Four Traits That Top MSPs Share and Top Vendors Should Enable

One of the things most vendors that sell exclusively through the channel like about that model is that it aligns their interests directly with those of their partners. If partners don’t make money, neither does the vendor.

Conversely, of course, profitable MSPs make for profitable vendors, a fact that should give software and hardware makers much to like about data shared at Ingram Micro’s ONE event in Nashville a couple of weeks ago by Rory Duncan (pictured), the vice president in charge of IDC’s BuyerView research program. Yes, he noted, businesses are deeply concerned about inflation, interest rates, and labor shortages, but so far that hasn’t slowed their technology spending. To the contrary, in fact, a solid majority of decision-makers recognize that remaining competitive amidst economic headwinds requires more spending.

“Almost 60% are saying our IT will require major change,” Duncan said during an insight-laden keynote presentation. “They know that we’re going to have to spend money on this.”

They know they need to commit that money now too. “This is something they’re doing in the next 12, 18 months to two years,” Duncan says.

That’s a giant opportunity for managed service providers, he continues, and especially those with the four key attributes that top-performing MSPs have in common, according to IDC data:

1. Rapid revenue growth

Best-in-class MSPs increased average revenue in key segments like cloud computing and security by $2,500 to $10,000 per user between 2019 and 2022, IDC research shows. That’s faster than their peers and not terribly surprising until you consider the important role that supplementing monthly management fees with one-time professional services engagements played in that growth. End users need help designing, implementing, and optimizing solutions in areas like analytics, Duncan observes, and savvy MSPs make big money meeting that need.

“It’s not just about buying technology,” he says. “MSPs are seen as being critical for offering these data-driven, decision-making tools.”

2. Gradual but continual margin growth

Successful MSPs collect margins averaging 15-19% minimum on everything they do and more for many services, Duncan says. They rely on specialization, he adds, to keep that number rising.

“MSPs generally specialize more than other service providers or the average service provider, and this is because there is this recognition that the route to premium services can be done through specialization,” Duncan says. “Premium services have higher margins.”

MSPs can specialize in two different ways, moreover. One is acquiring deep knowledge of a widely needed technology segment such as compliance. Some two-thirds of businesses surveyed by IDC, in fact, call compliance an extremely important requirement.

“It’s the first question from a vertical perspective that often needs to be addressed,” Duncan notes, particularly in industries like healthcare and financial services.

3. Selective vertical specialization

Focusing on specific vertical industries, as it happens, is the second way top MSPs specialize. “For the next 12 months to 24 months, the number one lead activity for MSPs is going to be targeting currently unaddressed market verticals,” Duncan says.

But not one vertical and not every vertical imaginable, he continues. The best MSPs zero in on two to four industries on average.

“This is about several as opposed to multiple,” Duncan says, “not too few, not too many.” Third-party vendors like event host Ingram Micro and event sponsor Zebra Technologies, he notes, can help MSPs break into new verticals by providing outsourced services.

4. Sky-high renewal rates

Helping businesses tackle industry-specific needs with end-to-end offerings that include professional services produces higher customer satisfaction. That, in turn, leads to higher contract renewal rates. Indeed, according to IDC, the most successful MSP’s average an 80% minimum renewal rate.

Figures like that and the others Duncan presented should reassure everyone in the channel. For all the macroeconomic risk factors out there at present, there’s plenty of reason for MSPs who embrace proven best practices—and vendors who help them do so—to be optimistic about the future, and not just in the long term.

“There is hope,” Duncan says. “There are challenges, but there’s also opportunity.”

Give us a call at Channel Mastered if you’d like to talk about seizing that opportunity by building a partner enablement program that helps MSPs maximize growth, for themselves and you.