Q: As an IT service provider, I have most of my customers on managed service contracts, but I’m having trouble converting my remaining break-fix customers. Based on the recurring revenue I’m bringing in from the majority of my clients, I know how much upside there could be if I could focus just on managed services. What can I do to transition the rest of my customers from break-fix to managed services contracts?
At Intronis, many of our partners are managed service providers, so we understand the value and opportunity in this type of business model compared to break-fix or project-based work. Not only will you experience greater and more predictable revenue, you will also be able to proactively maintain safe and functioning IT environments for your customers instead of being reactive. This will save both you and your customers time and money.
How to transition to managed services
We also understand that your prospects and clients might be reluctant to commit to a managed services contract, fearing the cost and uncertain if this type of service is necessary. That’s why we talked with Randy Thay, a partner development manager here at Intronis, to discuss how you can sell managed services to your break-fix customers. Here’s Randy’s checklist for getting started.
1. Assess your business plan and service offerings
For the managed service providers I talk to who are trying to transition those last remaining project-based customers, I suggest taking a closer look at your business model and making sure you have an option that addresses the needs of this type of customer.
To find out what they’re looking for, analyze your remaining break-fix accounts and look for common reasons they might be holding back from making the transition. Is there something missing from your current offerings? Once you’ve determined the underlining reason, create a package that satisfies their specific needs. You might need to create a more basic package with lower margins to get them to consider the change, but then once the customer gets comfortable using managed services, you can work on moving them up to a more robust offering.
If you’re just getting started: Whenever I talk with an Intronis partner who is just starting to sell managed services, I always tell them to make sure they understand the impact of this transition and how to make it work for their business. To help do this, I tell them to write out a business plan. This is a big change, and you need to make sure you’re setting yourself up for success.
Study the numbers to determine what the markup should be on each of your service packages. You will need to consider the total number of customers, the average cost of each service package, and the expected monthly revenue from each customer. Adding this all up will help you figure out, for example, that you need on average a 30 percent margin to make your MSP business profitable.
You should also carefully choose which accounts to approach about managed services. Figure out which current customers would be a good fit, such as larger businesses who have more employees and traffic on their networks or clients in a vertical that has strict compliance regulations. Once you get the hang of this model, you can leverage more clients and start selling to new prospects as well.
2. Prepare your argument
As you’ve likely experienced already, customers resist the transition to managed services for a number of reasons, and you need to be prepared to respond appropriately. An effective way to do this would be to create pieces of sales collateral that helps you make your point more effectively.
First, think through the arguments your sales team is facing. Using this information, create an email or a document you can send them after the conversation that outlines the reasons why they should convert to a managed services contract. Be ready to meet these objections before you pick up the phone and start the conversation.
Another way of doing this would be to have a list of all your services and a report on those costs over time. When a prospect brings up cost, ask them to consider the total cost of a recent repair or emergency service, including the hourly fee for the technician, the cost of the new hardware installed, and all other related repair costs. Comparing this to your report will show them the value in transitioning to a managed services contract.
If you’re just getting started: You will also likely find that some customers are hesitant to move to a managed services contract. To be prepared to meet their objections, try to predict the questions that a small business customer will ask and think through your answers ahead of time. I recommend starting off having a conversation with one client, asking them about what their objections are, and using that feedback to prepare for future conversations.
3. Educate clients
Educating clients on the limitations of a break-fix relationship will help you close more managed service business. Remind customers that with break-fix, there’s no guarantee for them that their issue will be resolved as quickly as they’d like. In a managed services contract, Service Level Agreements (SLAs) require you to address any problems within a certain agreed-upon period of time. Having this guarantee in writing reassures customers that there will always be someone on your team ready to assist them.
If you’re just getting started: Build your case by emphasizing the other benefits of managed services. Explain to your customers that under a break-fix contract, they’re responsible for detecting issues, and by then it might require a more serious—and more expensive—fix. If they purchase managed services, with say cloud backup and recovery included, they’ll know that their data is constantly being backed up. If they ever experience a server crash, for example, they’ll know that it would only take a quick phone call to you to get their business back up and running.
Whether you’re just starting to sell managed services or transitioning the last of your break-fix customers, use Randy’s tips to close more business and bring in more recurring revenue. After you’ve finished converting your remaining customers, focus your sales efforts on winning new managed services business. With proactive management, you will be able to make your business more productive and lucrative. Not to mention, you’ll make your clients happy by saving them time and money.
Ask Intronis is a weekly advice column answering common questions from MSPs and IT service providers. It covers topics ranging from pricing and selling to marketing and communications—and everything in between. Submit your questions by emailing AskIntronis@intronis.com.