The modern channel is defined by services. Services dominate the portfolios of solution providers and are leading the way for the continuing evolution of business models and operations. But what does this all mean for you? How can you strategically plan for an expansion of your MSP service offerings?
To find out, Pax8 partnered with renowned research firm Channelnomics to study the state of services transformation in the SMB market. In our collaborative report — sponsored by Acronis, Dropsuite, IBM Security, Microsoft, and Novacoast — we found that solution providers face a number of challenges that come with increasing their service offerings.
To overcome these obstacles — and to create the best possible plan for success — we’ve identified six steps to consider when developing your service expansion strategy.
1. Extend services from traditional products.
While managed, cloud, and professional services now make up 75% of the average solution provider’s revenue according to the report, traditional hardware and software products remain foundational to that success. Much of the opportunity to be had in new services starts with offering the services that come attached to, or extend from, these traditional products.
For example, a new endpoint device will likely require configuration and deployment services, as well as some level of backup or cloud services.
It’s no wonder that MSPs are beginning to look at traditional hardware and software sales as a major services growth catalyst. The ability to expand your MSP service offerings by adding services that support traditional products gives you the perfect place to get started.
2. Consider your client size.
In our research, we uncovered two major opportunities for solution providers that relate to the size of their clients and their service offerings.
First, we saw that providers enjoy success when selling services to companies that are the same size and composition as themselves. This means that MSPs in the small business category (25 employees or fewer) are having the most success with clients that are also in that category. Knowing that, you may want to take your organization’s size into account when targeting clients, as this can lead you to identify prime candidates for increased services.
Second, there is opportunity to grow beyond the small business segment. As organizations scale up, it becomes possible to break into the more medium-sized market segments, and potentially even into the mid-market segment (251 to 1,000 employees). If you can manage your growth effectively, you can give yourself more opportunities to reach larger clients.
3. Build a plan for sales and marketing.
Among those surveyed, 43% of solutions providers said closing sales is a challenge for them while 33% listed marketing as a challenge. These results aren’t shocking, as previous research has shown that these areas present long-standing issues for MSPs.
While services can help ease the pressure by putting less focus on generating net-new sales, there’s no way around the account retention and revenue generation problems that can arise from sales and marketing challenges.
A big reason we see so many MSPs struggle with sales and marketing is that most simply don’t have solidified plans or goals in place to direct those areas of the business. In fact, only 60% said they had a general business plan and less than half claimed to have overall sales goals.
If you haven’t already, your organization should consider developing a formal business plan, marketing plan, sales plan, and sales goals. With these instruments in place, you can better forecast your growth, giving you more confidence through uneasy times and a better understanding of what role service growth will play in your future.
4. Solve account retention problems.
Another large obstacle on the road to service transformation is account attrition. For providers to enjoy the type of smooth, predictable recurring revenue they want from services, successful account acquisition and retention are essential. Unfortunately, nearly one-third of providers are losing as many accounts as they’re gaining every month.
There’s no single answer to solving account attrition, but it may help to think of it less as a product portfolio issue and more as an operational problem. In addition to increasing offerings and standardizing a tech stack, providers should focus on improving areas around internal operations and customer service.
Better planning around sales and marketing can help build awareness with clients. Investments in customer experience can also go a long way towards retaining accounts. To ensure clients have successful engagements, consider adding client success specialists.
5. Evaluate your reinvestment strategy.
Adding new services to your portfolio comes with a cost, as does expanding your marketing efforts or bolstering your customer service. If you want to expand your services, you’ll need additional infrastructure, training, and employees.
One way to help cover these costs may be to take a look at your reinvestment strategy to see if you’re contributing the right amount towards services development.
Despite making relatively healthy profits, nearly half of all providers surveyed are reinvesting only 10% or less in services growth. This simply isn’t enough to fund growth effectively, and it’s recommended that businesses making under $2 billion in revenue should up this number to around 25%.
If you’re serious about expanding your service offerings, you must allocate the proper investments in your growth goals.
6. Partner with the right distributor and vendors.
The journey of services transformation isn’t always going to be easy or clear-cut. Luckily for you, it isn’t a journey you have to make alone. Many of the challenges you may face with adding new services can be overcome by selecting quality solutions and working with a distributor that understands your business.
A strategic partner can offer you a catalog of best in-class vendor solutions, a simplified buying experience, and educational resources to train you on both technical skills and business management. They can also provide you with specialized people and resources to help guide you through questions or uncertainty.
If your distributor isn’t helping you realize your service growth goals, consider switching to one that will.
Dive Deeper to Expand Your MSP Service Offerings
If you want to learn more about services transformation, check out our findings from the SMB Channel Services Transformation Report.