Moving to Managed?  Get Your House in Order First

If you have decided to make the move from Value Added Reseller to Managed Services Provider, congratulations!  The market has spoken, and many IT business owners who desire a more profitable business, and a far more lucrative multiplier on exit, have successfully made the transition.  If you’re looking to be next, you’re probably excited to get out there and sign your first managed services contract.

Your First Sale

Before you head on out to your next networking event, stop and get your house in order. Your first order of business is to convert your current clients from your old hourly billing model to your new managed model.

Your first managed services wins should not come from random strangers.  You already have a hot prospect list.  They’ve already bought from you, they know you and they trust you. If you can’t sell a managed services deal to the clients who already believe that you’re the best choice to protect their company, the odds on you selling your “brand new, never even tried it” managed services stack to a complete stranger is low.

A Cautionary Tale

“Jack” was an IT business owner who didn’t want to risk losing the revenue from his ‘break/fix’ client roster while he made the hop to managed services.  He was hesitant to even mention the idea of changing business models to these clients.   He acquired a new “stack” of solutions to deliver managed services to new clients.  He kept his legacy systems to support his loyal client base.

Through networking, Jack signed his first managed services client and prepared to on-board them. There was a slight issue, though – the systems he had purchased to support his new managed practice didn’t work exactly as advertised, or integrate as easily as he had imagined they would.  The brand-new client became frustrated right from the initial onboarding experience, and any margin that Jack expected to enjoy from this new practice evaporated as he spent hours troubleshooting.  His hourly clients experienced longer waits for support time, and while Jack did his best to soothe ruffled feathers, he was less profitable than ever before, and he was now at risk of losing the new managed client AND several of his loyal hourly clients.

Jack survived this little hiccup, solved some problems, and went on to sign a few more managed services clients.  This time, he was able to successfully onboard and began to support these new clients as promised.

As Jack’s higher margin managed services practice grew, he began to resent his less profitable, higher needs hourly clients.  The clients that he had felt so loyal to at the beginning were now the biggest drain on Jack’s limited resources. He found he was unable to deliver on the service level agreements he had committed to his new managed services clients any time one of his legacy hourly clients had a problem that required him to divert.  For the second time in less than a year Jack was at risk of losing managed clients that weren’t getting what they paid for, and the hourly clients that weren’t receiving the level of personalized service they used to receive.

Unhappy Ending

Frustrated and angry, some hourly clients finally decided to take their business elsewhere – and to Jack’s dismay, they went to a competing managed services provider – unaware that they could have purchased managed services from Jack all along.  In an even less welcome surprise, they loudly complained about the poor service Jack provided to them – poor reviews begin to pop up online, and some more of Jack’s legacy clients join their now happier cohorts at the competing MSP.  To add insult to injury, that very first managed client also signs on with Jack’s competitor when they hear through the other clients how much better the service is.  Jack is now left with less revenue, less monthly recurring revenue, and a big black mark on his reputation.

A Better Choice

Imagine now that Jack had included his legacy clients in his decision to move to managed services.  If he had truly believed that managed services was a win/win business model, and not just a cash cow, he could have invited his client base to learn along with him, and offered them attractive “let me learn on your dime” rates.  With the understanding that the initial rates were a thank-you in advance for your loyalty and please mind our mistakes as we do this, he then could have stepped those clients up into full rate managed contracts as he (and his clients) better understood the new solutions he was offering.  Instead of an angry client base confused about why the quality of their services had dropped, he could have had a sympathetic test group, excited to help him improve on the services that they already trusted him to deliver.

But What If They Say No?

Not every client will want to change service delivery models.  Not every client will accept a price increase.  That’s okay – if you want to make the jump to a managed services delivery model, you’ll need to be prepared to take that short-term loss.  If we can learn anything from Jack’s mistake, it’s that trying to be everything to everyone means you end up disappointing everyone.  You’re not preserving revenue by holding on to clients who are no longer aligned with your business model – you’re simply losing the ability to effectively plan for the loss of the revenue.

Control The Bleeding

There is always risk involved in change.  Most business owners are reticent to raise prices, change models or do anything else that may cost them a legacy client.  Remember, your vendors have no problem raising your prices.  Your employees get raises year over year.  Your rent goes up annually.  A client that isn’t willing to step up to new pricing, or who refuses to convert to a business model that will better serve them AND you is not a client that you should be willing to keep.  Business relationships should be win/win – and any time it stops working for both parties, a breakdown isn’t far behind.  It is far better for both your budget and reputation for you to lose a legacy client at a time of your choosing where both parties leave on terms that are acceptable to them.  You can give your legacy clients a reasonable timeline in which they can retain a new provider if they don’t like your new terms.

Moving Forward With a Sales Partner

If you’re just beginning your MSP journey, we don’t recommend outsourcing your lead generation.  Before you hand off a process to a third party, you should understand your numbers.  If you don’t know how much it costs you to sign a new managed services deal, how long your sales cycle is, how many times you need to contact a prospect before they engage, or how many calls you need to make before you speak with even one qualified decision maker, you aren’t ready to outsource.  Remember, your numbers will be different selling a different service, and you can’t assume that your historical sales numbers and key performance indicators are going to be similar.   Need help getting started with your sales process?  We offer consulting solutions and training courses that can help you before you’re ready to engage a lead generation firm.  Email to learn more.