Archives For Managed Services

I’m fortunate enough to own the Managed Services product portfolio at one of the worlds biggest MSPs – that’s not a brag by any stretch of the imagination, but it does mean that I have a bit of an insight into the Managed Services industry, pricing and delivery of those products – http://www.mspmentor.net/mspmentor-100-global-edition-2012-companies-20-to-1/

With that comes a lot of pain, believe me, but also an incredibly amount of challenge on a day to day to basis. One of the key challenges is how to price a managed services agreement so that it’s both profitable to the company and seen to be good value in the marketplace.

That’s about as hard as it sounds and leads to some very interesting conversations with finance people, executives, industry peers and customers around price and value. These conversations are, by necessity, hard for a few reasons.

Firstly, not everyone sees value in Managed Services – their opinion is that if something is broken, we’ll have it fixed, but ensuring it doesn’t get broken doesn’t have a value attached in their mind. While I’ve tried very hard to educate some of these people around lost time and opportunity but in the end you can’t change someone’s opinions and those people will never perceive value no matter what you do – UNTIL they’re offline for 4 days with a server issue, then there is a value perceived but unfortunately that’s usually followed by a “Well, it’s happened once in 3 years, I won’t need to worry about it again statistically for 3 years!” – I do wish computers were linear like this, but unfortunately that’s not the case!!

It’s not just customers who don’t necessarily see value in it, a lot of risk averse C-Level execs of IT companies see it as a risk which they’d rather not undertake as, especially in a ‘all you can eat’ model it is an unquantifiable risk.

I’m a bit pragmatic around the risk and partially agree with the risk averse around ‘all you can eat’ agreements, it’s very difficult to price risk (just ask any of the major re-insurance firms that struggled through Hurricane Katrina) and if you do it’s always a high price so you end up pricing yourself out of the market, or not being able to demonstrate value.

Which brings me to my next point, price – how do you price an agreement so that you maintain a respectable bottom line in a business and wether the ebbs and flows of agreements being less and more profitable.

There is an interesting survey done each year by Kaseya on Managed Services pricing available at: http://www.kaseya.com/lps/en/lp/2012/MSPGlobalPricingSurvey_Q4.aspx

It has a raft of intriguing information on how our peers in industry price their agreements and is well worth a read.

Anittel price their agreements on a per device basis, with added value services included depending on the plan chosen. We don’t put the line item pricing out there because we don’t see a reason to do so, but publish a calculator for our sales team to punch things like PCs, thin clients, servers etc into and a price is delivered at the end of this. This works really well for up to about 75 clients, but above that the pricing becomes difficult to compete with ‘tender based’ business – we deal with clients above that size based on the calculator but look to add in services, or discount other services to make the proposition more attractive.

That’s all good and well with regards to price and value, but then how do you know that your MSP business is profitable based on that pricing and value – if you sign up a whole lot of customers on agreements that aren’t profitable for a long period you’re going to struggle financially.

As a business we measure a predominant metric which is around Managed IT Average Hourly Rate which is a report ran monthly and at it’s basis is a calculation like this:

($ValuePaidByClient – software costs such as RMM/Backup) / Hours Worked on Agreement

For Anittel – an effective hourly rate of >$100 hour on average across a location is good, anything lower than that is bad. Some agreements will go up and down in a given month, but one needs to establish a trend rather than a point in time measurement and an average of a location or business is the best metric.

I’m pretty sure it was Drucker that said “What you can’t measure you can’t manage” or something like that – Once you have this data on how profitable or not your MIT agreements are, what do you do with it to actually MANAGE an outcome.

What we’ve found is that if customers have a persistently low MIT average hourly rate, they have one of these problems:

1. You’ve discounted your agreements too much or priced them incorrectly to start with

2. They’re on a legacy, incorrectly priced agreement

3. The customers has an underlying infrastructure problem which is causing a lot of support and either hasn’t been clearly explained to a customer what the fix is or the customer is choosing not to do anything about it because there is a cost associated with fixing it

4. You have a skills issue with your employees (ie they aren’t fixing things as quickly as they should be, or are padding time out)

And the outcome of any one of those issues is unprofitable agreements, unhappy clients and unhappy staff. Bear with me while I explain why the latter two occur.

If a customer is constantly seeing an engineer because of an underlying infrastructure problem, they’re going to think you’re pretty silly and be not happy with your performance and leave you for someone else. In fairness, that might not be a bad thing because if you’re not making any money on the agreement it’s not a bad thing to not have them – but in the meantime you’ve burnt a lot of time and your reputation on someone who is going to leave as they are unhappy.

