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MSP Guide:
Moving From Break-Fix to Managed Services
Today, break-fix services represent only 13 percent of MSP revenue on average.
If you are an IT service provider still heavily reliant on your break-fix offerings, there are plenty of convincing reasons as to why you need to transition to managed services. This guide will give you all the in-depth information you need on why you need to make the transition now and some practical advice on how to do it.
The business benefits of providing managed services far outweigh the costs and energy spent on the transition. You also need to realize that most successful MSPs in the market today have built their businesses using the recurring revenue model. However, by transitioning to a managed services model, your business can get a leg up in the following ways:
You can expect a fixed revenue stream every month and manage your costs accordingly. This allows you to experiment with new services and reinvest to expand your business. You can also offer enhanced SLAs at a higher price for little or no additional cost to you.
The money you invest in the technology needed to support remote monitoring and management (RMM) based managed services pays for itself over time by allowing you to get more customers, reduce your costs and provide a better customer experience, which in turn improves your reputation and leads to even more customers.
Your processes will get more efficient due to proactive remote monitoring, which drastically reduces the need for onsite customer visits. The automation of mundane tasks will free up time so your team can support more customers. In effect, the transition will allow you to do more with existing or even fewer resources.
Your customers need to be able to trust you if they are to continue with your services. By managing their uptime and protecting their IT infrastructure against unexpected threats, you can build this trust every single day rather than waiting for them to call you when something breaks.
When making the transition, the two major things you need to focus on are changing your business model and managing your customer expectations. Let’s take a look at how you can proceed with both these aspects of your business.
Change your business model - build the right offer
You need to start by defining your business strategy – the types of services you can offer, your marketing strategy, your client support capabilities and more. How you present these services plays a key role in the success of a managed services model. More than 70 percent of MSPs now provide at least one bundled service. This allows them to sell their services as a bundle and increase their overall sales.
You can also have different tiers of services to appeal to different types of customer. For example, your ‘basic’ package might include endpoint monitoring, patching and basic antivirus. When a customer is comfortable with that service you could then try and upsell with an ‘advanced’ package with features like network monitoring and managed security. You could then offer individual add-ons or a premium package. It is also worth investigating the competition to see what services are being offered in the area you operate in.
Then comes pricing. We recommend that you adopt value-based pricing, based on the value you deliver to customers, rather than simply based on your costs. Demonstrating value will make it less likely that the customer will argue over pricing. Among high-growth MSPs, about 53 percent get more than 50 percent of their revenues from value-based pricing. If you are an MSP with specialized offerings in a niche domain, you can command a higher price over other players in the market.
Transitioning Clients to Managed Services
When you first transition to managed services, some clients might resist this transition since they are going from paying only when something breaks to paying a consistent monthly fee. You need to take the time to convince them about the benefits of managed services. To do this, you need to show how your services can add value to their businesses and boost their profits.
In a break-fix model, the customer is aware of the problem and knows when it has been fixed so they can see what they are paying for. In a managed services model, issues are often resolved before the customer is aware of them and most work is carried out in the background. So, in a managed services model, you need to show proof of what your continual monitoring is discovering and what you did in response.
One way of showing value is by showing your clients the reports generated by your RMM tool. For instance, with Pulseway, you can generate detailed custom reports in an elegant, easy-to-read format. This gives your customers detailed information about the actual work you have carried out, including the issues fixed, vulnerabilities addressed, threats eliminated and more. Some MSPs even copy clients on error alert emails and give them access to performance dashboards to show value.
In addition to sharing your reports, you can also keep your customers in the loop about the issues you are addressing for them. You can use information from your RMM tool to alert customers of issues or potential issues. By sharing the issues encountered while monitoring their IT infrastructure, you prove to your customers that you are proactively monitoring their IT network. Also, giving them a heads-up helps assure them that their IT infrastructure is in safe hands.
Many customers are inevitably going to bring up costs during this transition. That’s why you need to create a compelling argument by comparing the real cost of downtime and associated disruption, costs of emergency repairs and maintenance, technician hourly fee and monthly MSP fee. The response time to an issue under a break-fix contract is inevitably longer than under a continually monitored managed service contract, especially if auto-remediation is being used - and this should also feature in any cost comparison.
How PRWCS Corp Transformed Its Business
PRWCS Corp. is an IT services provider based in Puerto Rico. Like most IT service providers, PRWCS started with the break-fix model, providing services only when clients had issues. When they started using Pulseway for their services, it acted as a catalyst for change in their business. They introduced new services, developed a recurring revenue stream, enhanced their reputations and grew their customer base by almost 200 percent.
Rather than just responding to service tickets every day or physically going onsite at pre-arranged intervals, PRWCS now has complete visibility into their clients’ IT infrastructure. This allows them to proactively monitor their infrastructure and fix issues even before their clients become aware of them.
The result? Their clients now see more uptime, have issues fixed before they cause real problems and are notified of potential issues well in advance so remedial action can be taken.
PRWCS has two different pricing models for its services. For maintenance and monitoring, they charge a fixed price by the endpoint. They also use monitoring to identify potential hardware upgrades, which they can charge at a reduced rate to monitored customers. So, effectively, they are being offered a package deal where they pay a fixed fee for monitoring and get a discount off the regular price for additional work. This approach has many benefits. They have the data to demonstrate that the work is needed (e.g. showing the number of times memory use was high) and the level of trust between PRWCS and their customers has increased.
This is a win-win scenario since PRWCS is now able to enhance their reputation and grow their business, and service customers more effectively and efficiently. This also shows their clients that their MSP cares for them.
“To all the MSPs out there having second thoughts about getting Pulseway and changing your business model, honestly, it is scary at first, but I will tell you to take the step and you’ll see that it is a much better road,” says David Vega, CEO PRWCS. He added, “Your customers are going to be much happier because they are going to see the value of what you are providing. Being able to provide good service for customers is helping me get more customers.”
For more information on how PRWCS made the change click here.
