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Opening more doors for your clients – how to become a higher-growth MSP

(Image credit: Image source: Shutterstock/everything possible)

There is no doubt that the market for managed services in IT is growing exponentially, with cannier providers reaping the rewards of such dynamic growth.

According to analyst Markets and Markets, the global market for managed services will have grown from $107.17 billion in 2014 to $193.34 billion by 2019, at a compound annual growth rate (CAGR) of 12.5 per cent.

Research by Kaseya confirms this trend. Of the 900 managed service providers (MSPs) from 50-plus countries who took part, more than a quarter (26 per cent) reported that their average annual Monthly Recurring Revenue has shot up by more than 15 per cent over the last three years.

Yet the results demonstrate very clearly how within the MSP market, the growth is not uniform. Some MSPs are boosting their revenues by considerably greater percentages than their rivals. The question is – how do they do that? What is behind their greater success and what can the rest of the market learn?

Profitability through diversity

What is abundantly clear is that high-growth MSPs have embraced diversity and are consistently offering more services, right across the board. They offer the full gamut, from basic support services all the way up to high-end network-monitoring. In part, this is the result of merger and acquisition activity, but chiefly it is because they are seizing the opportunities thrown up by the move to the cloud among their clients. 

By offering comprehensive product suites, these MSPs are able to charge premium prices. Increasingly we see that SMB clients in particular are expecting complex new services that include cloud, along with layered security and network monitoring. No longer is it possible for MSPs to offer the basics in backup or disaster-recovery (DR) and expect that to suffice.  

More effective backup

Backup and DR may seem to be services universally offered with little differentiation, but the research uncovered that the higher-growth MSPs more frequently offer all four types of backup – cloud-to-cloud, onsite-to-onsite, cloud-to-onsite and onsite-to-cloud.  Cloud-to-cloud backup is a service that the higher-growth providers are 43 per cent more likely to offer. The secret of success in backup and DR, it seems, is to look to the cloud and have plenty of options available to clients. 

The same goes for security.  Of ten different services covered in the research, the MSPs pulling in the bigger bucks offered each more frequently than their lower-earning counterparts.  When the mean number of security-related services on offer is examined, the picture becomes even more well defined. It is the MSPs with larger revenues who are offering more. 

Among survey responders, meeting security risks was by far the single most important problem that MSPs said their clients face in 2017. When the results are further analysed, it is apparent that cloud and security are intertwined as concerns – a set of anxieties that more adaptable MSPs will be addressing.

Network services

The pattern of wider service-offerings bringing higher rewards is repeated in the area of network and infrastructure monitoring services too. The higher-growth MSPs are much more likely to offer their clients more diverse services than their more sluggish rivals. Network operating centres (NOCs) are another emerging service category where the higher-growth MSPs are scoring plenty of hits. Some 47 per cent of high-growth MSPs report for example, that they are offering NOC services around the clock, compared with just 27 per cent of those with lower growth. Lower-growth MSPs, by contrast, are much more likely to restrict their NOC offerings to business hours. 

Scale is no barrier

It is important here not to confuse size with growth. While there are advantages from having the scale of a so-called Super MSP, smaller operators are not being shut out from achieving prolonged growth, nor is rapid expansion purely the province of new ventures starting from scratch.  If the evidence of the research is anything to go by, high growth is being achieved by service providers with anything from a handful of employees to more than 100. 

Having these facts at our fingertips enables us to make a very educated guess that what the higher growth MSPs are getting right is their evaluation of market requirements, their dedication to achieving efficiencies and economies of scale, and the ability to combine these with the confidence to stand their ground and insist on receiving the full value for what they are delivering. 

High-growth MSPs are those pulling out the stops to ensure they can give the market what it wants. If the SMB sector is moving towards cloud applications and services, these MSPs have responded by developing cloud monitoring expertise.  

Similarly, if 24-hour NOC operations are required, small MSPs can use an outsourcing option to ensure they fulfil client demand. 

Higher value

That the acquisition of larger clients is a key to higher revenues may seem obvious. Only 40 per cent of higher-growth MSPs in the research have a majority of clients with 25 or fewer employees, compared with 55 per cent of those building revenues more slowly.  Yet a small MSP can successfully serve larger clients through hardware standardisation, the development of remote monitoring and the addition of some smart automation. 

Lower growth MSPs should learn the lessons about obtaining the full value for services they provide, particularly in relation to the cloud. For example, 10 per cent of the more upwardly mobile MSPs in the research are charging in excess of $2,000 per month for cloud monitoring services covering 25 devices and 2,500 metrics. The comparable figure for their lower-growth counterparts is only four per cent.  A similar picture is to found across a range of service delivery indicators. 

Higher-growth MSPs are also more likely to have increased prices in the last 12 months. Half (50 per cent) said they had done so for 16 out of 20 possible services, compared with lower-growth MSPs that only reported increasing prices for two of the offerings.  When it comes to increasing prices in the year ahead, higher-growth MSPs said they were likely to do so in relation to a far greater range of services.

While the growth of managed services in IT is benefiting most providers, it is clear from the research that some are better positioned to take full advantage of a positive market than others.  The highest-performing MSPs are taking the lead in offering a comprehensive range of high-value services, and have the self-confidence to ensure they are properly compensated for the strategic benefits they deliver. They are not just ticking boxes, they are going the extra mile for their clients and in the process capturing far more value. It is a lesson for the entire sector. 

Mike Puglia, Chief Product Officer, Kaseya
Image source: Shutterstock/everything possible

Mike Puglia
Mike Puglia is the Chief Product Officer at Kaseya.