You’ll also get unhappy staff, because they’ll constantly be hearing from the same client(s), who will become increasingly angry at them and they will be unable to help.

The last problem is probably the biggest, you’re essentially throwing money away on customers who will leave you because you’re not fixing their underlying issues!!

It’s a strange corollary that the happiest managed services customers are always the ones with the highest average hourly rate, they’re paying to avoid problems and are avoiding them so are happy. Regardless of how charming/good looking your IT people are, very few of your customers ever want to see them! Managed services is a partnership, clients pay for you to avoid problems and the business case is that you’re incented to do so because you’re more profitable if you’re doing less work for them.

So, back to pricing, if you know what your resources cost you, you can very quickly understand why pricing MIT agreements properly is essential – get it wrong at your (contractual term length) peril!

 

 

 

Managed services has been written about endlessly by a number of people across the world, usually those who have a vested interest in selling it to other people or selling products to the people who sell it.

I’ve talked to a lot of people from both sides of that equation but importantly I’ve talked a lot to our customers as well to get their take on how a managed service should look and feel.

I’m going to be brave and say that I don’t believe anyone has gotten it 100% right from a customer perspective yet (and that includes us) – too often we enforce our internal processes on our customers because scale is really the only way to achieve profitability in the MSP world.

But the reality is that unless a MSP is making money, it’s not likely to be able to invest in products and processes to be able to provide exemplary service. It’s very much a chicken before the egg scenario and one that I’m not sure is easily solved.

I’ve been thinking a lot on how to provide that exemplary service to our customer base yet still stay profitable – after all, my take is very much that Managed Services is a partnership and everyone needs to be benefitting or no-one does. It cannot be a race to the bottom on price, otherwise a race to the bottom on service quality is surely what comes next.

I think it boils down to a few items, none of which are easily implemented, but all of which play a part in the customer experience and profitability puzzle which needs to be solved to be successful, those items are:

Consistent and joyous interface: Unless your customer can communicate to you their needs in a format that they understand and can use you’re never going to see true customer happiness. We all too often slap front end interfaces on our back end systems that just don’t match User Experience best practices but worst of all, force customers to access several different interfaces to get different aspects of their requirements (one for billing/invoices, one for service ticket lodging, one for reporting etc) and it is ALWAYS a push/pull method, they ask us, we provide it to them, it’s never truly self service. Make it easy for customers to do business with you, buy your products, use your services and customers will do more business with you.

Automation: Most MSPs have invested a little in their RMM tools, but still have other systems which sit outside of that and require separate management interfaces. I get tired of hearing the phrase ‘single pane of glass’ but it’s something we should all ascribe towards achieving if we truly want to automate. A friend of mine – Tim Brewer (www.timbrewer.com.au) calls it “Value Chain Velocity” but the maxim is simple – get less systems, rather than more – it’s always just another portal, just another website, just another package, until it’s 60 of them (which is where most businesses find themselves now). Pick your key systems and make them all talk to each other to deliver a customer outcome – don’t buy any new systems unless they add to that customer outcome AND can integrate seamlessly to your existing ones. This is where the Connectwise family of products come to the fore, all of them are built to work better together, you just need to get your other products to work with them!

 

Hire Better Engineers: I don’t mean hire the smartest engineers, I mean hire the engineers that customers love to work with, the ones for which nothing is too much bother – even if their technical skill is not outstanding – you can teach technical skills, you cannot teach people skills. The next step is simple

Have engineers own customer relationships: The model of sales people ‘owning’ customer relationships is dead, plan it’s funeral, it’s over – sales will continue to be important and essential to your business, but customers like the guy who is fixing stuff, not the guy who makes money extracting money from them

Understand your market: Another no brainer right? But too often it’s not – when you’re working in the Managed IT space, particularly in the SMB market you’ve got to understand that the person you’re talking to about spending money – that’s generally that person’s holiday money, the money for their kids to go to school, the money for that boat they’ve always wanted – unless you’re delivering something that will give them two boats, or enable them to go on a longer holiday, understand why they’re less excited to buy the latest thing than you are to sell it to them and talk to them instead about how you can save them time, or money to enable them to do (or buy) the things they love.

This is the first of a brain dump around Managed Services, I hope to deliver more in the near future!