSPs provide is how they provide it. Kevin Rhone, Senior Analyst at ESG, comments, “As detailed in this research, 86 percent of MSPs believe cloud-based managed services represent a fundamental change in how their business customers are consuming IT solutions.”
The report also points out that cloud-based services not only offer flexibility, reduced risk and cost-effectiveness for end users, but they also have plusses for MSPs themselves. MSPs in the survey say cloud-based services enable them to:
- Remain a trusted advisor, 63 percent
- Build recurring revenue, 57 percent
- Meet customer demand, 49 percent
Additionally, half of respondents are motivated to provide cloud-based managed services because there is a risk to their business if they don’t. Now, in general, 36 percent of managed services are delivered via the cloud; MSPs in the survey expect that number to increase to 44 percent in the next 24 months.
Successful Small MSPs vs. Large MSPs
The research report also points out that how smaller managed services providers define success is different from larger MSPs. For example:
- Average deal size is less than $10K for smaller MSPs; it’s well over $10K for larger MSPs.
- Smaller MSPs often have 1-year contracts or operate month to month; larger MSPs typically have longer contract lengths.
ESG points out that agreeing to these terms puts them at higher risk for churn, so providing excellent customer experiences is vital. Top MSPs maintain regular communication with their customers — rather than wait for a contract renewal discussion. Many also turn to their vendor partners to help them deliver new offerings and add-ons to differentiate their offerings and to enhance customer success.
Among successful small MSPs, 61 percent have renewal rates of 90 percent or more, and 19 percent have renewal rates in the 70 percent to 89 percent range. Conversely, 28 percent of larger, successful partners have 90+ percent renewal rates; 43 percent see renewal rates between 70 percent and 89 percent.
ESG identifies five common elements of successful managed services providers’ strategies:
- A roadmap for how they’ll progress as a next-generation organization
- Investment in new revenues and revenue sustainability
- Sales and marketing focus on adding net new clients
- Strategic and scalable vendor decisions
- Efficiencies built into all aspects of their organization
How does your business compare?
For many more insights that may help you choose direction when you come to a crossroads in business leadership, download 2020 Managed Services Landscape e-book.