The managed service provider (MSP) model

Determine if the managed service provider (MSP) model is a good fit for your channel business. The nine questions and corresponding expert advice in this tip will get you started on the road toward or away from the MSP model.

The following questions will help you determine if your DNA is a match for the managed service provider (MSP) model.

Question: Do I offer services directly today (managed or other)?
Advice: If you are currently providing MSP services today, you already realize the differences in the business model. From a financial perspective, income is matched with delivery of service over time, which is an important factor to know and understand. In addition, the sales campaign and typically the sales representative are different as compared to point solutions.

Question: Do I offer any other MSP service today?
Advice: If you are currently offering another managed service, such as network monitoring, and it is a profitable venture, you may want to look at expanding it into another line of service to fulfill customer needs, such as monitoring network backups or even providing the backup service itself. If you do not offer a managed service, you should ask your customers what type of services they are thinking about employing and why. At a minimum, you will learn more about your customer and potential competitors. Most customers perform daily tactical tasks that they don't enjoy, they are not good at, and are not strategic to their organization -- perfect candidates for an MSP offering.

Question: Do my internal and field representatives really understand the customers' businesses and upcoming technology needs?
Advice: On your end, the most important piece to the MSP puzzle is the people. If your reps understand your customers' businesses, you can be part of their process in deciding whether or not a business is right for an MSP service. Your MSP sale is based more on value, not cost, so it is crucial that you have the right pricing model that can recognize it is not a traditional sale (sell at $125 if it costs you $100). If your cost as an MSP is $50, you can still sell it at $125, as long as your service and the market will bear it, and your customers' existing expense is greater -- or their ability to shift the burden of the task has perceived value above their cost.

Question: Do I target small and midsized business (SMB) and small to medium enterprise (SME) customers?
Advice: There is a tremendous amount of managed service activity going on in SMB and SME type accounts. If this is your current area of focus, you are engaged in a market already heavily engaged in managed services. Therefore it would be helpful for you to find out what areas of your customers' businesses they are thinking about using for an MSP. In an enterprise account, they probably have hordes of people managing critical applications, which will make the MSP offering more of a challenge to sell.

Question: Do I have specific skills in hot MSP markets like monitoring, backup, security, etc.?
Advice: If you have the skills in-house, your transition to an MSP service is greatly enhanced. If not, you will have to buy the expertise, which should be factored into your MSP investment.

Question: Do I have strong client relationships that I can use to get early successes in an MSP business?
Advice: Answering no to this question does not mean offering a managed service isn't for you; however, I don't need to tell you that a loyal client is more likely to follow your recommendations than a traditional prospect would.

Question: Do I have a data center of my own, or would I collocate?
Advice: If you have a data center of your own, at a minimum, you currently have a portion of your infrastructure in place, which saves money. If you plan to collocate (utilize a third-party's data center), your investment will mirror your customers' requirements, but you must factor in the collocation fee to the business model.

Making the transition to an MSP business model?

Ten snags to sidestep when undergoing a cloud or MSP business model makeover

Question: Do I have a sales force that can sell a managed service solution? Am I willing to augment my sales force with that expertise, since selling a service is very different than selling point solutions?
Advice: Selling a managed service is different than selling hardware and software. Where a typical point solution rep may be very successful in sales, they may not find that same success as an MSP rep.

Question: Am I willing to provide incentive to my sales team to sell MSP offerings?
Advice: Since revenue comes in smaller monthly increments, you need to give an incentive to your reps to want to sell managed services contracts. Depending upon your current model, if you are unwilling to pay out against a portion of the MSP contract you sign, the sales rep will follow the money and sell other things in their bag, which in turn will cause your MSP investment to falter. To avoid these problems, you will need to pay out sales commissions in advance of the revenue. At first it may be a tough pill to swallow, but over the term of the agreement you will find yourself ahead of the game.

Tom Gelson, principal at Middleboro, Mass.-based More Group, Inc., has the right recipe for taking in and utilizing the MSP service. As an integrator with storage and backup expertise, who has invested in the MSP space, he views the MSP addition to his business as the growth engine of the company.


  Becoming a managed service provider
   Home: Introduction
   1: Is your company a good match for the MSP model?
   2: What are the benefits of providing managed services?
 3: What questions should you ask a potential MSP vendor?
   4: How should you price MSP offerings?
   5: How can you avoid failed MSP partnerships?
Paul Myerson, Enterprise Strategy Group (ESG)

About the author::
Paul Myerson is a senior channel analyst for the Enterprise Strategy Group. Paul has core competency in direct and indirect sales model efficiency, channel program management and business strategy required for successful vendor/partner success. Myerson comes to ESG from EMC where he played a key role in developing the company's channel business. Prior to joining EMC's channel business, Myerson ran EMC's southeast region direct sales operations. Highlights of his 12-year career with EMC include signing and managing EMC's first resellers as well as the company's largest worldwide partners. In particular, he was recognized for his unique approach to channel management -- strength he now applies to the industry at large. Myerson's charter at ESG is to run the channel practice and to aid ESG clients with their channel initiatives.

Paul is also a featured speaker at the Storage Channel Reseller Seminar, just for VARs, resellers, systems integrators and consultants. This free one-day seminar is taking place in Chicago, Toronto, New York City and San Francisco. Take a minute today to apply for this free seminar admission by calling Delegate Recruitment representative John Smith at 508-621-5535 or applying online.

Copyright 2007 TechTarget

Dig Deeper on MSP business model transformation