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How MSPs are generating revenue in today’s marketplace

MSP cloud technology
(Image credit: Image source: Shutterstock/everything possible)

We’ve witnessed a major seismic shift in the managed services landscape following the disruptive coronavirus pandemic. It has spurred many companies worldwide to adopt remote operations in the face of unpredictable economic conditions. More than ever before, companies are relying on MSPs to maintain business operations. Amid market uncertainty, there is a growing appetite among MSPs to adopt a competitive pricing model and provide the best possible service package in order to succeed.

BitTitan recently commissioned a survey of service providers from across the managed services industry that unearthed key insights into how the most successful MSPs are generating revenue. Below, we look at the ways MSPs can pursue growth in the current market climate.

Profitable areas continue to grow

The survey indicated that partner-led management services are clearly here to stay. MSPs are increasingly delivering profitable services that chiefly include SaaS, networking, cyber and information security, and business continuity. It’s evident with the rise of remote work that these sectors are growing and will continue to grow in importance. The challenges come with designing and selling the right service packages, including the right pricing levels for various managed services, and developing and executing successful sales and marketing campaigns. 

Additionally, the survey found that within the next 24 months, MSPs expect to have more employees dedicated to delivering services via the cloud. An average of 44 percent of employees will focus on delivering these services, which is an increase from 36 percent today. Meanwhile, fewer employees will deliver on-premises IT managed services and one-time professional services on a project basis. The transition to the cloud is undeniable and should be planned for accordingly.

Don’t overlook marketing

Sales and marketing continue to be weak spots for MSPs of all sizes, and these areas trail as an investment priority. Although many partner organizations lament about having a weak pipeline for new business, they aren’t dedicating serious funds to address sales and marketing challenges. Only 16 percent of respondents identified sales as an investment priority, while just 11 percent mentioned marketing as a leading investment area. Smaller organizations in particular are often run by professionals with primarily tech backgrounds, which can make sales and marketing an area that comes unnaturally and lacks the necessary expertise to ensure success. Savvy MSPs will make those pursuits a bigger priority and acknowledge they require a larger investment.

Security factors into all offerings

Security is a significant factor in MSP offerings. The survey revealed that smaller MSPs are already selling lots of network security and endpoint security in the form of standard, branded security products. However, they are bullish on the opportunity to move upstream with more complex, higher-margin products.

Larger partners are more likely to view security operations, threat hunting, application security, fraud protection, and other complex, higher-margin services as important. Forward-thinking MSPs will increasingly be on the lookout for ways to increase their total security offerings, with an understanding that a strong security story is important in every product or service they provide.

Invest where it makes sense

Large or small, smart MSPs will take measured actions to capitalize on opportunity, and that includes profitability drivers. These undeniably influence how small and larger partners make vendor choices. For example, the survey found larger partners are more successful selling support and skills, while smaller organizations find greater success with designing and offering varied programs. Additionally, larger firms tend to invest in new skills and processes, as well as expanded capabilities.

Regardless of size, successful MSPs focus on investing in a host of critical areas with a forward-thinking approach. These include having a next-gen organizational roadmap in place, investing in revenue sustainability, sharply focusing on sales and marketing for adding net-new clients, making the right strategic, scalable vendor decisions, and building efficiencies into all areas of the business model.

Selecting the right vendor

High-performing MSPs are particular about the vendors they engage with. There are significant margin differences for partners who just resell a vendor-branded service versus those who have integrated to operate, host and deliver that service. Partner-branded solutions are a way for partners to add value, and therefore, margin. MSPs who have their own development teams can customize offerings around a vendor’s core technology, and often offer higher-margin services.

When looking ahead, MSPs understand that choosing the right vendors is critical to their businesses. Vendor selection begins with the right fit and then goes deep with differentiation. Savvy MSPs make sure they choose a set of vendors that complement their core businesses. This allows them to leverage and build on team skills and strengths, achieve operational efficiency in both sales and delivery, and ultimately focus on specific needs of their targeted, vertical market customers.

MSP profitability ties closely with increased renewal rates and add-on business, especially among smaller partners. Vendors can play a critical role in this area by helping partners automate and continue follow-on business to maintain customer relationships.

Appealing to MSPs

For smart vendors, positioning and investment are key. Vendors should demonstrate that they understand the MSP business model. They should invest in programs to support services development, sales and marketing support and action, and strong training, especially technical. Astute vendors will also help enable MSPs to develop, brand and market. They will aid in defining the pathway to profitability, including knowing what kind of investment is required as well as the time to revenue and ROI. Vendors who want to win MSP business have to show them how they’re going to: maintain trust, help them shift business models, and reduce risk.

This new normal will present new and often vexing challenges in the current market landscape. By taking into account these insights, MSPs can better position themselves to develop and deliver much-needed services in this critical time and develop strong vendor relationships. MSPs can stand out from their competitors by deepening their partnerships with customers and taking proactive steps to help clients adapt to new market realities. By focusing on providing essential services that will help businesses the most, MSPs will play a vital role in helping customers maintain business continuity and ensure their own success down the road.

Grady Gausman, Product Marketing & Analyst Relations Manager, BitTitan