Evolving Your Managed Services Program – “How do we get from here to there?”26 May, 2016 By: Chris Ryne, Growth Achievement Partners
The Managed Services business has matured and the success factors are well defined. Many aspects of the business line up with the core competencies of the traditional office equipment industry such as the understanding of an annuity-based business model, the selling of a monthly payment for products and services, and delivering superior on-site service when necessary. Numerous dealers are taking advantage, enjoying significant success, and are well positioned to enjoy even more.
As the market has arrived and it’s “the end of the beginning,” there is plenty of work left to be done within the next phase of evolution. Dealers that have not yet entered the market are falling behind quickly and it will be critical to execute on the right things to make up ground. Wherever a dealership might be with their Managed Services Program, the main question dealers have been asking so far in 2016 is, “How do we get from here to there?”
“There” means different things to different dealerships – from getting in and setting up the business correctly from the start, to building the annuity and scaling the business profitably, to staffing, role clarity and productivity in order to establish efficiency, to acquiring a MSP (Managed Service Provider) to support growth and geographic expansion.
But wherever you are in the maturation of your Managed Services business, if you are not on a solid path to profitability, and trending toward 30% of the dealership’s total revenue in the next 36 months, you are behind.
Common issues keeping dealers from achieving that path are either a lack of confidence (or focus) within the company, execution issues, or simply an improper go-to-market strategy.
The four primary go-to-market strategy flaws that have repeated themselves within low performing businesses are:
· A “Rip & Replace” sales strategy, which guarantees very slow growth and a frustrated sales organization
· Not achieving a Pre-Labor Service Margin of >65% while keeping the street price competitive
· Accepting contracts in the <10 user market when average seats should be trending to 20+
· Expecting Equipment Reps to build and manage sufficient pipelines themselves
Use this as a short but critical checklist against your current strategy. If your strategy includes one of the above flaws, it’s not too late to course-correct, but do it quickly!
The Business Model
In 2013, Growth Achievement Partners (GAP) developed / co-authored with Continuum, to provide a Managed Service Business Model specifically for the office equipment channel. The Model provides guidance on the MS business covering the key metrics for success within the categories of Revenue, Contracts & Account Expansion, Sales Activity & Pipeline, Headcount, Compensation, Profitability, and Operational Metrics for service delivery.
The Model has been downloaded nearly 1,000 times and the industry has benefited. Through our interaction with our clients, and the MSP financial evaluations that we conduct through our Mergers & Acquisitions, with our strategic partners of Zygoquest Group and the great work and operational performance data that Continuum is able to provide, as the largest and most experienced provider of MS operational support to the dealer channel, the Model continues to be updated, utilized, and validated by both office equipment dealers and MSPs alike, to guide and deliver high performance.
Whether a dealership has been successful so far and looking to ensure the next round of growth, or has entered the Managed Services market but has yet to see the expected results, or are just entering the market and are looking for guidance to avoid the mistakes others have made, we continue to receive feedback that the Model is invaluable. But there is a difference between having a managed services business offering and optimizing profitability in the business; and it comes in the form of Critical Success Factors.
Critical Success Factors
Executing upon and managing to this list of Critical Success Factors is a “laser-focused” activity for high-performing MSPs seeking the next steps in optimization, and provides a dashboard for a developing, growing or maturing Managed Services business. Through being actively involved in the Managed Services space for the last six years, GAP has gained a clear understanding of what a successful MSP should look like.
Through the updated Model, we have developed a series of Metrics and Benchmarks, and provide several of these targets [*chart available in print edition only or by contacting GAP].
The combination of Average Seats Per Contract and Revenue Per Seat deliver the achievement of the necessary MRR and overall Revenue Mix for the business. Seats Managed and Service Margins are keys to operational efficiency and service profitability, and higher Post Labor margins are typically achieved by those MSPs that outsource the Help Desk function. Hardware/Software Margin and Revenue Growth speak to client “stickiness” and expansion. When they are all combined, they are the components for securing an attractive double-digit Operating Income for the business.
As with any business, even with the right focus, execution and strategy, there will still be challenges. Technology and the positive and negative disruption it is causing is both an opportunity and a risk, and yes, it’s moving very quickly. But the Managed Services Business Model and particularly these Critical Success Factors have become more understandable and clear, and are offered to help provide guidance and direction. These have proven to be the metrics for highly performing and valued MSPs, at this stage of the game.
If you are interested in learning more about these Critical Success Factors, how to achieve them, GAP will be instructing the BTA Managed Services Workshop on June 28-29, 2016 in Ft. Worth, TX. Visit the BTA website at http://www.bta.site-ym.com/?MS for more information and registration.
Chris Ryne is Partner of Growth Achievement Partners (GAP), along with Mitch Morgan. For detailed company information visit www.growthachievementpartners.com