# MSP Notes — Full Content ## AI is Infrastructure, Manage it as One **Author:** Gaidar Magdanurov | **Published:** 2026-06-22 **URL:** https://mspnotes.com/ai-is-infrastructure-manage-it-as-one **Tags:** Technology   You already design the IT infrastructure for failure. You put a UPS and a generator behind the power. You run a second circuit so a dead WAN link does not take a client offline. You keep backups and a DR plan because you assume, correctly, that storage and cloud services go down. AI deserves the same treatment, because it has become load-bearing in how you deliver services and critical for customer workflow. Alert triage in the SOC, ticket summarization and routing in the PSA, remediation scripts in the RMM, client reporting, first-line chat. And the same applies for the customer applications - most of them depend on AI in almost every business process now. And when the model behind those features is unreachable, or produces unexpected results, the workflow degrades or stops. The difference from a power cut is that most teams have not yet built a single contingency for it. And you are routing real work through a service you do not control and have no fallback for. ## How AI infrastructure fails There is a whole list of scenarios for AI failure: - Provider or regional outage. Every major cloud has had multi-hour outages. - Rate limiting under load. The moment your volume spikes, a shared API can throttle you. - Deprecation. A model version you tuned your prompts and workflows around gets retired. - Price changes. A per-token increase that looks small can quietly break the unit economics of an AI-assisted service you priced months ago. - Regulatory cut-off. On June 12, 2026, the US government ordered Anthropic to suspend its two newest models for any foreign national, and the company switched them off for all customers within hours. No deprecation window. That is now a documented failure mode, not a hypothetical one. Any one of these takes your AI layer offline or makes it economically unsustainable for you or your customers. However, all of those scenarios are survivable if you planned for them. ## The two contingencies that matter Reliability is your product. So build for AI the way you build for everything else in the delivery path: redundancy you can fail over to, and a copy you control. This applies to your infrastructure and projects you deploy for your customers. **Run more than one provider with smart routing**. Do not single-source the model. Put a thin routing layer in front of your AI-dependent workflows so that when one provider is down, throttled, restricted, or repriced, traffic shifts to another automatically. This is multi-WAN logic applied to AI. The point is that failover happens by design, not as a 2 a.m. scramble while tickets pile up. Having more than one provider also gives you somewhere to go when one of them changes its pricing. **Keep a local model you control**. For the workflows that must not fail, run an open-weight model on your own hardware or customer infrastructure. Mid-sized models that can be suitable for certain workflows run on a single workstation-class GPU. It will not match the best cloud model on raw capability. That is fine. This is the same logic as keeping a local backup: the cloud copy is better day to day, but the local copy is the one that saves you when the cloud is unreachable. Size the local model for "good enough to keep the SLA alive," not "best in class." Solutions like [Acronis Cyber Frame Local](https://www.acronis.com/en/products/cloud/cyber-protect/cyber-frame/) help you provision the virtual machines, storage, and networking needed to host private AI applications, local model runtimes, RAG systems, vector databases, and agentic workflow automation stacks in your data center or on customer premises. ## What to do now - Map where AI sits in your delivery and customer services: which workflows, which tools, which providers. - Separate the AI that touches an SLA-bound service and critical processes for your customers from the AI that is merely convenience. - For the critical paths, stand up one real fallback: a second provider behind a routing layer, or a local open-weight model, depending on the workflow. - Test the failover. An untested fallback is not a fallback; the same rule you already apply to backups and DR. Kill the primary on purpose and confirm the work keeps moving. - Make sure you communicate the value of this to your customers - this is a good point to show your expertise and leadership to your customers. --- ## The MSP Business is Changing Faster than Most MSPs are **Author:** Gaidar Magdanurov | **Published:** 2026-06-12 **URL:** https://mspnotes.com/the-msp-business-is-changing-faster-than-most-msps-are **Tags:** Business Recent reports from Omdia and Jay McBain's presentations, highlight two issues: future growth for MSPs is not going to be easy, and there is a huge opportunity many MSPs are not leveraging yet. ## The market is tough Managed services revenue will grow 10% in 2026, reaching $650 billion globally. That sounds healthy. Yes, based on Omdia reports, there are over 330,000 companies fighting for managed service contracts. The market is crowded, churn in customer bases is high, and channel growth expectations for the year dropped in Omdia's latest polling. RMM and PSA software growth is slowing too, which is a reliable leading indicator: when MSPs stop adding seats to their tooling, they have stopped adding clients. > The problem is not demand. The problem is differentiation. Undifferentiated MSPs shrink. ## Shift from products to services For every $1 of infrastructure sold, the partner opportunity around it is $7.13. It breaks down as advice (16%), design (18%), build (27%), procure (5%), adopt (16%), and manage (18%). The resale transaction many MSPs relied on historically is 5% of the value. The other 95% sits in services before and after the sale. Software and services already account for 84% of partner revenue. Hardware resale margin is not coming back. This is very clear for MSPs relying on infrastructure resell. If they sell a client $50,000 of infrastructure and stop there, they captured the worst slice of a $350,000 opportunity. The MSP that wraps assessment, design, deployment, adoption, and ongoing management around that same deal earns seven times more – at better margins, on recurring contracts. ## AI is the biggest open opportunity, and clients cannot do it alone The AI services market for partners grows from $59 billion in 2025 to $267 billion by 2030 – a 35% annual growth rate. Three data points explain why this lands on MSP desks: - 47% of customers say they will rely on specialized partners for agentic AI – the largest single answer, ahead of building in-house or buying off the shelf. - 70% of customers report that fewer than 20% of AI proofs of concept reach production. The main blocker is integration and architectural complexity – exactly the work MSPs do. - 59% of customers now have dedicated AI budgets, and 40% of those budgets exceed $500k. There is a catch. 82% of partners say they need more vendor support to sell AI, and lack of vendor enablement is the top adoption barrier at 32%. The practical move: pick one or two vendors who invest in AI training, certifications, and co-selling, and go deep. Do not spread across ten vendor programs that each give you a webinar and a logo. The service lines that pay: AI readiness assessments, data preparation and governance, integration into existing workflows, and ongoing management of AI security and compliance. None of this requires building models. All of it requires knowing the client's environment – which is the asset MSPs already own. ## Cybersecurity remains the strongest engine Global cybersecurity spending hits $311 billion in 2026, up 12.1%. Two-thirds of that is services, not technology. And 91.7% of all cybersecurity spend is sold through or with partners. Within services, the growth is in exactly the categories MSPs can deliver: MDR up 15.2%, deployment and integration up 16.4%, remediation up 66.4%. Managed security services overall grow 14.4% to $106 billion. In Omdia's channel survey, 73% of partners are investing in managed security services, 70% plan to co-deliver with other partners, and 63% will use AI agents for specific security tasks. Notably, 65% also plan to reduce internal headcount – the direction is leaner delivery, with AI and automation carrying more of the operational load. Margin in security services will increasingly come from delivery efficiency, not just price. ## The buyer changed, sales motions probably did not Three findings about how clients buy now: - 75% of B2B buyers do not want to talk to a salesperson. They research digitally, compare on marketplaces, and arrive with an opinion. - Buying decisions form across roughly 28 touchpoints: peer groups, review sites, communities, podcasts, AI assistants like ChatGPT, and events. Cold outreach reaches buyers after they have already decided. The implication for a 20-person MSP is not "hire a marketing team." It is: be visible where your buyers already gather. Local peer groups, one or two review platforms with real client reviews, a steady presence in the communities your vertical trusts. Visibility compounds; campaigns do not. ## What to do next The model that resells products and bills for tickets is being replaced by one that sells outcomes across the full client lifecycle. The market will keep growing 10% a year. Whether your business does depends on four moves: - Map your revenue against the services multiplier. If most of it sits in procure and basic manage, you are exposed. - Build one packaged AI service this year – readiness assessment is the natural entry point – with a vendor who funds your enablement. - Push security mix toward MDR and managed services, and use automation to protect margin as you grow. - Shift sales effort from outbound to visibility: reviews, peer groups, community presence. Do not try all four at once. Pick the one that fixes your weakest number – growth, margin, or retention – and start this quarter. --- ## The Internet is Being Rebuilt for Agents and it is an Opportunity for MSPs **Author:** Gaidar Magdanurov | **Published:** 2026-03-26 **URL:** https://mspnotes.com/the-internet-is-being-rebuilt-for-agents-and-it-is-an-opportunity-for-msps **Tags:** Business, Technology   The internet was built for people clicking through pages, filling out forms, and deciding in real time. It is no longer the case. The next wave of "users" arriving on the internet are AI agents that act on behalf of humans. Gartner projects that 40% of enterprise applications will embed task-specific AI agents by the end of 2026. Akamai reports AI bot traffic surged over 300% across its network in 2025. And Gartner predicts that by 2028, 90% of B2B buying will be agent-intermediated, pushing over $15 trillion through agents. Yet, most businesses are not ready for this. Their websites are designed for humans. Their checkout processes require form-filling that is hard for agents to navigate. Their data is locked inside visual layouts that look beautiful to people but are hard for agents to consume. For MSPs, this gap between where the internet is going and where most businesses are today is exactly the gap that creates advisory revenue opportunities. ## Websites for agents It may seem that an AI agent can simply use the internet the way a human does: open a browser, read the text. Yet, it is not the best way for agents to consume the content. The modern web relies on visual hierarchy. Headings communicate the importance of size. Navigation uses spatial positioning. Product pages rely on images and layout. Agents do not care about it. They care about data relationships, not pixels. Most websites could not provide the structured information agents prefer. Sites without machine-readable data see agents disengage. "Why are all the AI agents going to our competitors?" is going to become a common refrain for your customers soon. A business whose website is optimized only for human visitors is becoming invisible to an increasingly large share of how research and purchasing decisions are conducted. ## Changes needed The immediate needs fall into three areas: - **Structured data and schema markup**: Every product page and service description needs markup that communicates what the content means, not just how it looks. This is the single highest-impact change most businesses can make today. - **Machine-readable content layers**: New standards like llms.txt — a Markdown file at a site's root that gives AI systems a concise overview of key content — are emerging as the agent equivalent of sitemaps. - **API-first design**: Agents do not fill out forms. They want direct, programmatic access to information and transactions. Businesses that expose clean APIs for products, pricing, and availability will be the ones agents can interact with. ## Tools for agents To illustrate the transformation, let's talk about the tools available to agents. As AI agents are becoming operational entities that need the same infrastructure human workers have always had. A growing ecosystem now provides agents with the capabilities they need to work on behalf of people. - **AgentMail**: Email infrastructure for agents — their own inboxes with threaded conversations, semantic search, and structured data extraction. - **AgentPhone** and **Kapso**: Phone numbers and WhatsApp access for agents, covering the two communication channels that dominate business interaction globally. - **ElevenLabs** and **Vapi**: Natural voice synthesis and real-time phone conversation capabilities. An agent powered by these tools can handle front-line phone inquiries around the clock. - **Browserbase, Browser Use, Hyperbrowser**: Full browser automation — navigating sites, clicking elements, filling forms. - **Firecrawl**: Web crawling without a browser, turning messy websites into clean Markdown or JSON. - **Exa**: Semantic search built for agents. Traditional search engines rank by backlinks and ad spend — signals designed for humans. Exa uses neural embeddings to understand query meaning. - **Kite** and **Sponge**: Payment infrastructure for agents. - **Sixtyfour**: Agent-optimized search for discovering people and companies — the prospecting and research work that sales teams have done manually for decades. For your customers who sell products or services online, the practical question is direct: can an AI agent purchase from your business today? And for everybody, the practical question is even more straightforward: Can the agent use the tools available to it interact with your product and services? ## The opportunity You, as an MSP, can provide guidance to your customers. Focus on the foundational web optimization work that pays off regardless of how fast agent adoption speeds up. The structured data work is good practice even in a world where agents arrive slower than predicted. The internet is being rebuilt. The question is not whether this affects your customers — it is whether you are the one guiding them through it. --- ## What the LiteLLM Attack Means for the MSPs **Author:** Gaidar Magdanurov | **Published:** 2026-03-25 **URL:** https://mspnotes.com/what-the-litellm-attack-means-for-the-msps **Tags:** Business, Technology   The [recent supply chain attack on litellm](https://gaidar.net/supply-chain-attack-via-litellm-a97d1cf95df3) highlighted the problem - every software vendor and every customer using any software with third-party libraries is exposed to vulnerabilities in the dependencies of those libraries. A poisoned version of a popular Python library with over 90 million monthly downloads could harvest SSH keys, cloud credentials, database passwords, and every API key stored on the affected machine. The attack was caught by accident — a bug in the malicious code crashed a developer's machine, triggering an investigation. Without that bug, it could have run undetected for weeks. For MSPs specifically, the question is not just "how does this work." The question is: what do you do about it for your customers, starting right now? ### MSP challenge Most MSPs have built their managed security offerings around a well-understood perimeter: endpoints, email, network, identity, and patching. These are necessary yet insufficient. The litellm payload arrived through a legitimate package manager, executed during a routine dependency install, and targeted credentials stored on an endpoint. No malware signatures to detect. No phishing email to filter. No unpatched vulnerabilities to close. ### Things to do now If you have customers who develop applications, consider: **1. Treat all endpoints as high-value targets.** Most MSPs apply their strongest monitoring and access controls to servers and cloud infrastructure. Workstations often go unprotected. Yet, the litellm attack showed that every endpoint can be an entry-point. A developer's laptop often has long-lived cloud credentials, database connection strings, CI/CD tokens, and SSH keys sitting in plaintext files. One compromised `pip install` and all of it is gone. Elevate workstations, especially developer workstations, to the same security tier as your customer's production servers. Apply the same monitoring, the same alerting, the same access controls. **2. Push customers to eliminate long-lived credentials on local machines.** This is the single highest-impact change. If an attacker exfiltrates an AWS access key that expires in 60 minutes, the damage window is narrow and containable. If they exfiltrate a static access key that has been sitting in a `.env` file for 18 months, they have persistent access to your customer's entire cloud environment. Work with your customers to move credentials into a secrets manager and enforce short-lived, scoped tokens issued through their identity provider. This does not prevent the attacks from executing. It makes the stolen credentials worthless before the attacker can use them. **3. Monitor outbound traffic from workstations.** The litellm payload had to send the harvested credentials somewhere. That means outbound network traffic to an unfamiliar endpoint, likely with an unusual payload size. Most MSPs already have the tooling to detect this — DNS filtering, outbound traffic analysis, anomaly detection. The gap is that these tools are typically pointed at servers and general endpoints, not specifically at developer workstations. Extend coverage. Create alerting rules for unusual outbound connections from machines where development tools are installed. This is a detection layer that you can deploy within your existing stack. **4. Offer dependency auditing as a managed service.** Most engineering teams don't pay attention to what their projects install. A single top-level package can pull in 40 or 50 dependencies, each one maintained by a different person or team, each one a potential attack vector. Tools like `pip-audit` or `npm audit` provide automated scanning that flags known vulnerabilities and suspicious packages. Package it as a recurring service: weekly or monthly dependency audits with a report that goes to the CTO. **5. Implement a process to manage the dependencies of your and customer applications.** Advise your customers to enforce a policy where no new dependency - and no version upgrade of an existing dependency - goes into production-bound code without review and explicit approval. Pin exact versions. Verify checksums. Do not allow automatic upgrades. A developer who pinned `litellm==1.82.7` with a hash check would not have pulled the poisoned `1.82.8`. ### Conversation starter Most business owners and many CTOs do not understand that their development teams implicitly trust thousands of strangers every time they build software. The concept of a transitive dependency - code you did not choose to install, written by someone you have never heard of, running with full access to your machine - is foreign to anyone who has not worked in software development. Frame it simply. Every package developers install comes with a tree of other packages, sometimes dozens of layers deep. Any of those packages can be compromised by a single attacker gaining access to a single maintainer's account. When that happens, every machine that installs the update hands over its credentials. No phishing required. No user error. Just a routine installation. Then tell them about the litellm case. Ninety million downloads per month. The poisoned version lived for less than an hour. Caught only because the attacker's code had a performance bug. **Ask them: would your team have noticed?** ### The opportunity The type of conversation you can have with your customers about attacks like litellm is a way for you to serve as a trusted advisor and build stronger relationships with your customers. Not to mention, an additional revenue stream from protecting workstations that are usually not protected. --- ## Doubling MSP Productivity Leads to 5x Margins **Author:** Gaidar Magdanurov | **Published:** 2026-03-04 **URL:** https://mspnotes.com/doubling-msp-productivity-leads-to-5x-margins **Tags:** Business Most MSP owners track revenue, cost, and margin and clearly understand how discounts and variable costs affect their margins, yet quite a few don't appreciate how much improvement in the productivity of their tech team and ability to serve more customers influence their margins. Today, with the widespread of AI tools to automate MSP productivity, and availability of [natively integrated platform for MSPs](https://www.acronis.com/en/products/cloud/cyber-protect/), significant increase of productivity is possible, and the margin impact for MSPs is substantial. The math behind MSP profitability is surprisingly simple. And it reveals something most business owners overlook: a modest improvement in productivity can produce an outsized improvement in profit margins. ## The Labor Cost Problem An MSP is a service business. MSP technicians are the product. Everything else — the software licenses, the office space, the back-office overhead — is secondary. Labor accounts for up to 80% of a typical MSP's total costs. An average MSP operates with profit margins of 8% to 12%, far below other professional services like legal and financial firms that average 30% to 35%. Even best-in-class MSPs — roughly the top 25% — rarely push the margin past 15% to 17%. When 80 cents of every dollar goes to labor, there is almost no room to squeeze an additional profit from existing operations. They can raise prices — but commoditization pressure makes that harder every year. They can cut costs — but they are already lean on non-labor costs, and good technicians don't come cheap. Adding customers typically means hiring more technicians, which resets the equation back to the same thin margins. This is the trap most MSPs are stuck in. Revenue grows. Headcount grows. Margins mostly stay flat, if not decrease. ## The Productivity Solution There is a way out of this trap, and it does not require raising prices or cutting staff. If the existing team can oboard and handle more customers without a proportional increase in labor cost, the entire economic model of the MSP business shifts. Let us walk through a specific example. Consider an MSP with $1 million in annual revenue and operating at a 10% profit margin. Here is their current cost structure: - Revenue: $1,000,000 - Labor cost: $720,000 (72% of revenue) - Variable cost: $180,000 (software, admin, vendor fees — 18% of revenue) - Profit: $100,000 (10% margin) Now, suppose the MSP doubles their productivity. Their existing team takes on twice the customer base, revenue grows to $2 million. What happens to costs? Assume labor stays at $720,000 — same team, same salaries. Variable costs double proportionally to $360,000 — more licenses, more admin overhead for the additional customers. - Revenue: $2,000,000 - Labor cost: $720,000 (unchanged) - Variable cost: $360,000 (doubled) - Profit: $920,000 The profit margin j**umps from 10% to 46%**. The profit goes from $100,000 to $920,000 — nearly a 10x increase. > Doubling productivity does not double margins. It multiplies them roughly five times over. Of course, the example oversimplifies the matter, as the labor cost may increase, the may be scenarios that the existing team can't cover, but the direction stays. ## Why This Matters Now? This is not an abstract thought experiment. The technology to achieve meaningful productivity gains already exists, and MSPs are already using it. Acronis partners report that they use to manage 200-250 endpoints per technician and are now hitting 350, with best in-class covering over 500. AI-driven automation is producing measurable results across the industry. [Leading MSPs report](https://www.acronis.com/en/blog/posts/msp-trends-2026-creating-opportunities-in-a-difficult-market/) 15% to 25% technician productivity gains and 40% to 70% reductions in ticket resolution times. AI-powered tools can handle 70% to 80% of Level 1 issues automatically, freeing technicians for higher-complexity work. The productivity gains are not limited to ticket automation. Consider the full scope of repetitive work that consumes technician time: user onboarding, patch management, monitoring alerts, password resets, device provisioning, and compliance reporting. [Tech Rage IT](https://rewst.io/success-stories/how-tech-rage-it-saved-60k-a-year-automating-new-user-onboarding-with-rewst/) found that their technicians spent nearly 20% of their time on monotonous onboarding tasks. Automating that process alone reduced time spent by 80% and saved $60,000 annually. ## The Strategic Choices of Productivity When the MSP team becomes twice as productive, they face three strategic options — and each one transforms the competitive position: - **Grow revenue at constant cost.** Take on more customers with the existing team. - **Lower prices to win market share.** If the cost drop, they can undercut competitors while maintaining the same absolute margin. In a commoditizing market where traditional helpdesk services are under pricing pressure, this is a powerful tool. - **Reinvest in higher-value services.