Pretty much all segments of the IT service industry are growing, and projected to continue to do so for the next several years. When things are going well, it can be tough to convince yourself to go through the trouble of shifting your business model. But if you’re doing a lot of break-fix, it might be time to explore a transition to managed services. Here’s why.
The estimates vary by source, but the managed services business has been growing at 5-7x GDP over the past several years in the US, as we reported at our user conference last year. This is a strong growth industry, and there are reasons to believe that this trend will only continue. First, small businesses are predicted to double their IT spending in the next couple of years. This is driven by increased security spending, as well as movement towards cloud applications. These small businesses are not in a position to manage their own IT. Even if they wanted to, finding the talent to build an in-house team is a major challenge in a lot of markets. Small businesses need IT service providers, and will need them more in the coming years.
Managed services is more profitable – for everybody
In the 2018 Global MSP Benchmark Survey, we learned that the greater the percentage of your business is managed services, the more likely you are to see revenue growth. On average, everybody is growing, but it’s just more likely for managed services firms, and they tend to earn higher margins. When you think about, it just makes sense. Instead of earning margins on responding to tickets, your objective is that your clients don’t even send you tickets. There are one-man shops out there that almost never have tickets, and those are some of the most profitable MSPs in terms of margins out there.
What’s more, the managed services model is profitable for your clients, too. They have to weigh the cost of a monthly fee for MSP service versus the cost of downtime + the cost of fixing problems. If you’re in a position to take downtime and problems to a minimal level, you’re adding value for the client. This is another reason why the MSP business model is gaining steam.
Your MSP is your asset
Ok, so that’s a pretty reasonable case for making the transition from break-fix to MSP: the industry is trending in that direction. But here’s an entirely different way to think about it. Let’s assume you’re making a decent living still, in the break-fix business. How much are you saving?
Therein lies the key to making the MSP shift. It’s not that easy to expand a break-fix operation. That is an inherently mom-and-pop business. So what happens when you want to retire? A managed service provider can definitely be a lifestyle business, but many MSPs are also structured to scale. Such MSPs are highly competitive in their respective markets, able to compete on service, price, or any other dimension. More importantly, this growth provides some equity for their owners. If the business is strong enough, it can be sold, and this can provide the sort of payoff that makes working for thirty or forty years all the more worthwhile.
So maybe we’ve given you something to think about. Is now the right time to transition to the MSP business? It sure seems like it.
Find out how IT Glue can help as you make the MSP shift in your own business. Sign up for a demo below or get in touch with your Account Manager.
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