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Lessons Learned When Getting into Managed IT Services

27 Jul, 2012 By: Milton Bartley, ImageQuest

Five years ago, I purchased an office equipment company - primarily for its customer base - and essentially started the company from scratch. Like many office equipment dealers, I recognized that a services model would be important to the future sustainability of my company.  However, after several false starts trying to build my own offering and teaming with the wrong partners, I found a good partner that could scale with me and who shared my philosophy on unparalleled customer support.

Today, my company is a leading Managed IT Services (MITS) provider in the SMB market in our region.  We have literally doubled in revenue over the last fourteen months, and that growth is directly attributable to our MITS business. Even though I partnered, which I believe is the quickest way to get into Managed IT Services, there were still a number of challenges along the way. 

The partner I selected was GreatAmerica and their Collabrance™ Master Managed IT Services offering. I’ve even joined forces with them to deliver Managed IT Navigator. This is a day and a half business planning session to help other dealers and resellers learn what I wish someone would’ve shared with me when I first started my Managed IT Services business!

I feel compelled to share my experiences so that I might help others in our industry avoid some pitfalls along the way and contribute to the long-term viability of our industry. There are a number of lessons I have learned along the way, and I’ll share the three most comprehensive with you.
Most Comprehensive Lessons Learned

1.Manage Your Margins:  The first one, and definitely the top lesson in my book, is to manage your margins from day one.  Dealers get into Managed IT Services because those services are in demand and because there are fewer competitors, but yet they go to market with discount pricing. That simply creates a race to the bottom.  You need to charge for your expertise and not be solely market driven. When running the analysis on your MITS margins, a good number to aim for is 42% Gross Margin (GM).  As you know, a good service company must have a minimum 30-40% GM, but a truly great service company should have 42% or higher GM in MITS.
We have revamped our entire pricing model over the last six months based on lessons from our Gross Margin analysis, which underscores the need to constantly scrutinize the financials and understand your pricing. We knew that we missed a major component when calculating our GM – in-house labor.  When we built our pricing model in 2010, we did not fully understand our in-house labor needs for fully Managed IT contracts. We calculated our GM by taking our per seat price and subtracting our partner per seat costs and simply treated the labor as a fixed cost.  Once we had a critical mass of contracts to analyze, we determined that one IT tech can handle between 20 and 30 active MITS accounts (our average account size for the analysis was just under $1,500/month at the time and continues to increase as we get more and more comfortable with larger opportunities.)

Now that we’ve figured that cost into the GM, we’ve been able to increase our prices accordingly, and haven’t had any pushback rolling that out to new customers.  Our per seat price has increased by about 36% since we started in MITS – and our sales engine continues to hum. Don’t be afraid to raise your prices; you need to protect your margins!
2.Hire the Right People:  The next important lesson learned was that you need to hire the right people. Simple, I know, but not easy. You must hire the right technical people that can handle those 20-30 accounts we just talked about.  I call this person the “engaged engineer!”  You need an equally engaged sales person capable of handling a longer sales cycle, comfortable with talking about technology and is relationship focused.

The “engaged engineer” has a wide understanding of technology, computers and networks, is calm and in control, and good with your customers. I break it down like this – they must be able to accomplish these four duties: 1) installation/onboarding technology for customers 2) be the break-fix responder 3) pre-sales engineer work by helping your salesperson figure out what the customer technical requirements are and 4) if you have a small dealership, they might also be your key in-house IT resource. This requires you to be a driven and committed leader. Don’t think of this as adding a new product line.  This is an entirely new business.  Getting into Managed IT simply won’t work without your leadership and dedication to remove barriers and overcome obstacles for your team.
Because we’re a relatively small company, I’ve functioned in multiple roles as we’ve grown from one MITS account to over fifty accounts, including lead Managed IT salesperson and Virtual Chief Information Officer (VCIO). VCIO is another key role to have on your team. This position can be served by the “engaged engineer” until you have the revenue to justify adding this resource to your head count.  The VCIO is a personable, customer-facing person with the head of an engineer and the heart of a sales person.  He or she will be the primary contact for your customers, and done right will become a trusted member of their respective management teams.
If your organization is larger, you may be able to economically support all of the key resources and simply make the commitment yourself to be CEO champion of your Managed IT Services initiative.
3.Perform Customer Reviews and Listen:  As my company started making headway with our Managed IT sales, we performed reviews with customers. We would spend most of this time enlightening them with all of the wonderful stuff we had accomplished for them over the past few months – or if a larger customer, more frequently.  Even though we were doing these reviews, I walked into a customer account one day and found brand new phones on all of their desks. I asked where they got them and they told me that a company had cold called them and they happened to have been talking about getting a new phone system and it took off from there. I was mortified! We sold phone systems – but my customer did not know it and so never thought of checking with me. This is the third lesson learned: Perform Customer Reviews and Listen!

Today, we spend only about 5 to 10 minutes of our time in the customer reviews going over what we did for the customer over the past couple of months (i.e. fielded 115 calls to the help desk or thwarted 13,000 firewall threat attempts, etc.). This is important as it helps justify the costs for the customer and helps them understand what they are getting for their investment, but these items should not be the focus of the review. The rest of the hour is spent asking business questions and listening. When we listen and participate like the trusted advisor that we have become, we find out all kinds of things.  We uncover opportunities to be “all things technology” for our customers.
While I have many more lessons learned after several years of starting up a Managed IT Services business, these three are certainly key. If deployed well, Managing Your Margins, Hiring the Right People and Performing Customer Reviews can help you find success in Managed IT Services faster and with fewer bumps and bruises along the way. When we are diligent about these things, we increase the value of doing business with our company, justify our margins and increase our revenues. All of these elements ultimately help us provide even better service to our entire customer base.

Author: Milton Bartley, Pres. & CEO of ImageQuest, and a Managed IT and cloud technology specialist, has 15+ years industry experience, beginning his career in office equipment sales which quickly grew into various leadership positions at OfficeWare in Louisville, KY.  In 2004 he joined Lanier Worldwide as director of dealer operations –a position he held until mid-2007 until he founded ImageQuest. For company info visit http://www.myimagequest.com.

About the Author: Milton Bartley

Milton Bartley

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