Are you sharing the feel-good factor?
The mood among MSPs is one of confidence and positivity for the future – at least for MSPs operating in North America, polled in recent surveys.
What is driving this optimism? Is it shared by MSPs in other regions? Are there any clouds on the horizon? And, crucially, do you share this confidence for your own MSP business?
Managed services across North America are apparently generating revenues, delivering profits and driving growth. And they’re being delivered with improved margins.
|21–30%||Average percentage of channel partners’ gross revenue from managed services|
|11-21%||Average percentage of channel partners’ profits from managed services|
|64%||Of channel partners say recurring revenue (ie. managed) services are their best growth drivers|
|59%||Of channel partners say managed services prices are increasing|
|55%||Of channel partners say managed services margins are increasing|
Source: A Special Report by Intronis MSP Solutions by Barracuda and The 2112 Group, July 2017
This picture is particularly encouraging when set against the ‘price and fee fatigue’ reported previously among US customers, who increasingly expected price concessions or increased services for the same price at contract renewal time.
Almost a quarter of MSPs surveyed in this report thought prices would increase significantly, with a mere 3 percent expecting prices to fall.
And with the ability to increase prices, MSPs were confident they would have greater control over their profit margins.
The optimism of MSPs in North America is supported by positive trends in CompTIA’s Business Confidence Index as well as by growth figures across the IT industry.
- CompTIA’s IT industry Business Confidence index jumped 6.5 points to a record high in Q1 2017 reflecting “an industry on a solid footing”
- The projected IT industry growth rate in the US is in line with the global 4.1 precentage forecast
- US IT industry executives are particularly “bullish” about IT services.
Reasons to be cheerful
The demand for managed services is increasing
- While much of today’s technology is easier to use than ever before, managing the IT ecosystems it relies on remains complex for many SMBs.
- Demand for cloud applications and infrastructure is expected to continue to grow (although cloud is also viewed as an area of pessimism by some MSPs).
- Demand for specialist IT support for departmental systems commissioned by line of business heads is continuing.
- Many SMBs recognise the need to digitally transform their businesses, but lack the vision and strategy to manage digital transformation They need a trusted partner to help.
- A shortage of key IT skills for SMBs, combined with the challenge of retaining the resources they have is driving many to partner and/or migrate to an ‘as-a-service model’.
- SMBs are looking to free up internal IT to work on more strategic projects.
- There is a growing demand for vertical market expertise from MSP partners.
The services being offered to meet this increasing demand are a broad mix of the usual suspects, heavily focussed on security and networks. Indeed, some 89 per cent of US MSPs remain true to their origins, offering remote network management and monitoring services.
The fastest growing services, however, according to The 2112 Group research are mobile device management (MDM), cloud infrastructure and endpoint security.
MDM, cloud infrastructure and endpoint security are fastest growing services
|53%||channel companies include network security in their offerings|
|47%||offer cloud-based applications (SaaS)|
But – a number of challenges are keeping MSPs awake at night
And this is tempering the overall optimism.
- MSPs are seeing new types of competitor: digital marketing agencies and firms that resell and manage SaaS applications for ISVs are specifically mentioned.
- The channel is aging, with many MSPs actively preparing an exit strategy through retirement or M&A. New blood is needed, well-versed in the new technologies and with the soft skills needed to drive forward new business models.
- A reality check on cloud has occurred. Seen as an opportunity by many MSPs, cloud is also seen as a challenge for non- ‘born in the cloud’ companies: 37 percent respondents voiced cloud’s positive impact on the channel in the latest CompTIA State of the Channel Survey – compared with a much higher 63 percent two years ago.
CompTIA believes initial enthusiasm has been tempered by the reality of working with cloud and the need to adjust expectations of skills needed, cost and ROI accordingly.
- The same skills shortage in emerging and complex IT that is driving managed services demand from SMBs, is also causing problems for many MSPs.
Top 5 Factors Contributing to a More Challenging Hiring Landscape in 2017
- Finding workers with expertise in emerging tech fields
- Competing with other tech firms for talent
- Finding workers with the right soft skills
- Rising salary expectations
- Insufficient pool of talent in region / locale
It is worth noting that smaller providers are more pessimistic about the outlook than their larger counterparts. While 63 percent of channel respondents say they are ‘generally optimistic’, the smallest providers (1-49 employees) are much more worried. Some are really struggling to transform their business and still maintain existing service levels because of resource constraints, staff recruitment and retention difficulties.
Ensuring your MSP glass is half-full rather than half-empty
To turn the positive forecasts into profitable reality, MSPs need to:
- Reach new customer segments
- Sell more services to existing customers
- Successfully incorporate and sell new services
The recurring revenue model depends on adding new customers and retaining existing accounts, with the latter vital to maintaining current revenues and as ‘warm prospects’ for additional services.
- Onboard new customers quickly and efficiently
- Access technical resources on an ‘as needed’ basis, freeing up funds that would otherwise be spent on hiring additional in-house engineers
- Adopt a ‘pay as you grow’ model so they can be profitable while still offering great service and meeting business objectives
- Offer new services such as 24/7 monitoring and remediation on critical devices
- Increase speed to market for new services
- Benefit from a more predictable cost
CompTIA reports a realisation among MSPs that they need to up their game when it comes to sales and marketing to improve customer and prospect engagement. Many MSPs say they have already increased the focus on this vital area:
|33%||creating incentives to drive new business sales|
|31%||increasing their marketing budget|
|28%||trying to be more creative with marketing methods|
Despite these encouraging findings, however, some 26 percent MSPs confess to ‘struggling’ with marketing and sales. 
The outlook for the MSP market?
The studies referenced in this article were conducted in North America (The 2112 Group) and the United States (CompTIA), but nothing we have found by way of recent research suggests that the picture is vastly different for MSPs in other regions. Local economic and political factors could still have an impact in these, however: the uncertainty of Brexit for the UK and EU markets springs to mind.
If the positive forecasts are to translate into real opportunities, MSPs need to be in a position to capitalise on them.
Partnering is one way of acquiring the additional resources and skill-sets needed, at a predictable cost, to enable MSPs to grab the opportunities.
Inbay is helping a number of MSPs to grow their business by partnering for NOC and Service Desk.
MSPs benefit by being able to:
Contact us to see how we could be helping your MSP business to seize growth opportunities.
 Source: CompTIA 6th Annual State of the Channel Report; and State of North America Managed Services, prepared by The 2112 Group for Intronis MSP Solutions by Barracuda
 Source: A Special Report by Intronis MSP Solutions by Barracuda and The 2112 Group
 Source: Datto: 2017 State of the MSP Report