Three obstacles stalling MSP growth

MSP success is being stunted because the channel is struggling to sell services as a well-balanced proposition beside products, they are unable to package and adapt their offerings to address service demands rather than customer demands and the challenges associated with recurring revenues rather than lump sum sales.

So claims research by Techaisle, which suggested that the most successful MSPs it studied had an almost completely balanced spread of product and service revenue opposed to focusing too heavily on products rather than weighing it up with service revenues.

"Techaisle research shows that very successful MSPs have a revenue mix of 48% product resale and 52% services revenue. The revenue is also divided as 59% services-led contracts and 41% product-led contracts," said Techaisle CEO and analyst Anurag Agrawal in a company blog post.

The second biggest hurdle experienced by MSPs is that they focus too heavily on providing an all-in-one solution that precisely addresses the customer needs rather than a service to satisfy a specific problem within an enterprise.

"The difficulty in adjusting to a service-centric rather than customer-centric approach is evident in data which finds that an inability to change internal support processes is the most onerous constraint to developing managed services businesses for both “successful” and “unsuccessful” managed services providers within the channel," Agrawal added.

"55% of unsuccessful MSPs are unable to change their internal support processes as compared to 42% of very successful MSPs."

The final issue Techaisle revealed was taking advantage of recurring revenue. Unsuccessful MSPs haven't managed to properly adjust to calculating the overall value of small recurring revenues.

"Lured by the prospect of improved margins, most existing channel firms want to increase managed services income," Agrawal commented. "However, many struggle to adopt these new operating norms if/as managed services becomes a bigger part of the overall income stream."

The answer is an entire organisation shift, with management adjusting the way they view success, the finance department reporting revenues differently and sales teams being compensated differently to their previous commission structure.

Agrawal also said that MSPs are struggling to develop SLAs and find sales staff that can eloquently explain the proposition, in addition to getting the balance right between salesforce training and compensation and meeting “unrealistic” customer demands.

He added channel partners are also finding it difficult to demonstrate value to SMBs, which is an essential part of positioning services to end-users.