It’s somewhat rare to see a managed service provider (MSP) generate 100% of its revenue from “managed services”. There are, however, quite a few MSPs who generate a mixture of revenue from both managed services, projects, and even some hardware/software resale. The trick is how to balance the right amount of non-recurring revenue with recurring revenue.
Here are a few helpful guidelines to help you on your way.
Revenue Hierarchy
Not all revenue is created equal. Each service and product line you sell and bill for creates a variety of values. Products like hardware and software, have relatively little value to a MSP company. Contracted managed services revenue, on the other hand, is amongst the highest valued revenue a MSP can achieve.
These aren’t the only types of revenue categories but it does demonstrate the need to understand how revenue can directly impact both your cash flow as well as your overall value as a MSP.
What Are Your Revenue Objectives?
Once you understand the different revenue categories, you need to develop some form of goal to achieve the types of revenue you want to generate. This is really a corporate decision and should be made with the buy in of all the key decision makers with the company or division.
The reason for this is because arriving at the right mixture of revenue categories is critical to achieving the desire balance of customer services, corporate revenue objectives, and also employee satisfaction and effective utilization of resources. Ask any project management firm how predictable their revenue and utilization projections are and you’ll understand why developing a company revenue plan is important.
Have a Strategy
Many MSPs generate revenue by delivering a variety of services and products. Getting the right balance and mixture of revenue types is important. If, for example, you want to decrease the amount of projects you do for customers in order to increase the amount of effort around your managed services, you may decide to only to project work for existing managed customers. If a new client wants a project, you can tell them it’s only available to customers under management.
Whatever your strategy, make sure it is well thought out and communicated to your company team members. Making sure everyone is on board, including sales, marketing, executives, and technical service delivery, is crucial to implementing a plan successfully.
Some of the best MSPs do a lot of project work; they just do it only for existing managed services customers. This helps the MSP plan more accurately for future projects, staffing, and other resources. It keeps the customers happy, and ensures that managed services is always the primary motivation and relationship bond between MSP and customer.