** Use the freed technician time to move into cybersecurity, compliance advisory, and cloud migration — services with higher margins and lower commoditization risk. Most successful MSPs will pursue a blend of all three. The point is that productivity improvements give them options. Thin margins give none. What is clear - MSPs that invest in driving productivity will have the advantage, and those not investing in productivity will risk going out of business. Sounds harsh, yet it is the reality of today. ## What Can You Do? Measure revenue per technician, endpoints per technician, and tickets resolved per technician. These are the productivity numbers. And productivity drives your margins. Audit where your technicians spend their time. The repetitive, rule-based tasks — onboarding, patching, alert triage, password resets, basic troubleshooting — are the targets for automation. Consolidate your vendor stack. Twenty-five tools mean twenty-five integrations, twenty-five vendor relationships, and twenty-five training requirements. Fewer tools that work well together will produce more capacity than a sprawl of best-of-breed point solutions. The MSPs that will increase their productivity this year will define the competitive landscape for the decade that follows. The rest will be working harder for the same thin margins, and eventually will go out of business. --- ## Guide for MSPs on Leading AI Adoption for Their Customers **Author:** Gaidar Magdanurov | **Published:** 2026-01-28 **URL:** https://mspnotes.com/guide-for-msps-on-leading-ai-adoption-for-their-customers **Tags:** Business, Technology AI adoption is rapidly accelerating across companies of all sizes, yet in most cases it is happening without strategy and governance, diminishing effectiveness and creating security risks. “Shadow AI” is the modern plague. This creates a major opportunity for MSPs to step up as trusted AI adoption advisors, increase customer satisfaction, and establish one more revenue stream. Reviewing recent research by a variety of analyst firms, we identified the top three AI implementation risks for SMBs that MSPs can reduce: lack of visibility on AI usage, AI usage policy, and operational control. ## 1. Transition from “Shadow AI” to managed AI The number one challenge for most businesses is unsanctioned AI usage by employees. They use a variety of services and produce results of unknown quality, as well as expose confidential business information to AI tools that do not provide privacy and confidentiality. Guide for MSPs: - Audit AI usage across all endpoints. If you use [Acronis](https://www.acronis.com/en/products/cloud/cyber-protect/security-edr/), then enabling GenAI security on endpoints will enable AI usage tracking. - Define a list of approved tools. - Document a clear AI usage policy for the company. - Offer AI usage monitoring as an ongoing managed service - Offer automation of business processes using AI tools–deploying and configuring agents, implementing processes and workflows for customers. Those projects can be part of the ongoing managed services offering or one-off projects. The key selling message for the customers is helping them to gain productivity in a managed environment. ## 2. AI literacy as a service A lack of AI literacy among employees and management is one of the biggest blockers to gain productivity. Many organizations do not systematically train their employees on AI tools and prompt engineering, not to mention workflow automation. MSPs can lead here and add another training service in addition to security awareness training, making AI literacy a billable service. Guide for MSPs: - Build or license AI literacy training. - Design an onboarding and continuous training process on AI tools for the employees. - Offer coaching on AI automation for business processes specific to a customer. Key selling points here are that employees training on AI are more productive, delivering more value to the business, as well as reduced risk of a security breach or confidential data disclosure because of human errors. ## 3. Secure data and workflows Data leakage via AI prompts is already causing incidents, including exposure of source code and confidential business data. The risk increases as employees upload files or reuse sensitive information in AI interactions. Guide for MSPs: - Classify sensitive data and define policies for data usage with AI. - Enforce prompt restrictions and data loss prevention controls. If you use Acronis, the tools will be available as a security plan in the next three months. - Integrate AI usage into existing data security and compliance frameworks. The key selling point here is that AI workloads should be treated the same as other types of workloads, like endpoints, servers, virtual machine or Microsoft 365 accounts. All workloads require cyber protection, management, and automation. ## Call to action AI is here. However, for many customers, safe AI adoption is still optional. Eventually, AI protection will be a default option like backup and endpoint protection. While few MSPs are providing those services, you can be one of the first and gain a competitive advantage. Consider taking the following three steps now: - Educate your team on AI – for their own productivity and for the scenarios they could implement for your customers. - Design managed AI service offerings, and offer them on top of your traditional packages or include them into higher tier packages and use them to upsell customers to the next tier. - Upgrade your tools to enable AI workload protection, management and automation. The opportunity is here to take, yet you have to act fast. --- ## Practical Marketing for MSP. Part 4 - Referrals, Local SEO **Author:** Gaidar Magdanurov | **Published:** 2025-10-18 **URL:** https://mspnotes.com/practical-marketing-for-msp-part-4-referrals-local-seo **Tags:** Marketing In [the previous article of the series](../../../practical-marketing-for-managed-service-providers-part-3-marketing-tactics), we discussed an approach to selecting marketing tactics based on the resources available. Advanced marketing tactics will likely be ineffective without sufficient resources for implementation and maintenance, as well as dedicated time to collaborate with teams on securing contracts. However, there are tactics that can provide a stable flow of incoming prospects with minimal time investment. Based on feedback from participants in my marketing workshops, they report getting 1-3 customers per quarter by using these simple tactics. ## Referral marketing A basic tactic for getting referrals is to ask your existing customers, partners, vendors, friends, and family for referrals to customers who need IT services. The best practice here is to make the referral process as easy as possible. Start by crafting a concise email and a 1-2 page document that clearly outlines your services for potential customers. Ideally, include a quote or a few from the existing customers praising the positive experience of working with you. Ensure the email is easy to forward and that its formatting is intact after multiple forwards. Simple paint text with neat text formatting works well. Here are some ideas for a [referral email content](../../../files/8/Referral_email_template_ideas.pdf). The document should be easy to read and include the most essential information, suggesting that the reader call, email, or visit your website as an action item. Here are some ideas for the content in an [editable Word document](../../../files/7/MSP_One_Pager_Simplified.docx). You can create emails and documents tailored to the profiles of your customers and the services you provide. For instance, those you helped with Microsoft 365 onboarding may recommend you to their friends who are struggling with the same issues. Those who got a complete infrastructure refresh from you may recommend you for that. Being more specific helps - you get higher quality recommendations and, usually, faster conversions of prospects to customers. You can send the email templates to your customers, provide them with the file or printouts, or ask them to display printouts at their business locations. Local stores can be an effective way to distribute your marketing materials. Simply asking your customers goes a long way... Just don't forget to say "thank you" and send a small gift with a handwritten "thank you" card—simple tokens of appreciation that help drive your business work really well with SMB owners. ### Referral program A more advanced tactic is creating a referral program, offering incentives to customers, partners and employees for referring customers. If asking your customers to promote you for free does not work, a referral program can be a logical next step. The referral program defines incentives for referrals for clients, partners or employees, and the program design depends on your clients' [lifetime value and cost of acquisition](../../../practical-marketing-for-msp-part-2-marketing-funnel-and-metrics). Clients can be rewarded with gift cards or special client appreciation events, such as dinners, sports events, shows, and trips. However, it is becoming more popular to provide direct account credits. The value of the credit is easy to determine if you estimate your customer acquisition cost at $9,000; then, giving $5,000 credit for a referral that led to a successful annual contract sign-up looks like a bargain. Similarly, it may work for referral partners - various SMB associations and groups, business owner clubs, and insurance agents. However, with partner referral, it is more common to have a commission on the first year's revenue from the clients. Typical commissions are in the 15-30% range, with the potential for additional commission as the volume of successful referrals grows. Thus, commissions may be offered on a sliding scale - the higher the number of referrals, the higher the commission for the next successful deal. Finally, don't forget about your employees. They have family, friends, former colleagues and contacts in various social settings. Offering generous bonuses for signed contracts based on employee referrals can help to build the initial client base while the business is small.  ## Local SEO The most underutilized marketing tactic for MSPs is leveraging Google search and Google Maps to promote your business to those already searching for IT services in your location. Restaurants and shops are using this tactic aggressively, and this tactic works for MSPs, yet very few really utilize it. Here is an example. A doctor starting his own practice in Sydney is looking for IT support. When he types "it support for doctors," he will see a recommendation of a local business offering IT services for Medical IT.![](https://web.archive.org/web/20251113122702im_/https://mspnotes.com/static/img/local_seo_medical_it.png) The reason this happens is that Medical IT has a business profile set up with Google. And this is [something you should do immediately](https://support.google.com/business/answer/2911778) if you haven't already. Make sure you provide all the necessary information and add photo and video content. This will increase your chances of getting clicks and attracting "free" incoming leads for your services. ### Local SEO best practices When designing and optimizing your business profile for local SEO, consider the landmarks and specific businesses in the area and how your profile aligns with local searches. Consider how your [differentiation and strategy](../../../practical-marketing-for-managed-service-providers-part-1) may play out here, like focusing on medical professionals in the example we used. Consider the types of searches your target audience is making while looking for your services. If you are based in a specific area, use local landmarks. For instance, a law firm in Barangaroo in Sydney may be looking for "it support near me", or "it services for law firms in Barangaroo". Being more specific with descriptions in your business profile may help with targeting, or may limit the people seeing your ads, looking for the right balance and optimizing your content. And, lastly, don't forget to collect reviews—the content of the reviews and ratings matters. Higher ratings and more reviews increase your business's visibility and improve the chances of being contacted. If you have multiple physical locations, consider experimenting with targeted advertising. Some businesses rent small offices or co-working spaces to increase their visibility in targeted locations. ## Conclusions The marketing tactics we discussed in this article are simple, require minimal time to prepare and execute, yet provide real value to MSP businesses. Effectiveness of the tactics depends on the location and competition in the area, quality of services, and how active your customers, partners and employees are in referrals. Yet, as of today, there is no reason not to invest a little time in implementing those tactics. --- ## Practical Marketing for MSP. Part 3 - Tactics **Author:** Gaidar Magdanurov | **Published:** 2025-09-16 **URL:** https://mspnotes.com/practical-marketing-for-managed-service-providers-part-3-marketing-tactics **Tags:** Marketing Now that we have [a strategy for our MSP](../../practical-marketing-for-managed-service-providers-part-1) in place and a good grasp of [marketing metrics](../../practical-marketing-for-msp-part-2-marketing-funnel-and-metrics), it is time to review marketing tactics and proceed with planning. Before kicking off the planning, we should take a critical look at the resources we have available and investments we can afford to direct towards sales and marketing. It seems logical that generating a large number of leads would be pointless if there is no capacity to follow up on them and close the deals. Yet, many MSPs start by investing a significant amount of money to generate incoming leads, only to end up disappointed, as they fail to see the conversions and business growth they had hoped for. ## Selecting marketing tactics Here is a simple table that could be used as a tool to choose marketing tactics based on the resources available for sales and marketing. On the left side, in the criteria column, every next row assumes that it is added on top of what is covered in the previous rows. **Criteria** **Tactics** Core service offering Referrals, “local SEO” (inbound), website + Marketing strategy/differentiation + Content, useful tools, educational materials (inbound) + Dedicated/allocated sales resource + Cold calling, LinkedIn outreach, events/networking + Dedicated/allocated marketing resource + Community marketing, Campaigns and email nurtures + Substantial marketing budget + Digital marketing (paid ads, paid social) + Marketing is a priority + Account-based marketing (ABM) Now, let’s discuss this table in detail. If the MSP only delivers **basic managed services** and does not provide a differentiated marketing strategy, marketing investments most likely won’t have positive returns, and the best tactics are those that come “for free”. Asking existing customers and partners to refer potential clients, and ensuring the MSP is discoverable in search, and has a solid description of the services on the website. The moment there is a **differentiated marketing strategy** – focusing on a