If there’s one topic every IT solution provider can agree upon, it’s that growth is good. Once the conversation moves to the next level, however, and we start asking what’s the best way to grow opinions diverge. Should you add more services? If so, which kinds of services? And, if the answer is not selling more services, what else are you going to sell?
Paul Dippell, CEO of Service Leadership, recently addressed these topics at the Ingram Micro ONE event in Las Vegas. Here are some highlights from his presentation.
Fix the Profit Model First, Then Grow
Adding more services to your business isn’t always the answer. “If your company isn’t pricing services properly when services comprise 10 percent of your overall revenue, and you attempt to double your overall percentage of services-to-revenue ratio, you can put your company in jeopardy,” he says. “It isn’t about selling more services; it’s about how you sell products and services. Fix the profit model first, then grow.”
Know Your OML
An IT solution provider’s ability to solve its services profitability has a lot to do with its operational maturity level (OML), says Dippell. There are five levels of OML:
- Level 1 – startup
- Level 2 – emerging
- Level 3 – scaling
- Level 4 – optimizing
- Level 5 – innovating
The reason it’s important to know one’s OML is that while services have the potential to generate higher profit margins than selling products, they require a higher OML. So, a company without good processes in place, for example, may be better off growing its business by selling more products until it can raise its OML.
Where Economies of Scale Don’t Apply to Managed Services
A lot of MSPs think that if they sell services to an SMB they can charge a higher amount per employee than a larger enterprise, but Dippell says the opposite is true. The reason: larger companies have more complex businesses that require more highly skilled technicians and more sophisticated software tools to manage.
Additionally, while it may seem like a good idea to sell to companies of all sizes, statistically speaking, it harms your profitability, says Dippell. Rather than taking a scattershot approach, he recommends taking a laser focus on a narrower customer size range, which makes it easier to develop expertise and business processes.
A Final Tip for Profitable Managed Services
Among the highest-performing MSPs, Service Leadership’s research shows a much higher percentage work with master MSPs to assist with service delivery. “The managed IT services business is a process-intensive business and there is no school or handbook for all the processes you need to build and maintain,” says Dippell. “By partnering with a master MSP, you can use whatever parts of their ‘services factory’ you’d prefer to not build right away, and put your brand name on it. This can be a time, risk and expense saver. You can leverage your strengths—your installed base of customers and your sales team—and let the master MSP shoulder much of the operational risk.”