How to Position Your MSP Business for any Economic Downturn

Posted by Geraldine Hunt on Tue, Jul 14th, 2020

The word “recession” can be a scary word, for any industry, including managed service providers. In our previous blog, “MSPs are Doing Better than Other Industry Sectors Today,” we outlined how MSPs are doing better than many other industries. While many MSPs are experiencing monthly revenue decreases as a result of the coronavirus pandemic and its related fallout, many MSPs are prevailing, thanks to proper planning and continually striving to innovate. In this blog, we want to provide some tips and insights into how MSP’s can prevail during these challenging times.

Analyzing Your Income Streams

While it shouldn’t be your only motivator, money is the fuel that keeps your company afloat. Regardless of your business, cash is the best firewall to protect your business during periods of economic inactivity. While account receivables are important and look great on paper, they are not guaranteed income. Retaining a minimum amount of cash on hand to get you through poor economic times is critical. In recessionary times, cash is king. Don’t be afraid to negotiate better payment terms with your vendors if you have the funds. In the same way that some of your customers are asking for reduced fees to help them through the current crisis, don’t be afraid to ask for the same concerning your account payables.

The MSP model derives around the concept of Monthly Recurring Income. This model works for the benefit of you and your customers. As an MSP, you obtain a predictable income stream that you can depend on in most cases. In exchange for that predictable income stream, your customers receive the benefit of predictable application workloads and user experiences. The inherent profit margin of your MRR stream is dependent on the level of work attributed to each client. The old phrase, “Know which side your bread is buttered on” is applicable to the MSP business. You should regularly monitor the activities associated with all of your clients and perform annual cost evaluations of each one. If you have a “noisy client” that demands a lot of attention, but only represents a small part of your revenue, you need to reevaluate the terms of their contracts. Contrast a noisy customer with the opportunity costs of continuing to service that business. Don’t be afraid to not renew a customer’s contract if they aren’t profitable. 

The Great Debate:  Specialization vs. General

There is continued debate amongst MSPs concerning how to create a customer portfolio. While a customer base comprised of a few specific industries can allow to leverage your knowledge base and experience in order to increase profitability, creating a diversified collection of customers across a wide swath of industries can significantly reduce your risk exposure during tough times.  We spoke with one MSP owner who said that in the same way he compiles a mixture of stocks and bonds to his investment portfolio to reduce his risk exposure, he ensures that he has a broad mixture of MSP clients as well. “Those MSPs that were overly dependent on health care organizations are getting burned now,” he said. “While we had to reduce one of our larger customers monthly fee by 30 percent, all of our other clients are paying as usual because we ensure we aren’t overly dependent on any one industry.” 

Customer diversification shouldn’t be restricted to just industry type. Many MSP’s target businesses of a certain size. A business consisting of 20 employees has very different needs than one that has 200. One MSP we spoke to only targets business of between 15 and 40 employees and never ventures outside of that range. Other MSPs choose their customers based on their proprietary infrastructures or size of their third party application portfolio. 

Defining Your SLAs

According to the annual IT Glue research report, the average MSP experienced 50 percent more tickets in March this year than in February. This is most likely due to the fact that so many businesses were scurrying to implement remote work strategies to allow their employees to work from home and remain safe during the pandemic. This created a unique irony for many MSPs in that their work loads were increasing at the same time that their income streams were being reduced. 

Sustained profitability means ensuring that work loads operate in sync with income streams.  You can’t stay in business for long if these are working in contrast to one another.  One MSP we spoke with outside of Atlanta, Georgia has experienced record months of profitability during the pandemic period. They attributed their success to properly defining their service level agreements (SLAs) to their customers.  “We don’t support new employees or computers within our stated contracts. Any additions or modifications when it comes to users or devices constitutes into billable hours.  We have experienced a record number of billable hours each month of the pandemic crisis. That added revenue more than offset any losses we sustained during this period ” .

