Counter the Threat of Managed Services “Commoditization”

Virtually everyone in the channel feels its effect. The technology lifecycle takes a toll on the margins of MSPs, solution providers, vendors, distributors, and related companies. Time can have a similarly debilitating effect on business models, and managed services are not exempt from that discussion.

With a multitude of technology offerings entering the market, many traditional (as well as not-so-traditional) services are experiencing downward pricing pressures and the closely related profitability issues. What that means is that today’s channel professionals have no room for complacency.

If you aren’t innovating and enhancing your business practices and portfolios, those offerings are likely losing value each quarter and may be falling behind those your competitors are delivering. Yes, that’s a real concern that every MSP must not only come to grips with but should be discussing and addressing on a fairly regular basis ‒ monthly or at least quarterly, according to several industry experts.

A decade ago, providers could cover any perceived portfolio or service deficiencies by offering discounts or throwing a few extra services into the contract. Today, with so many online and direct sales options available to your clients, those financial compromises may significantly hinder your cash flow and revenue growth, if not push the company into the “red.”

Face it; channel companies aren’t built to win pricing wars. MSPs earn the right to demand a fair rate by delivering the services that their customers need to run successful organizations. They deliver value by architecting solutions, proactively identifying and solving problems, resolving unforeseen issues, and taking the pain out of their clients’ business systems. In other words, MSPs keep their customers up and running as much as humanly (and in some cases, mechanically) possible.

While your customers may seek (and even find a few) cheaper direct alternatives, those firms rarely deliver the same level of personalized support as you can. MSPs who understand that point of differentiation can win the commoditization battle. Fighting from the point of strength ‒ being able to convey the value of your services instead of being on the defensive and losing the “race to the bottom” by continually reducing prices and margin, will bring your firm more opportunities and greater success.

Strengthen Your Business and the Narrative

While client and business partner demands may influence your priorities, a consistent game plan is essential to keeping you and your team focused and on point. In other words, MSPs can’t continually shift their strategies to meet every new challenge. Establishing and following standard best practices is the key to success.

Inconsistency is the reason so many SMBs fail. Company stability and dedication to core principles are two essential strengths for building successful MSPs. Those values help emphasize your commitment to employees, customers, and vendor partners. They also help strengthen the relationships that insulate your firm from having those “typical” pricing conversations every time a contract comes up for renewal.

That’s not to suggest that cost isn’t important, though. When MSPs gets defensive or loses focus on the big picture, shifting priorities and direction as quickly as the calendar changes, it tends to strain customer relationships and lessen a company’s value proposition. Your best course of action is to drive the narrative that your services and value proposition is truly unique ‒ and your business relationship is an essential part of their success.

MSPs must dedicate themselves to that goal if they wish to compete. Of course, that obligation requires you to deliver the expertise and services your clients’ need to address their rapidly and continually shifting business models. That commitment will include:

1. Expanding your services portfolio

What’s missing? How often are you assessing what your clients and prospects need to run their businesses more efficiently and attain their future objectives? Cybersecurity is a key point of differentiation for MSPs today, so pay close attention to the trends. Layered protection is a great place to start, including email security and encryption options for cloud solutions (such as Office 365).

2. Increase consulting options

Would a new expertise drive revenue and build greater customer value, or just end up wasting your time and money? Consider the vast array of options, including vendor management, procurement, compliance, email archiving, social media, IoT infrastructure design, and other strategic services. Don’t undervalue this opportunity. With the fast-paced development of technologies and regulations, the SMB is becoming increasingly reliant on those who can effectively assess their options and assist with (if not completely drive) roadmap development.

3. Expand billable services

Provide network/security assessments and audits, and develop policies for compliance, mobile usage, and other business processes. Sell these services as best business practices that provide a greater return on their investments and minimize their financial exposure.

Consider any changes that could improve your standing with customers and prospects, especially those that lessen the chances of getting into a pricing war with your competitors.

MSPs should always charge a premium for services that meet the specialized needs of their clients. Don’t undervalue that type of service and support. Few larger IT companies offer those options to the SMB ─ and it can be the differentiator that builds new revenue streams and strengthens their loyalty to your firm for years to come.