specific vertical, unique expertise, and services an MSP can offer - it is a good time to add content marketing and create content that is useful for prospects and clients. This approach should focus on sharing educational materials and expertise. It comes at a low cost and brings reasonable-quality leads. The approach is to showcase differentiation and expertise, and collect leads from potential clients interested in the offering and expertise. When **dedicated sales resources** are available, even if only part-time, activities can expand to include cold calling local businesses, finding local businesses on LinkedIn, initiating conversations with them, and attending local events. The approach is to use direct outreach to deliver the story of the MSPs to potential prospects, researching them, and trying to sign them up as customers. Only when **dedicated marketing resources are available**, even if they are part-time, will it make sense to have scalable campaigns and invest money in marketing. Employing digital marketing and account-based marketing makes sense when there is a sufficient budget to make an impact and marketing is a priority for the company, as these tactics require a significant investment of time and resources. ## Marketing tactics used by most MSPs Based on our experience working with thousands of MSPs, most MSPs primarily use referrals as their primary tactic. Some visit networking events or host their own events, and follow up with emails. That makes sense, as marketing is not really a priority for MSPs. Most claim that they want to grow their business, yet in reality, they acquire only 4-8 new customers a year, to replace the churn of their existing customers. ![](../../../static/img/marketing_tactics_graph.png) There is a common misconception that marketing does not make sense without using multiple tactics. In reality, having a solid strategy and executing a few key tactics well may be enough to reach business goals. In future articles of the series, we will discuss tactics and best practices. Here, we only list the top five: - **Referrals** – various ways of getting existing customers to bring new business, and leveraging the network of connections to get direct referrals. Hint: It works best if there is a simple story that is easy to tell and share, highlighting the key differentiator. - **Events** – going to industry events, participating in local business meetups, organizing lecture and webinars on IT. - **Email** – sending relevant technical news, tips and tricks for business owners, and building image of an expert in the field among the contacts that an MSP was able to collect. - **Social media** – posting relevant news and comments, joining relevant discussions and providing useful advice for the people in need. Hint: focusing on local businesses and joining the right group is the key to success. - **Content** – producing various useful materials and recommendations, posting articles and videos with tips and tricks. Distributing value for free, in exchange of building awareness of the MSP services. However, regardless of the tactics employed, three key success factors for marketing should be considered when planning and executing activities: consistency, commitment, and persistence. ### Consistency Having a well-defined and well-documented story is a must. At any given moment, potential clients should receive the same consistent message. If you target doctors and offer IT services specific to doctors, stick to the story of being an expert in the field. If you jump around and discuss your expertise in cybersecurity, cryptocurrency, or AI-based coffee machines, it may be a good story for a conversation; yet, a focused and repeatable message will stick better and, in the long run, will yield better results. ### Commitment Most marketing activities fail because MSPs start them and stop them before they see results. Running a small ad campaign, visiting a few events – it is, most likely, not enough to see the impact. Marketing is effective only when it is planned for long-term execution. Thus, a marketing plan is a commitment to execute it. ### Persistence We live in a world overloaded with information. It is amusing to say that, but your offer of IT services competes with everything else in the head of the SMB business owner – casual games, new cars, and solar panels. New information and marketing messages are coming from everywhere. Therefore, it is essential to consistently deliver the same message to the same person multiple times until they react to it. Based on personal experience running digital marketing campaigns, 10 years ago, people would react to ads and visit a landing page after eight impressions, and now they require over 16. [Attention span has been reduced dramatically](https://www.universityofcalifornia.edu/news/cant-pay-attention-youre-not-alone) in recent years. You only have [15 seconds](https://blog.youtube/creator-and-artist-stories/youtube-creator-playbook-tips-first-15/) to grab the attention of a YouTube video viewer. And it's only getting worse. ## Conclusions Effective marketing requires a consistent, repeatable message and continuous execution. Carefully estimate the resources available for marketing, and design a marketing plan that takes into account your ability to execute it in the long run. Based on experience, marketing can take a long time to yield results, and those who are willing to play the long game are winning business from those who don’t. --- ## Practical Marketing for MSP. Part 2 - Funnel and Metrics **Author:** Gaidar Magdanurov | **Published:** 2025-09-10 **URL:** https://mspnotes.com/practical-marketing-for-msp-part-2-marketing-funnel-and-metrics **Tags:** Marketing In the [first article](../../../practical-marketing-for-managed-service-providers-part-1) of the series, we took a practical approach to designing an MSP strategy. Let’s take the same approach to discuss the marketing funnel, metrics and plan. ## Marketing funnel The marketing funnel is a key concept for evaluating marketing performance. The funnel provides a clear view of the process of generating interest among prospects and converting them into customers. Traditionally, the funnel is split into six stages (awareness, interest, consideration, conversion, signup and advocacy), and those stages are grouped into four blocks (Top of the Funnel, Middle of the Funnel, Bottom of the Funnel). ![](../../../static/img/marketing_funnel_plan.png) Let's looks at three most important stages: **Funnel stage** **Description** **Example** **Top of the Funnel (ToFu): **Awareness Prospects are aware of the problem and interested in a solution; they discover your services. An SMB business owner attends a webinar about cyber insurance hosted by an MSP and learns that they need the insurance; to obtain it, they must ensure their infrastructure complies with a specific checklist. **Middle of the Funnel (MoFu): **Interest and Consideration Prospects are exploring your offering and determining how it aligns with the problem they have. The SMB business owner is interested in using managed services from the MSP that made a presentation, because the MSP is offering to implement all the requirements for obtaining cyber insurance at a favorable rate. **Bottom of the Funnel (BoFu): **Conversion Prospects are reviewing your offering with the intention of becoming a customer if it meets their needs. The business owner receives a proposal and negotiates a service-level agreement. **Sold or Converted: **Retention & Advocacy Prospects buy the service, and start talking about the service they are getting to other prospects. The business owner signs a contract and becomes a customer. The MSP onboards the customer and starts active management. The business owner discusses the high quality of services they are receiving from the MSP with their friends, and the MSP receives new referral leads as a result of those conversations. MSP provides additional services to customers.   The funnel is a solid tool for thinking about the marketing process – how many potential customers understand the problem and seek a solution, how many of them are considering your services, and how many are actively evaluating the services. **Marketing metrics** One thing that comes as a surprise to most people starting learning marketing is that marketing is all about numbers. Marketing has stories and requires creativity, yet it all comes down to numbers – choosing metrics, setting up goals, and achieving those goals. Here are the most common metrics used by MSPs to measure their marketing efforts: **Awareness** # website visits, # content downloads, # social media engagements **Interest** % Email engagement (open, click), # webinar attendance, # content consumption **Consideration** # assessment requests, # proposal downloads, # reference calls **Conversion** $ contract value, # sales cycle length (in days), % win rates **Retention** $ MRR growth, $ service upsell/expansion, % churn rates **Advocacy** # referrals, # testimonials, % referral win rate, $ MRR from referrals   The metrics help to evaluate marketing performance at every stage of the funnel. The best practice is to measure the metrics and set targets for improving those that will have the most significant impact. Let’s look at a few significantly simplified examples: > Let’s imagine you have 100 new users visiting the website every month, and 50 submit an assessment request, and then only 1 signs up every month. Given that the conversion rate from the assessment requests to sign-ups is 2%, it would make more sense to look into ways to improve the conversion from assessments to sign-ups, rather than invest more money into getting more traffic to the website. > > > Or, imagine you get 1,000 new users coming to the website every month, but only 10 submit assessment request. With 1% conversion from visitors to the next stage of the funnel, it makes sense to look into what prevents the visitors from submitting the request. Is the form working well? Is the form easy to fill in? Is the content good enough and leading the visitor to make a decision? > > > And, if you have 100 new visitors a month, 10 submit requests and 5 convert, you have 10% conversion to assessment requests, and then 50% conversion to customers. Why not invest more in getting more quality traffic to the website? You will need to take a baseline for the metrics and then examine them to identify areas for improvement, focusing on those that you can directly impact. We will be looking into the tactics you can execute in future articles of the series. ## Key business metrics The metrics we discussed earlier help assess and optimize marketing performance; however, the ultimate goal of marketing is to directly impact key business metrics, including customer acquisition cost (CAC), monthly recurring revenue (MRR), and lifetime value (LTV). ### Customer acquisition cost (CAC) The formula to calculate CAC is simple – divide the total expenses of customer acquisition by the number of new customers. Total expenses include salaries of sales and marketing team, marketing expenses for online and offline activities, and expenses for tools used for sales and marketing. Let’s make a simplified calculation: > An MSP has a part-time sales person and part-time marketing person, and pays $6,000 per month for them and their business expenses. Monthly marketing budget is  $2,500. Website and content management system, SEO tools, CRM tools, LinkedIn Sales Navigator cost another $500. Therefore, total sales and marketing expenses are $9,000. On average, MSP acquires one new customer per month. Therefore, CAC =  $9,000/1 = $9,000. ### Monthly recurrent revenue (MRR) MRR is the total amount of money clients pay to an MSP every month. MRR includes all collections under long-term contracts, as well as recurrent service fees such as charges for backup and storage, but does not include one-off projects. Another simplified calculation: > An MSP has 50 customers with average contract value of $12,000. Thus, on average each customer pays $1,000 per month, and MRR = 50 x $1,000 = $50,000. ### Lifetime Value (LTV) LTV is the total expected revenue per customer that an MSP anticipates collecting. The formula is simple – multiply average contract value by the average number of years clients stay with an MSP. One more simplified calculation: > Our MSP with 50 customers for the last many years in business retains most customers for 2.5 years. Therefore, LTV = $12,000 x 2.5 = $30,000. ### Putting the metrics together CAC, MRR, and LTV enable MSPs to evaluate their business performance and forecast their financials, and marketing has a direct impact on all of them. Choosing the right messaging and right channels, and optimizing marketing campaigns, lowers CAC. Targeting specific customer profiles, signing up larger customers, and continuously upselling existing customers on new services increase MRR. LTV mostly depends on the quality of service and stability of the client’s business; however, upselling clients on additional services reduces the risk of the client changing service providers, as the cost of transition becomes higher. One frequent mistake owners of new MSPs make is pushing for recruitment of customers, significantly raising the CAC, before they can justify it by the LTV. If an MSP is spending more money on recruiting customers than they pay over their lifetime with the MSP, you will eventually run out of money. It is imperative to monitor marketing performance from a cost perspective and evaluate the quality of incoming clients based on the value they bring each month and over their lifetime. Spending more on sales and marketing eventually leads to diminishing returns – CAC is growing faster than LTVs, and this can be illustrated by the simple graph below. ![Marketing