Is your MSP a business model or just a billing model?

MSPs have a problem. Is being a managed services provider a business model or a billing model? For years the term MSP was difficult to define because everyone was doing it differently. Now it’s easy to define because everyone is doing it the same, offering the same thing and the only differentiation is the price that each is charging. I’m sure your hackles just went up, but what I just said is exactly what your potential customers think when they hear the term “MSP.” They see your services as a billing model, not a business model. They have good reason for this too. They’ve been interviewing one MSP after another and they can’t tell the difference.

I was fortunate to have made the right decision when I started my IT business. I began with contracts because I wanted the income stability. I was about to quit my day job and needed a warm-fuzzy for my clients that I’d built up to that point — one where they were going to be paying me regularly. They all willingly signed on my billing model. Upon reaching a certain level of income stability, I then had to go forth and create my business model. Those that went through the pain of establishing a break-fix business, where someone calls you when something is broken and you get paid after you fix it and then migrated into an MSP model where you get paid regardless, often found that they only shifted their billing model. They’ve never fully embraced the concepts that make MSP a business model.

Reaping the benefits but missing the rewards

Billing models and business models are two very different concepts. Many people confuse them. The definition of pricing model is “a system for calculating a price, based on costs, anticipated margins, etc.” according to the Oxford dictionary. An MSP takes this a step further and says we’re then going to bill you once a month, making it a billing model. The definition of a business model is “a design for the successful operation of a business, identifying revenue sources, customer base, products, and details of financing.” It’s the designing your services part that makes an MSP stand out from just another break-fix company billing clients monthly.

Looking at these definitions and looking at how MSPs are talking to clients about what they have to offer, it is very easy to see that many established break-fix companies changed their name to MSP as they changed their billing model. But they have yet to change their business model. For most, the goal of stabilizing income and raising profits was achieved but the relationship that the words “managed” and “service” implies was never realized for the customer. These firms never made the leap from break-fix to managed service as a practice. To a prospective client, the words managed services conjure something completely different than the method by which you are going to bill them.

Managed service implications

The promise of managed services was the promise of a business where they would have something better than an IT person of their own. They would have an outsourced department not only taking care of things but also advising them, budgeting, training, and leading them to a more fruitful future by way of technology. They would no longer be tied to the knowledge contained in their “IT guy” or their own imperfect understandings. They would have experts proactively working with them to propel their business forward. Wikipedia defines it this way: “Managed services is the practice of outsourcing on a proactive basis management responsibilities and functions and a strategic method intended to improve operations and cut expenses.”

Strategic method and improved operations are the key principles of managed services. It implies much more than “fast response time,” “less downtime,” “a suite of high-margin products,” and “automated patching” that make up most MSP offerings. Even if you throw in hardware leasing, software, security, and vendor management, still only half the picture is being delivered. Add a quarterly meeting to tell them how the above things are doing and you still have made minimal progress toward providing management responsibilities and a strategic method to improve operations.

Many MSPs simply aren’t delivering on the promise that the title implies. Instead what they are really doing is billing break-fix services on a monthly basis.

Change your viewpoint

When we’re talking about a strategic method and improved operations it is from the client’s point of view, not the MSPs. The client expectations are that the MSP is providing them a strategic method for using technology in their business and improving the operation of their business. That’s a lot more than making sure that they don’t have downtime. It’s about understanding how the business operates and taking a management role to help them achieve their goals.

To do those things, you need some intimate knowledge of the business, its operations, and the goals of the owner and management team. You also need to have an understanding of the business processes. To rope technology into this you need to know how to use the software that your client uses. Knowing how to install it isn’t enough. To be an MSP you need to know how to use that software and how to convey to the staff at the business how to integrate it into the business process. More importantly, you need to be able to tell them why and what benefit they are going to get from doing so.

You’ll also need to work proactively, and by this I mean more than just checking to see if the backup completed successfully. What about proactively configuring security settings in their online applications or scheduling a lunch-and-learn? Proactive managed services means doing things that will help the business owner reach their goals through better use of technology.

Internalizing the managed service philosophy

You’ve heard the term “virtual CIO” tossed around a lot. It’s a convenient term to use because it already exists and it might have some meaning to your clients. And while you might want to include the term in your marketing materials, it could be a mistake to give someone the title in your company.

As an MSP, those services should be second nature to your staff. Perhaps every person a client encounters isn’t capable of delivering this type of service but they should have some training in it, be able to add relevant information into your documentation, and generally know that a big part of the role of an MSP is just this. It’s a mindset that your staff needs to internalize. They are the leaders of technology for the client. Their advice is valued. They should have the best interest of the client at heart. They should understand what the goals of the client are. Just as often as you send your people to meetings with the client, you should also have meetings with your own staff to update everyone on what’s happening with your clients. How much are they looking to grow this year? What is currently challenging them? What is the long-term goal of the owner?

When your staff knows more about the client, they will internalize a feeling of responsibility for that business. When they know what the challenges and goals are then now they know how to personalize their service to that customer. That personal service aspect is critical to retaining clients for the long term. Relationships are what drive business loyalty.

Making your MSP a true business model

It’s a process to grow from MSP as a billing model to MSP as a business model. It’s a sign of maturity in your MSP too. The billing model is just the starting point. Once you’ve got that figured out then you can move into delivering on the promise of the title MSP. Internalizing and building the culture of understanding your clients business challenges and goals is how you get that move to the next level started.

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