More VARs are diversifying from product sales or break/fix into managed services, with recurring monthly revenue. They focus on the delivery of services as a way of reacting to margin pressures and the movement towards cloud-based services.
Many continue to make good money selling hardware and support, but the reality is that the ever-changing IT landscape as well as relationship between VAR and vendor is pushing the channel towards services.
The long-term future of many depend on their success in this transition – whether they move to pure services or a hybrid operation.
Margins on hardware continue to shrink, especially on the cloud-based product side. Margins can be as low as six per cent on some services.
Feedback we have gathered suggests that MSPs can add a lot of value to cloud services and that their customers want them to do this.
VARs may already be able to host, support and manage a range of technologies. Many small companies with no IT personnel are concerned about the cost of adopting multiple platforms from multiple vendors, which often results in a more complex IT environment.
It's a natural step for a VAR to act as a broker and help customers manage those services and any complexity. MSPs can offer a consolidated support package for a fixed monthly fee.
Product-focused VARs experience cashflow peaks and troughs when selling hardware and software. The MSP model, on the other hand, provides greater visibility into future cashflow. Revenue growth may compound as the number of managed-services customers increase.
The ability to develop an ongoing engaged relationship with the same customer is more beneficial long term than a one-time deal. Successfully keeping customers and adding services depends on the strength of the relationship between MSP and the customer.
Revenues will recur, as long as clients are satisfied with the service. Happy customers may then become happy prospects, willing to consider a new or upgraded service.
However, MSPs also need to be careful that they do not fall victim to their own success. They must demonstrate long-term value to the customer.
Customers may ask why they should pay money when everything is working and their employees never complain. MSPs must maintain therefore regular contact and communication, providing for example management reports that explain the benefits.
The message should be clear: everything is working fine because you have identified and fixed issues before the customer even knew about them. It is certainly not a case of money for nothing.
Alistair Forbes is general manager of the Max business unit at GFI
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