spend efficiency](../../../static/img/marketing_spend_effeciency.png) An effective marketing manager strives to optimize marketing investments to maximize value while monitoring long-term financial performance. It is easy to generate a high volume of new leads at a higher cost. Still, the MSP should have the capacity to sign them up and maintain the quality of service, thereby extending the value of contracts by adding more services (growing MRR) or keeping customers for longer (growing LTV). ## Return on Marketing Investment Another common pitfall for MSP business owners is not investing enough in marketing. The moment they are trying to scale your business and start making marketing investments to expand customer acquisition beyond referrals, it is essential to recognize that, up to a certain level of activities and expenses, marketing may not be producing results at all, or may produce only bare minimum results. Thus, it is crucial to conduct experiments and scale investment and activity to determine the optimal amount of investment that yields the maximum return. ![Marekting ROI](../../../static/img/marketing_roi.png) Most MSPs I have worked with have a 5x return on marketing activity, excluding the fixed costs of personnel and tools, which means that for every $1 spent on marketing activity, they expect to receive $5 in return over time. MSP spends $2,500 per month on digital marketing costs, expecting to make at least $12,500. If the expense brings one customer, it would mean that the LTV of the customer should be over $12,500. Having returns below 5x for most MSPs indicates that the sales and marketing efforts may not be profitable, after factoring in the costs of personnel, client support, licenses, and other miscellaneous client-related expenses. ![Marketing spend](../../../static/img/marketing_spend.png) Based on the experience with MSPs in 2024, most MSPs that are investing in marketing are spending around $2,000 on marketing per month, and we can anticipate that the amount will grow in 2025 as the cost of digital marketing and the cost of events are rising and expected to grow, while competition for clients becomes more aggressive.   **Conclusions** Marketing is all about the data and metrics. Marketing is much more than lead generation. Marketing encompasses everything from bringing in the client to retaining the client and expanding the portfolio of services provided to them. Marketing must consider the business's ability to sign up and retain clients, as well as its capacity to do so profitably. One of the best ways for MSP owners to evaluate marketing professionals they plan to hire is to ask them about the metrics they use and how they analyze them. If they can discuss volume of leads, conversion rates, and deal sizes, they are educated marketers. If they can discuss CAC, MRR and LTV and put it into the perspective of an MSP business, they are experienced marketers.   In future articles, we will discuss marketing tactics. --- ## Practical Marketing for MSP. Part 1 - Strategy **Author:** Gaidar Magdanurov | **Published:** 2025-06-30 **URL:** https://mspnotes.com/practical-marketing-for-managed-service-providers-part-1 **Tags:** Marketing There are numerous excellent books on marketing. There are countless excellent online courses and video series available on marketing. Yes, MSPs often lack the time and desire to invest significant time in marketing. Most MSP business owners, being technicians at heart, want to focus on the technology and the quality of service they deliver to their customers, instead of driving business. Yet, marketing is often considered the “necessary evil” – without doing it effectively, there is little to no business growth. Therefore, in this short series of articles on marketing, we will examine a specific and practical approach to marketing that has been successfully used by MSPs worldwide. ## Marketing strategy Effective marketing begins with defining the strategy, making decisions on the target audience, and the offering that will be promoted through marketing. The goal of the strategy is to describe **the best product for a specific market segment**. To design an effective strategy, it is essential to conduct thorough market research and understand the type of customers available in the market, their spending behavior and willingness to pay, as well as the services they require. Then, knowing the market, make decisions to focus on specific segments and validate that you have the capability and resources to target that segment effectively, offering the best product for it. A simple example would be offering services to customers who require a quick on-site presence within a one-hour driving radius of your office and marketing your availability to be on-site within an hour. Customers need a fast on-site presence, and the MSP has the geographical advantage of being physically close to them. ### An example Let’s expand on a more sophisticated example of a startup MSP in Australia. They had substantial experience working with law firms in the past; they understand the requirements and speak the "legal" language; thus, it seemed like a good idea for them to target law firms specifically. They conducted research and decided to target only smaller law firms in the Sydney area, as these firms are primarily based in the Sydney region. They defined their market segment as companies with 15–75 employees and annual revenues of $3–35 million, who either have some basic internal IT support or use break-fix MSP services, and spend at least $35,000 per year on IT infrastructure support services. They estimated that approximately 2,000 companies in the area fit the profile. Their current target is to reach $3.5 million in revenue, and, assuming a $35,000 annual contract value, they need 100 customers, which is approximately 5 % of the target and seems reasonable. They have 10 people on their team, most of whom have some background in law or IT for legal firms. Based on their capacity model, they can serve 100 customers; thus, they have the necessary resources and expertise to deliver the services. Now, designing the best product for the market, they decided to focus on compliance, which is becoming increasingly important for law firms. They also offer quick on-site support in the Sydney area, as well as a deep understanding of the needs of law firms. Their team has legal expertise and compliance expertise. They have a local presence with a four-hour guaranteed response. They designed product packages (basic, advanced, and premium) tailored to the law firm’s needs, with fixed pricing and predictable monthly billing. ## Marketing mix: the 4 Ps of marketing Since the 1960s, when E. Jerome McCarthy conceptualized the 4 Ps (product, price, place, and promotion), the concept has been widely used to explain the essence of marketing. The whole idea of marketing is to make the right product available at the right price in the right place with the right promotion. Simply put—coming back to the discussion of the marketing strategy—design the best product for the audience and then offer it to them at the right moment when they need it, or when they can recognise that they need it and that the product is the best option for their needs. The concept is simple, yet many MSPs, having a technical background, dismiss it. It seems obvious that businesses need data backup and cybersecurity. It is evident that, in case they have time-sensitive systems, they need disaster recovery. Yet… It is obvious to the technical experts, not the business owners. Customers may be convinced that they will never experience a ransomware attack, or that hardware failure is so rare that they are not willing to pay for extra protection. Therefore, it is essential to target customers during “marketable moments,” when they may be seeking a new service provider and are open to a conversation. For a typical MSP, those moments may be: - Downtime – hardware or software failure, cyber-incident. The business is struggling and seeking immediate assistance. - New regulations and compliance requirements. Although there may not be an immediate need, the business believes there is an upcoming issue that needs to be resolved. - A new person in charge of IT or of the business, or an acquisition/structural change, may be an opportunity to switch to another MSP. - IT budget reduction – the business is looking to identify savings and wants the minimum viable solution (may not be the best customer now, yet the budget may grow over time). - New business or a business looking for an IT service provider for the first time. The promotional part of the marketing mix is about identifying the right marketing channels and activities to engage customers at the right moment, initiating a conversation. The “place” part of the mix refers to the location where you sell your products and the distribution channels you use to sell them. Putting it all together, let’s describe a typical MSP’s marketing mix: 4 P Key question Typical answers for an MSP Product What do you sell? - Core services: helpdesk, cybersecurity, backup - Differentiation: vertical or technology focus - Packaging: à la carte, bundles - Value-add services: v-CIO, compliance audit Price What is the pricing model? - Per user - Per device - Per hour for projects - Packages/tiers (Silver, Gold, Platinum or Basic, Advanced, Premium) Place Where do you sell? - Offline: networking events, business-association meetings, industry events, local meet-ups - Online: consultation form, digital events, organic and paid search Promotion How do you promote? - Inbound: referrals, content marketing (articles, case studies, reviews) - Outbound: presentations and booths at events, digital marketing, cold calling, email marketing ### An example – IT services for doctors During the marketing workshops for MSPs, we searched Google for “IT support for doctors” – a phrase a healthcare professional or administrator might use to find a service provider in the area – and one company’s website showed up first that was a good illustration of strategy and marketing mix: [Medical iT](https://medit.com.au/). ![Medical iT search result](../../../static/img/practical_marketing_it_support_for_doctors.png) We can clearly see the strategic positioning – they are offering the best managed IT services for doctors. From the search, it is clear that they are targeting the local market (we will discuss local SEO later in this series of articles). ![Medical iT website header](../../../static/img/practical_marketing_medical_it.png) When we visit the website, we can clearly see that they offer specialized services for doctors and confirm their expertise by mentioning well-known software used in medical practices. ![Medical iT services list](../../../static/img/practical_marketing_medical_it_2.png) This example illustrates a highly effective tactic – getting in front of people seeking a specific service in a particular area and validating expertise through industry knowledge and relevant case studies. In future articles, we will discuss selecting marketing tactics and estimating marketing expenses as part of the business model. --- ## AI and Prompt Engineering for MSPs **Author:** Gaidar Magdanurov | **Published:** 2025-04-29 **URL:** https://mspnotes.com/ai-and-prompt-engineering-for-msps **Tags:** Business, Technology You're missing out on productivity if you're not using AI now. Soon, if you don’t use AI and don’t scale your operations using AI, you will start losing customers to competitors that will be able to serve more customers at a lower cost. Cost-conscious SMB owners will gladly switch to MSPs that offer services at a lower price, especially if they are not delivering value beyond traditional infrastructure management and helpdesk services. Many MSPs have implemented AI in their daily operations. This article will examine easy-to-implement scenarios and best practices for AI prompt engineering that do not require development and can be achieved using public large language models (LLMs) like ChatGPT. ## Scenarios for automation Number of scenario MSPs outsource to AI – creating content for marketing purposes. Typically, MSPs lack dedicated personnel for marketing, and they must rely on part-time marketers and agencies to produce the content themselves. AI helps to significantly reduce the time required to create marketing assets, and, most importantly, review and update them as assets tend to age. Sales and marketing scenarios: - Website pages – maintaining product catalog, service descriptions, blog content and SEO optimization. - News and social media – writing announcements, responding to market news (for instance, guiding customers to defend against a new cyberattack). - Case studies and customer stories – writing case studies for the website and using them in the sales process based on projects with customers. - Adjusting proposals – modifying standard proposals based on a specific customer’s needs. The second most popular scenario is automation for customer communications. Preparing responses and creating various reports consumes a significant amount of the technicians' productive time. AI can simplify and accelerate the development of documents, especially when templates are developed and a straightforward process is in place to adjust them to a specific case. Customer communication scenarios: - Email templates – responses to popular requests, generic guides for step-by-step issue resolution, explanations of various problems and situations, notifications, and announcements. AI is especially useful for preparing security advisory notes in a language the customers will understand, as technical people tend to overcomplicate the explanation of the issues. - User guides and onboarding materials – documentation for customers to enable them