Are MSPs Prepared To Handle Industry Growth?
By Evan Rice, Rev.io
It is a fairly common assumption that growth is an essential goal for any business. But what is equally as important is the rate of scale. Grow too slow and your competition will overtake you. Grow too fast without efficiency and you will lack the bandwidth and structure to sustain your success. Balancing this tightrope is a constant battle for managed service providers (MSPs), many of whom are currently at a crossroads.
Many MSPs have followed the same sales strategy for several years and through various market cycles, leaning on legacy systems to support their strategy. However, with emerging technologies and new customer demands, MSPs are forced to either adapt or die. The industry is shifting and now more than ever, providers need solutions that can keep pace with the rate of innovation. This means driving value to the bottom line with new revenue streams and getting away from an antiquated train of thought. Otherwise, MSPs won’t maintain rapid growth or even be forgotten in the digital transformation altogether.
Factors Influencing MSP Growth
MSPs are starting to pivot away from traditional IT value-added services toward more recurring/subscription-based revenue models. There is a proliferation of cloud-hosted solutions and customers are seeking best of breed services. The solutions that customers find challenging to take on alone are now bundled and managed by MSPs. Whether it is a Mobile, Voice, SD-WAN or IoT offering, providers can now serve as a single source for all of these solutions.
Furthermore, there is rampant consolidation in the industry. Some experts predict that 20 percent of MSPs in the United States will dominate 80 percent of U.S. managed services’ revenue pie by the end of 2020. As many providers merge, they will likely need new solutions and operations in place to handle an increase in new clients and offerings.
Overcoming Challenges
As MSPs add more offerings to their arsenal and move further away from one-time fee-based sales, they will need to combat the challenges that come with subscription and/or usage billing across many verticals. In fact, over 80 percent of MSPs report driving a portion of their revenue from recurring services. Add in consolidation, and providers now have to manage significantly more data than they are used to from a plethora of sources. Staying organized in this effort requires a systematic approach via a data billing system.
This new growth model needs a different approach than many legacy systems can offer. There is complexity in billing for usage that the traditional ERP can’t handle. More manpower can temporarily ease these struggles, but it is not a sustainable solution. All providers must simultaneously remain tax compliant, which is a difficult undertaking when you account for the expansion of their billing needs. So how can MSPs keep pace with all of this growth?
Leveraging Automation
With recurring revenue and multiple data sources, managing complex billing often becomes a task too cumbersome for the average billing department. Billing software can help to alleviate many of these issues and ensure MSPs are able to sustain any changes to their operations or the channel environment. Automation can cut down on human error and drastically reduce the time it takes to manually sort out invoices. Data show that billing professionals who swap out legacy systems for automation can save an hour a day on processing invoices. This saved time creates space for more value-added tasks and ultimately more impact to the bottom line by accurately billing and reducing any revenue leakage.
If MSPs go at this effort alone and spread themselves too thin, it can reduce their ability to get new solutions to market and significantly handicap their upward trajectory. Providers are learning the landscape of new solutions, while simultaneously working to configure processes that help them keep up with their new environment. Automated platforms can help relieve much of this pressure to drive improved value to the end-customer.
Managed service providers are constantly adapting their business to face new customer demands. While they can’t predict what the future holds, MSPs can get ahead of the curve by digitizing their operations now. Traditional ERP systems are no longer viable solutions when your business has seen 10x growth in the past few years. There is simply too much data and moving parts to trust legacy systems with keeping pace. MSPs need a powerful usage-based platform to empower revenue growth and scale alongside them.
About The Author
Evan Rice is EVP of Sales and Marketing at Rev.io.