MSP’s have Less Turnover

According to the Bureau of Labor Statistics, the pre-COVID turnover rate for IT was 43.2 percent. Now compare that to the results of IT Glue’s February survey that showed a turnover rate of only 14 percent for MSPs.  MSP’s clearly show a more resilient workforce, which is a powerful selling point to potential customers. Why endure constant turnover of internal IT talent when you can outsource to an MSP and have the same familiar faces service IT estate?

Outsource Your Own Labor Needs

There are a lot of benefits to outsourcing. It is one of the reasons why SMBs contract MSPs in the first place. Outsourcing is especially beneficial during economic downturns as companies can stay slim and flexible.  As an MSP, you should look for ways to outsource as well.  Many MSPs outsource their helpdesk and technical specialists. There are a number of contract sites on the Internet where companies can seek technical assistance on a project. These outsourced specialists provide boots on the ground when you need them to service your customers. Whether it is a one-time or ongoing project, these third party contractors work under the name of your company.

One of the cleverer ideas we heard was from an owner of an MSP that specializes in supporting small businesses. While the owner outsources all Level 1 and 2 work to outside organizations, he performs all level 3 support himself. The assignments that he takes are performed using a separate employee profile name. To his customers, his MSP has multiple technical specialists.  In actuality, it is just him. “We partner with field technician firms that send specialists representing my company. This allows us to keep our own staff slim. Because I do as much of the work as possible, our profit margin per customer is significant”, said the owner.

Continued Transition to Remote Workspace Strategies

If you think that remote work was just a transitory reaction to COVID-19, think again. According to a survey of 150 HR leaders from the nation’s largest companies, 77 percent expect the shift toward more teleworking to continue for the next twelve months. As the CEO of Barclays recently said, “Putting 7,000 people in a building may be thing of the past.” This new remote work paradigm means that businesses will be more comfortable with off premise MSP personnel. It’s good to remember that this new work model is still in its infancy. Many businesses transitioned as quickly as possible to get their employees out the door to safety. This makes a perfect opportunity for MSPs to help develop long term strategies that will improve productivity and operational efficiency.

Cybersecurity is Always in Demand

No discussion about MSPs today is complete without discussing cybersecurity. So, here are some basic truths concerning it.

• It is far less disruptive to prevent a threat than it is to deal with its aftermath. 

• No matter how chaotic things get, Coronavirus does not exempt a business from its industry or government compliancy obligations

• Hackers have customized their attacks to take advantage of remote work strategies and the current fear and trepidation of the virus.

• Those that make it through this transition period without a cybersecurity incident will generate greater trust from customers and the markets that can be leveraged when everything returns to normal.

Design a Marketable Security Stack

Every MSP today needs to have a well-conceived security stack for its customers. A security stack should encompass a multi-layer security strategy, as the reliance on a single firewall perimeter is now completely susceptible.  An effective security stack incorporates multiple components such as email security, web filtering, sandboxing and endpoint protection. Other additions can include application whitelisting (AWL) and IPS or behavior network analysis. Once in place, it is important to annually review your stack, evaluate your vendor relationships and stay abreast of new solutions that are constantly coming on the market in order to provide the best possible protection to your clients.

Businesses have learned that cybersecurity cannot be ignored. A survey published in Darkreading.com last year showed that 90% of small- to midsized businesses (SMBs) would consider hiring a new managed services provider (MSP) if they offered the right cybersecurity solution. Nearly half would pay at least 20% more for the right security solution from a new MSP.

That’s where TitanHQ comes in. We partner with more than 1,500 MSPs across the globe, providing email and web filtering solutions that are ideally suited for today’s SMBs. Our solutions are cloud based, giving you the ability to manage all of your customers through a single interface. Now is the time to streamline your own operations while re-evaluating your customer base and IT stack. 

To find out more about how we work closely with managed service providers to meet the requirements of the SMB marketplace speak with our MSP Integration team today.