When building a successful managed services provider (MSP) practice, the core is consistently delivering customers the best technology and services possible. But, regarding the business side, it is all about building recurring revenue, which allows the MSP to fuel its operations and ensure stable, long-term growth.
Recurring revenue is the portion of an MSP’s revenue expected to come in at regular intervals for a sustained period. This is opposed to projects that an MSP might do for a one-time fee. Perhaps the most common example of recurring revenue for an MSP is its service contacts with customers, typically charged monthly. The benefits of recurring revenue are that it is predictable and, as the MSP adds customers over time, builds into a strong pipeline of incoming revenue to maintain operations and growth. It also allows the MSP to align its business model with technology macro trends that customers want, such as cloud and software as a service (SaaS).
Further reading Introduction to MSP Profit Margins
However, like many good things, building a strong recurring revenue base is often easier said than done. In particular, it can be difficult for businesses transitioning from a more value-added reseller model, typically more project-based. For businesses used to large influxes of revenue from single projects, the initial trickle of services revenue is often much smaller to start than the large project checks they may be used to.
Learn the fundamentals of ITAM, the benefits for your MSP, and what software to use to simplify your asset tracking
The good news is that an MSP can build a strong base of recurring revenue. One important place for the MSP to start is to develop its services bundle, which should include items that might previously have been segmented between hourly services and capital goods. The bundle should consist of both items for a single monthly recurring fee and individual line items presented to the customer. For the customer, this model is appealing as an “all-in” price for its technology services versus having to pay for each service and item individually.
Further reading Frequently Asked Questions About MSP Pricing
The key to building this model is to consider the differentiated value that an MSP provides to its customers. The customer will have more options as the market becomes more saturated with MSPs. The MSP will want to consider what unique services or value it can provide to customers as part of this package, such as specialization in one particular area, like cybersecurity or enhanced customer support options. This will allow the MSP to charge higher rates and stand out from the crowd.
Additionally, an MSP should take care to focus on top-notch customer service. While a single project is one and done, recurring services and revenue must be renewed regularly and, as a result, require an ongoing positive relationship with the customer. The MSP should ensure it is taking additional steps to build this relationship, check in on satisfaction and quickly navigate any potential problems to be sure that the customer is happy and wants to renew the services relationship for months and years.
Further reading 10 Tips to Improve Your Customer Service
Finally, the MSP should consider how it is structuring its businesses to support a recurring-revenue business model. This could include reframing its financials or even embracing some cloud-based or as-a-service technology options it sells to customers.
An MSP sets itself up for a successful and sustainable future by taking these simple steps to build recurring revenue. While the transition from project-based work may be a challenge, the MSP who makes the transition successfully and delights customers with its services will reap the benefits.
Download our free guide to learn how MSPs can change their business approaches to maintain high profits in 2022. In this guide, you will find:
- Key ways to analyze your opportunities and business health
- Practical steps for boosting your profits
- Tips on how to review your marketing strategy