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MSPs share how-to on migrating to managed services business

Converting from a product-sales-focused VAR to a managed service provider means changing your pricing, organization, services and sometimes your customer contacts.

SAN DIEGO -- Day two of the CompTIA Managed Services Summit, which yesterday focused on research and trends for managed service providers, centered mostly around round-table discussions and Q&A sessions among MSPs -- or those trying to break into the market.

At the top of priority list for nascent MSPs were questions about pricing and how to market managed services -- either to existing clients who might be persuaded to upgrade from product purchases to service contracts, or to new customers altogether. Others asked for advice in effecting internal changes as they move from a more traditional reselling model to managed services.

Becoming an MSP:
The managed service provider (MSP) model 

Partnering with a managed service provider (MSP) vendor 

Becoming a managed service provider (MSP): Essential questions to ask first 

How to price managed service provider (MSP) offerings

MSP identity crisis

How do you price a managed service?

There are three main approaches for pricing managed services: a completely à la carte model in which the customer pays different prices for different levels of service; an all-inclusive, flat-price model; or a hybrid that lets customers pick among predefined levels of service.

The latter two of those seemed more popular among attendees. Oli Thordarson, CEO of Alvaka Networks in Huntington Beach, Calif., said MSPs should be wary of negotiating too many customized contracts, which can limit their company's scalability.

Determining how much to charge a customer requires some guesswork in the beginning, Thordarson said. Budding MSPs must estimate how many calls they'll get each month, what kinds of calls, how long each call will take and how important each type of call is to the customer.

Alvaka's own pricing comes not from an estimation of what it would cost a customer to implement the same service in-house, but what the opportunity cost would be for a company if it didn't have the service at all.

How to convert to managed services: Internal changes, external competition

Changing a company's business model means retraining sales reps, and that's not always easy to do, Thordarson said. When he converted Alvaka to an MSP model, Thordarson had to let one of his better sales reps go, he said. The rep was great at selling products, but he couldn't connect to clients at the higher level required to sell services.

Other MSPs said they had to change their contacts within a customer organization after they switched from selling specific technologies to less tangible offerings -- services and consulting.

Rather than speak to someone in IT, they'd often have to talk to the CFO. In fact, a prospect's lead technologist will often resist buying services rather than products -- sometimes to the point that landing the deal requires convincing the client to drop the IT manager who's opposing it, said Chuck Lennon president of TeamLogic IT, an IT consultancy franchise based in Mission Viejo, Calif.

How to market managed services and generate leads

The question of how to find new prospects came up several times, but so far there doesn't seem to be a silver bullet; many MSPs seemed to rely on word-of-mouth and referrals to a large degree.

Thordarson said most of Alvaka's new customers come as referrals from other, non-competing IT firms. Lennon suggested having sales reps focus on a specific group -- such as a vertical -- at a time, in small, 6-8 week campaigns. A different approach is to build your brand name gradually but steadily through articles and steady education said, MJ Shoer, president and virtual CTO of Jenaly Technology Group in Portsmouth, N.H.

The future of MSPs

Many -- if not most -- of the MSPs at the summit started offering managed services because the straight reselling and break-fix model was getting commoditized, so the natural question for several people at the summit was: what next?

The concern is that the same thing will happen to MSPs as happened to hardware resellers -- and which even software consultants are under pressure from as technologies like software as a service (SaaS) make software easier to deploy.

To ward against commoditized services, several MSPs said they are taking on more of the "trusted adviser" role at clients' sites -- advising them not just on how to implement IT projects, but which IT projects to work on and how to adjust business processes to make their companies more efficient. Several MSPs said clients occasionally consult them on completely untechnological questions, such as a new business venture.

Although this approach would certainly provide a level of intimacy and familiarity with business executives that large companies like telecommunication giants could not compete with, several MSPs said they are already having trouble giving their existing customers enough one-on-one time. With only so many days in a month, many MSPs said they are still figuring out how to give that higher level of service without limiting their potential client load to just a couple dozen.

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