to use self-service to resolve the most frequent issues. A good guide allows for offloading a significant volume of simple problems to the customer. - Customer-specific FAQ documents – a solid addition to the user guide, answering frequent questions for customers on how to enable specific capabilities, use tools, request new software and hardware, how to prepare and file a ticket with HelpDesk, and so on. Customer infrastructure, needs, and tools vary; AI helps to adjust the content and simplify the language to make the FAQs more useful. - Knowledge base articles, standard operating procedure (SOP), and implementation guide documents – documenting cases and standard procedures for internal and external use and sharing with customers, vendors and contractors. - Reports – weekly, monthly, quarterly reports, presentations for business reviews, summaries of the work done, and improvement proposals. Last but not least, automation for internal operations is needed. Usually, it is the hardest part to automate due to a lack of trust in AI to perform a good job, as it is an essential part of MSP operations. However, AI is useful for expanding on the documents and scripts prepared by the technical expert, validating them, and identifying gaps. Internal operations scenarios: - Infrastructure documentation – internal MSP infrastructure and customer infrastructure. - Process documentation – internal procedures and best practices, essential for the onboarding of new technicians. - Troubleshooting and automation scripts – writing, debugging and validating scripts for automation in test and production environments. ## Prompt engineering technique Now that we have defined scenarios, it is time to examine the effective prompting technique that has proven useful in achieving consistently high-quality results for the scenarios listed above. ### 1. Create a prompt: provide context and examples Begin building the prompt by providing as much context as possible to ensure a successful execution of the task. For example, if you need to create an instruction for end customers about the upcoming operating system update that you will roll out to all machines, provide the AI with details about the customer's infrastructure, the version of the operating system, and any other relevant information. Don’t forget to instruct the AI on the style to use for writing the text, the actions to document, and the steps to execute. If you have an example of a communication, attach it to the chat and tell AI to review it and use it as an example. Example: > You are an MSP technician writing instructions for non-technical users about the upcoming operating system upgrade. Please provide clear, straightforward instructions, and answer questions you anticipate users may have. > > > 1. Begin with a brief, non-technical explanation of why this update is important (security improvements, performance enhancements) > > > 2. Include clear pre-update preparation steps, including: not shutting down systems at the end of the day, not interrupting the update. > > > 3. Explain the approximate duration and what users can expect from the systems in the process. > > > 4. Explain what users can do to verify that all of their applications works and they can access all systems and data they use. > > > 5. Provide a troubleshooting guide for the common issues with details on how to escalate the issue to the helpdesk if they can’t fix the issue using the guide. > > > If I attached a file with an example of a communication, please review it and use it as an example to create the new communication. ### 2. Improve the prompt: evaluate and refine Before executing the prompt, try asking AI to review and improve it. In the process, you may find out if you are missing anything. There is a simple prompt you can use to achieve that. Example: > You are an AI prompt engineer. Please review the prompt I provide below that I want to use to create a communication to my customers, non-technical users, about the upcoming system upgrade. Please suggest improvements, and let me know if the prompt effectively achieves the result. AI will provide recommendations on improving the prompt and the revised prompt. Example of the AI output: > Add specificity about the update details > > > > > - Include a parameter for the specific OS being upgraded (Windows 10 to 11, macOS version, etc.) > > - Add a placeholder for the actual scheduled date/time of the update > > > > Enhance the communication style guidance > > > > > - Specify that instructions should use numbered steps with screenshots where helpful > > - Request bullet points for key warnings or cautions > > - Suggest using bold text for critical information > > > > Add personalization elements > > > > > - Request a friendly, reassuring tone to reduce user anxiety > > - Include a closing section with company contact information > > - Add a clear subject line recommendation for email communications > > > > Incorporate user preparation specifics > > > > > - Request specific instructions about backing up critical files > > - Include guidance on applications to close before leaving for the day > > - Mention what users should do with open documents > > > > Add post-update verification details > > > > > - Specify common applications users should test > > - Include guidance on what "normal" looks like post-update Example of the improved prompt: > You are an MSP technician writing instructions for non-technical users about the upcoming [SPECIFIC OS] upgrade scheduled for [DATE/TIME]. Create a clear, friendly communication that reduces anxiety while ensuring users know exactly what to do. Please provide straightforward instructions and answer questions you anticipate users may have. > > > 1. Begin with a brief, non-technical explanation of why this update is important (security improvements, performance enhancements) and reassure users about the process. > > > 2. Include clear pre-update preparation steps, with numbered instructions and screenshots where helpful: > > >    - Specific steps for backing up critical files > > >    - Instructions to save and close all documents before leaving > > >    - Direction to leave computers powered on at the end of the day > > >    - Bold warnings about not interrupting the update process > > >    - A clear timeline of when users should stop working on their systems > > > 3. Explain the approximate duration and what users can expect: > > >    - How long the update will take > > >    - What they might see on their screens when they return > > >    - Any potential temporary performance impacts after the update > > > 4. Provide specific post-update verification steps: > > >    - How to confirm the update completed successfully > > >    - A checklist of common applications to test > > >    - How to verify access to critical systems and data > > >    - What "normal" operation looks like after the update > > > 5. Include a troubleshooting guide for common post-update issues: > > >    - Solutions for 3-5 frequently encountered problems > > >    - Clear indicators of when to stop trying to fix it themselves > > >    - Specific instructions for contacting the helpdesk (phone, email, ticket system) > > >    - Information to provide when reporting an issue > > > 6. End with a friendly closing that includes: > > >    - Your MSP company name and contact information > > >    - Helpdesk hours and response times > > >    - A thank you for their cooperation > > > If I've attached a file with an example communication, please review it and use its style, formatting, and tone while enhancing it with the above requirements. > > > Suggested email subject line: "Important: Your Computer Update on [DATE] - Action Required" ### 3. Simplify Run the prompt and review the result. Continue to refine the prompt to enhance it and achieve the desired outcome. Focus on simplifying the prompt, as it will allow you to maintain it more easily. Producing results takes less time, and, most likely, the output quality will be much better if the prompt has only the necessary context and instructions. Before editing the final communication, invest time in enhancing the prompt. You can create a library of prompts and use them with slight modifications. Your prompt library will be your knowledge base for future use. You can reuse elements of prompts for other documents and adjust them as needed for future use. Treat the process of creating the prompt as training a new employee. You invest time in building high-quality prompts, and then it will pay off with a dramatic increase in productivity. ## Conclusions Prompt engineering is becoming a natural part of life. Simple prompts lead to simple results. Complex prompts with context, tailored for the task, can produce outstanding results and can be reused in the future. Invest in an AI prompt library, train your team to use AI effectively, establish a knowledge exchange, and you will gain a competitive edge now and stay relevant in the future. --- ## The Rise of Ultra-Specialized Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2025-03-05 **URL:** https://mspnotes.com/the-rise-of-ultraspecialized-managed-service-providers **Tags:** Business Following up on the [article about MSP strategy](../../strategy-for-managed-service-providers), I received many questions regarding vertical market strategy and targeting specific industries. I must admit that I have recently noticed more MSPs moving towards ultra-specialization. Instead of serving multiple verticals, they are focusing on a specific niche and managing to outgrow their less selective competitors. Lately, I have been talking to an MSP in New York that solely focuses on hedge funds, a New Jersey-based company focused on insurance brokers, and a Massachusetts-based company that serves dental clinics. Those companies have a few things in common: they have a very small team of only a few technicians, yet they have a sizable number of customers and significant revenue. They also have a standardized technology stack and very deep knowledge of specific applications and processes relevant to their customers. Those three companies were living proof that “less is more.” By focusing on very specific segments, they were able to simplify their operations, increase their productivity and virtually avoid sales and marketing costs, acquiring customers through referrals. ## The ultra-specialized advantage While “traditional” MSPs are trying to serve everyone, ultra-specialized MSPs define a strategy to go after a specific niche. This gives them a few advantages over “generic” competition: - Deeper expertise in specific industry and technologies used there, continuously accumulating more knowledge, and being a trusted adviser to their customers - Ability to offer more value besides managing IT infrastructure – offering ways to improve employee productivity, improve efficiency of the business processes, implement compliance requirements - Image of an expert in the vertical – inspiring word-of-mouth and customer references, reducing the need for marketing to acquire new customers - More predictable service delivery – having standard operating procedures and automation, freeing up time for technicians to serve more customers, or spend the time learning new technology to stay relevant to the market - Much stronger client relationships – being not “yet another IT guy”, instead being a trusted technology adviser and long-term business partner ## Finding a niche The opportunity may come from experience or deliberate action, such as deciding on the opportunity and recruiting the team to go after the opportunity. There are two common ways to define the niche for MSPs: ### 1. Industry and compliance expertise - Healthcare, and regulations like HIPAA - Finance, and regulations like SOX, PCI/DSS - Legal and data privacy laws - Manufacturing and the ISO standards - Government and certifications like CMMC ### 2. Technology specialization - Cloud and cloud security - Data analytics platforms - AI tools and services - IoT and operational technology - Legacy system upgrades ## Building the niche expertise Building an ultra-specialized practice requires market knowledge, technology expertise and network building. Starting with market knowledge, you need to know industry-specific regulations, top vendors, and solutions for software, hardware, and specialized machinery. Getting industry-specific training and certification and continuously participating in industry-specific events makes sense. Technology expertise includes industry-specific software, typical infrastructure patterns, common issues, cybersecurity threats, and case studies of challenges and cyber-attacks on industry companies. Networking is necessary to establish a name in the industry. Attending events and participating in trade associations, participating in online groups and providing valuable comments, and hosting your own online and offline events to share best practices all require dedicated effort, yet they pay off in the long run. Speaking at events, publishing thought-leadership content, and sharing stories based on experience on the website and social media also help build an expert image and attract customers without additional marketing. Of course, building strong relationships with your customers and using them for referrals is an absolute must. In addition to referrals, customers can participate in your events, provide quotes, or even represent you at industry events. Treat your customers as your evangelists—if they are happy about your services and the value you bring to them, they may sell your services to prospects for you. ## Partnerships To be an ultra-specialized MSP, you don’t have to provide all types of services to your customers. You may not have and may not need staff to provide certain expertise on a daily basis, and partnering with other service providers for some of the services is a way to focus on your unique area of expertise. Ultra-specialized MSPs tend to outsource one-off and infrequent projects, like setting up physical network infrastructure. They may also outsource basic helpdesk for generic IT support and to provide quick on-site presence in case a ticket requires physical presence, such as plugging in a disconnected server or rebooting a frozen printer. The ultra-specialized MSP focuses on unique industry expertise and maintaining customer relationships. To avoid distractions, subcontractors can cover some of the workload. Partners may be a valuable source of referrals and projects specific to the subject matter expertise. ## Pricing strategy Being a well-known expert in a specific industry also offers the advantage of value-based pricing. Instead of competing with other MSPs for the lowest bid per endpoint or per user, you compete on the value offering for that industry. Ultra-specialized MSPs focus on offering packaged solutions instead of per-endpoint or per-user pricing. They may offer an industry-specific package with pricing based on the size of the infrastructure. The package includes a complete set of services (management, monitoring, backup, cybersecurity, disaster recovery, incident remediation, investigation, and so on) and compliance with industry-specific regulations. In addition to the service packages, they may offer custom consulting services for IT strategy, infrastructure modernization, Cloud migration, and integration after mergers and acquisitions. These can be long-term, high-value projects that generate significant revenue for the MSPs. ## Staying relevant Ultra-specialized MSP strategies are gradually becoming increasingly popular. While some MSPs focus on standardizing and scaling their technology stack and improving the productivity of their technicians to serve more customers and compete on price, others choose to avoid head-to-head competition and select the niches to serve. Given that the MSP market worldwide has over 200,000 companies offering or selling managed services and is expected to almost double in the next 5-6 years, the competition will only get tougher. Therefore, for those choosing an ultra-specialized strategy it is essential to stay relevant and follow a simple checklist: - Conduct regular market assessment, and continuously monitor news about the market – stay up-to-date with the trends and regulations - Monitor technology trends affecting the industry, and come up with relevant proposals to modernize and improve the infrastructure of your customers - Regularly execute skill analysis of your team, identify gaps and implement development plans - Develop partnerships with vendors, distributors, industry associations, and collaborate with industry experts - Frequently review your service portfolio and refresh it as needed It is relatively easy to become an ultra-specialized MSP now and gain a customer base; however, in the next few years, it will become increasingly difficult. Earlier entry is not a long-term advantage if you don’t keep your expertise up to date. ## Conclusions Looking at what is going on right now, it is easy to envision that in the near future the competition between MSPs will become even more fierce. While the IT infrastructure is growing and the market size for the MSPs is growing rapidly, there are more and more large MSPs that are winning on efficiency, productivity, and, therefore, able to offer lower prices. In the pricing wars smaller MSPs rarely stand a chance against larger MSPs, and the ultra-specialized strategy may be a way to establish a strong position and defend your business. Implementing the ultra-specialized MSP strategy requires significant market research and critically evaluating your strengths and capabilities. Building a brand in the industry will also take time and effort. However, in the long term, this strategy has proven to pay off for those who are able to build and maintain the required expertise. --- ## Strategy for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2025-02-18 **URL:** https://mspnotes.com/strategy-for-managed-service-providers **Tags:** Business One of the toughest challenges in business is defining a strategy. For a new MSP, the typical approach is to acquire a few customers through existing contacts, friends, and family, bringing revenue to cover expenses. However, it is essential to develop a strategy for expanding a business or remaining competitive while rivals pursue their customer base. After speaking with thousands of MSPs over the years, I've noticed that successful MSPs share one key characteristic—they have a strategy documented in one form or another. So, let’s explore a simple framework for defining and documenting that strategy. ## The strategy framework We will define a strategy framework as five components: - **Opportunity** – well-defined, well-understood opportunity based on the understanding of the market. - **Differentiation** – unique (and better than the competition) business qualities regarding the opportunity. - **Capabilities** – the existing capabilities that can be developed to support differentiation and work for the opportunity. - **Focus** – things you choose to do and things you decide not to do. - **Execution** – the plan to make it work, the team, the motivation, the financial plan, the operational plan, and continuous learning required to develop the capabilities, maintain differentiation, and go after the well-defined opportunity. Let’s discuss each component and devise a simplified example of defining a strategy based on my observations of the success of mid-size MSPs over the years. ### 1. The opportunity The world is still going through digital transformation. It may seem that most businesses already use technology, and it is impossible to run any business without technology. Yet, it is far from reality. A vast number of companies are still in the pre-digital era, and most are only scratching the surface of what is possible with modern technology. If you think about AI-based tools, most companies barely scratch the surface of what is possible. Multiple analysts project that digital transformation will accelerate by the end of 2030, with small and medium businesses heavily demanding MSP services. Many predict that the MSP market will double by 2030, while ongoing digitalization is expected to increase the server market by 75%, the endpoint market by 119%, and the data center market by 48%. Simultaneously, by 2023, analysts foresee a shortage of over 85 million IT professionals worldwide. This means there will be significantly more IT infrastructure and insufficient IT personnel to manage it, creating a massive opportunity for MSPs. However, simply knowing that the market will grow doesn’t help develop a strategy. Creating a strategy involves defining the opportunity for your business. To identify that opportunity, the MSP needs to understand how many businesses it can serve, what types of services those businesses require, and whether they can afford the level of service they need. > *Let’s consider an imaginary example of an MSP named Gilgamesh IT. They are launching a business in a small town. They know about 1,000 SMB customers in the finance industry within a four-hour drive from their office. They understand the types of companies and the infrastructure those prospects require, along with the challenges these businesses face in obtaining cyber insurance, ensuring compliance, and enhancing cybersecurity. This represents the identified opportunity – a specific type of business, in a certain location, with particular needs.* Defining the targets will help shape the rest of the strategy. While providing any service to anyone may seem like a good idea (it, indeed, does not), it will quickly deplete resources, lead to a [break-fix model](../../converting-a-business-from-break-fix-to-managed-service-provider-learnings-from-a-real-life-story), and fail to support a competitive advantage. Therefore, begin by identifying the target market and constructing your strategy from there. ### 2. The differentiation There are many IT professionals providing services to your target market, and they do a good job if they have customers. How will you stand out to win over customers, and what is that “better” you can provide that others can’t? The differentiation should be clear for the customer. The story can’t be too complicated; otherwise, it will be hard to market and won't “stick” with customers. Therefore, consider the differentiation you can easily explain that resonates with the customer. They should be able to understand and agree that differentiation is essential. Imagine choosing to differentiate your business through your own [integrated technology stack](../../boosting-msp-productivity-by-reducing-tool-overload). While other companies deploy various tools to different customers or support whatever tools customers had used before signing a contract, you provide a standardized technology stack. You have chosen a remote management and monitoring tool that integrates with security, backup, and reporting tools. Consequently, your technician can quickly assist any customer, spend less time resolving issues, and deliver much faster resolutions. You offer your customers a significantly better SLA, increased reliability for their infrastructure, and a slightly lower cost for your services. What do customers care about? They care about how much money they will pay you, how quickly you resolve their issues, and how much downtime they may experience. Let’s say you are the MSP offering your customers a standard package with disaster recovery and guaranteed downtime of no longer than an hour. You can calculate the “usual” downtime for their business and the cost of that downtime and estimate how much you will save them by offering quick recovery. You may be the MSP that can quickly dispatch a technician to the customer's location. This means the customers will receive service quickly because you have a wide network of technicians to drive to them. Or, you can offer unique security expertise that no one else can, guarantee compliance with regulations and cyber insurance checklists, and lower the cost of cyber insurance. Whatever your differentiation is, it should be clear to the prospects and customers. They should know they can choose anybody to support their infrastructure, yet your company offers them a distinct differentiation they care about. > *Gilgamesh IT chose an integrated technology stack, which is standard for all customers. When customers sign an agreement, they must agree to get a standard image for their workstations and servers deployed during the onboarding period. Therefore, Gilgamesh IT can offer a much better SLA and slightly lower cost than the competition, as its technicians can serve significantly more endpoints than other MSPs in the area.* A good test for differentiation is a conversation with customers and prospects. If they understand the value of differentiation, you can pass it on to other prospects as you grow, and it works to recruit and retain customers for you. Another good test is to replace your company's name with another company while you are discussing your differentiation and see if it works. If it does, it seems like the others can claim the same, and it is not a real differentiation. ### 3. The capabilities It is easy to imagine anything, yet when it comes to reality, we are limited to what we have available. For example, you may envision being a leading provider of cybersecurity services to your customers, but you may not have any cybersecurity expertise in your team, rendering the vision nearly impossible to implement without recruiting new people or partnering with a cybersecurity services provider. Your capabilities may include your team or people you know and can recruit quickly, experience and skills, technology and know-how, contact database, partners and customers. These capabilities support your unique differentiation, and you should either possess them or have a clear path to develop them. For instance, if you have technicians spread all over the area, you can offer your customers on-site presence within a very short time. Having people with software development skills will allow you to develop scripts for automation and increase your team's productivity. Having relevant expertise in specific verticals and knowing specialized infrastructure and business applications may allow you to establish a leading position for those verticals. The key to leveraging these capabilities is figuring out your available resources and planning how to leverage them for your business. > Let’s say our Gilgamesh IT team has a bunch of IT professionals with software engineering backgrounds and automation experience, and they can build tools that would automate deployment, testing, maintenance, and roll-back of the software and patches. The capabilities play along nicely with differentiating better SLAs than the competition. Better SLAs on issue resolution are critical for their chosen industry vertical. When defining capabilities, one must be true to oneself. Being willing to offer services to a specific vertical, like healthcare or finance, yet lacking relevant experience, reference customers, and experts in the field willing to help means one lacks capability. ### 4. The focus Opportunities and projects are flying around all the time. Some of them may seem interesting. Quite often, many seem interesting and easy to get. Yet, if you don’t clearly define which opportunities you take and which you say “no” to, you may end up chasing too many targets and getting stuck with the projects that will undermine your strategy. From my almost twenty years of experience in IT, focus is the hardest part for nearly every organization. Customers seem similar, products look easy to build, large contracts with new types of customers look attractive. Yet, chasing multiple targets rarely leads to success, and deciding what to do and what not to do is crucial. With time, you may reconsider, as the strategy may have to change, addressing the market situation and changing economic conditions. Yet, from the beginning, defining your targets and clearly documenting what is outside your scope is crucial. The focus may be on customer sizes, types of businesses, industry verticals, geographies, and IT infrastructure requirements. You choose targets that align with your opportunity, differentiation and capabilities and stick to them. > Let’s continue with the example of Gilgamesh IT. They have people with experience working with hedge funds and investment family offices; therefore, they decided to target only those customers. They have blueprints for the infrastructure, recommendations for the business processes, case studies and reference customers in the defined verticals, and their website clearly states that they offer services to those types of customers. From time to time, they get requests from customers from other industries and are tempted to consider. Yet, they know they have a sizable opportunity in the niche they selected; they have experience and standard operating procedures to serve those businesses.  Saying “no” is hard. It does go against human nature. We want to be nice, and we want to grab whatever goes our way. Yet, saying “yes” to an opportunity at some point automatically means saying “no” to something else. You may pick up a few unusual and not strategic opportunities for you, and it will bring you some extra revenue in the short term. Yet, it will hinder your growth in the long term, as your resources will be distracted by supporting something new and solving new types of problems, leading to a reduction in the quality of service to your existing customer base. ### 5. The execution Now, to the most down-to-earth part of the strategy – the execution. When you define your opportunity and differentiation, map out your capabilities, and define your focus, it is time to plan how you will execute your strategy. Below is a short list of questions that give you direction toward building and documenting your plan. - Who is your team? - What is the management structure and management cadence? - What are the metrics you are going to track? - How are you going to motivate your team to execute the strategy? - How will you develop your team, technology, and business processes? - What is your financial model? - What are your standard operating procedures – help desk, incident resolution, escalation process? - How are you doing sales and marketing? - How are you providing customer support? - Who is managing customer relationships? - What is the cadence of working with customers? - What is the schedule for software and infrastructure refresh? - How often and what kind of reports do you provide to them? - How will you ensure continuous learning in your team? - How will you keep your market knowledge up-to-date and your strategy relevant? - How do you educate your customers? - What are [the metrics](../../metrics-for-managed-service-providers) you will track and [the goals](../../smart-goal-setting-for-managed-service-providers) you will set? The execution part of the strategy explains “what” you will do to achieve your goals. The parts of the strategy before that document “how” you are going to do it (differentiation, capabilities, focus) and “why” you are doing it (the opportunity on the market). Think about the specifics of what you need to do to execute the previously defined strategic directions, and make sure you document it and make everyone on your team aware of what they need to do to implement the company’s strategy. ## Putting it all together in a financial model Now, let’s continue with our Gilgamesh IT imaginary friends. Knowing what we know about their strategy, let’s try to put some numbers behind it. Let’s assume they were right in their estimates of having 1,000 businesses matching the profile of a customer they want to serve. An average customer would be worth a $30,000 annual contract based on the competitive pricing in the location. Thus far, the market opportunity for Gilgamesh IT is $30,000,000 if they assume they have all of the companies in the region signed up as customers. However, Gilgamesh IT’s founder is realistic and believes they can get only 10% of the market; therefore, realistically, they are targeting only $3,000,000 in business. This sounds good, but do they have the capacity to serve those customers? Based on their estimates, their customers have, on average, 26 endpoints. Thus, 10% of the market, or 100 customers, would have 2,600 endpoints to manage. Gilgamesh IT has only 8 technicians, meaning each technician should be capable of supporting 325 endpoints. Based on their current experience and given that Gilgamesh uses a standardized integrated tech stack, the technicians can manage over 500 endpoints per person. Thus, the target of 10% of the market is within their capacity. In addition, they may have time for additional customers if they can acquire more customers and time for one-off projects for those customers. Not to mention that by continuing to automate their tools, they expect to decrease the average time per ticket and free up more time for technicians to learn new technology or serve more customers, generating more revenue and receiving higher bonus payments. Putting a financial model, even a simple one, behind the strategy is a way to validate thinking, make assumptions, and reconsider capabilities and capacity. ## Wrapping up Having a well-defined and well-documented strategy and aligning the whole team around it brings many benefits. It creates clarity regarding the business goals and the approach the business takes to achieve them, and it helps focus resources on what matters. In the MSP business, it is very easy to get distracted, start picking up business from all over the place, and get swamped by one-off break-fix projects. While it may work for a business that just wants to maintain a particular lifestyle of the owner and the employees, it does not work for a company with aspirations to grow and successfully compete in the long term. Building a strategy may be a frustrating exercise, and that is why many MSPs involve mentors and consultants to help them with that. Yet, by merely applying the effort and doing the exercise of documenting the strategy, you may identify the opportunities and gaps you have not seen before and turn your business from being a stagnating, not growing lifestyle business into a growing, competitive, profitable MSP. --- ## Protecting Your Team Against Your Customers: Quick Guide for MSP Owners **Author:** Gaidar Magdanurov | **Published:** 2025-01-10 **URL:** https://mspnotes.com/protecting-your-team-against-your-customers-quick-guide-for-msp-owners **Tags:** Business The previous article about [dealing with technician burnout](../../dealing-with-msp-technician-burnout) generated a few fascinating private discussions with MSP owners who suggested that, in many cases, the reasons for burnout are not related to internal operations but rather to the need to deal with abusive customers. In the last month, I heard numerous stories of customers screaming at MSP technicians and doing something completely unexplainable, like unplugging a server from the power outlet and forcing a technician to drive for a few hours to plug it in. Another surreal story was about a customer who regularly put wet paper into a printer, causing jamming that would result in a technician visiting the customer site and listening to various complaints about internet speed and slow coffee machines. People do behave strangely sometimes… Handling complicated customers is a serious issue, especially for technicians who are uncomfortable with customer communications. When they get into arguments, they close down, suffer and burn out. Therefore, business leaders need to address the issue as early as possible. Here is a short guide based on best practices for handling complicated customers I recently collected from MSP owners. ## A policy on handling customer behavior Start by creating an internal document describing acceptable and unacceptable customer behavior and how technicians deal with it. Using the document as a guide would help technicians understand the recommended course of action. > Most owners recommend politely ignoring complaints and screams while onsite or during a phone call and informing them about the behavior so they can have a conversation with the customer. Technicians appreciate if their managers or MSP owners handle all complicated “human” situations, and many consider getting somebody else involved in non-technical issues a benefit. ## Train your team Help your technicians learn conflict resolution skills. Accepting negative feedback and apologizing for whatever disturbs the customer can end unpleasant communication. The manager can address the actual issue later. The goal for the employees is to de-escalate conflict on the spot, not get emotionally involved. > In most cases, when another person screams at you, it has nothing to do with you—they are just dealing with their internal discomfort. Knowing this and approaching unpleasant situations helps you emotionally detach from the altercation.  ## Show support to your staff After handling a situation with the customer, communicate it to your technicians. They want to know that you have their backs and that your policy is not just a piece of paper. Also, feel free to congratulate people on solving technical issues despite the complications in communication. > One amazing MSP had a policy that at the end of the year, all technicians would vote for the worst customer to handle, and they would “fire” the customer if there was a clear leader by the number of technician votes. Even though they rarely do that, technicians know their opinion is important, and the owner supports them. ## Discuss customers in employee meetings Most MSPs have one-to-one conversations with their employees, focusing on the tasks and hand, compensation, and time off planning, yet they do not discuss customer relationships. And engineers may not share their concerns and complaints without being asked directly. Thus, asking questions about how they interact with customers is a good practice. However, ensuring that employees feel safe sharing the information and don’t feel like you are evaluating their performance under stress is vital. > One MSP founder told me he always asks how well customers treat his engineers. If he hears about gracious customers, he sends them gift cards with a small handwritten thank you note expressing gratitude for their good treatment of their employees. Building trust with the team is extremely important. They should feel they can discuss any issues with you, and raising concerns about customers won't damage their reputation. Protecting your employees builds stronger relationships, learns about problematic customers early, and retains your best talent. Even more, having a strong work ethic and reputation helps attract talent looking for a better work environment. --- ## Dealing with MSP Technician Burnout **Author:** Gaidar Magdanurov | **Published:** 2024-11-23 **URL:** https://mspnotes.com/dealing-with-msp-technician-burnout **Tags:** Business One of the recent challenges MSP leaders and founders face is preventing burnout among their technicians. The growing complexity of IT infrastructure, remote work and the increasing diversity of tools and services used by customers lead to continuous workload growth for technicians, and overload frequently leads to burnout and deteriorating performance. In this article, we will explore the signs of burnout and strategies for helping technicians avoid it based on the experience of MSP managers who have successfully overcome it. ## Signs of burnout The usual sign managers notice is deteriorating performance. If there is a system to track [operational metrics](../../metrics-for-managed-service-providers), like resolution time or SLA violations, it quickly becomes visible that technicians are taking more time to respond to and resolve tickets. However, it can be a sign of temporary overload, a temporary spike in workload due to market situation (some vendors love to push updates that create a workload for the MSPs), the time of year, or the onboarding of new customers. Or it can be an indicator of burnout. The declining performance warrants a review and a conversation, and that conversation is a good time for the manager to look for signs of burnout. A few signs can become obvious in the conversation. ### Excessive complaints The office, hardware, software vendors, customers, management, and kitchen coffee quality. Some people naturally like to complain, yet if all they do is complain, it is a bad sign. They only complain without offering ideas on how to improve the situation; it may indicate that they gave up on improvements and see everything around them in a negative light. ### Negative attitude Negative or “hopeless” comments towards the job, customers or tickets. If technicians make cynical comments about their work and highlight that their efforts are wasted, issues will recur, and customers will continue to do dumb things, it may be a sign of a change in outlook on life, especially if the employee had a positive attitude in the past. ### Physical fatigue They move slower, work on tasks slower, and speak as if they are not interested in conversations—these may indicate that they have lost interest and motivation. ### Forgetfulness They forget the tasks they took on, do not follow up with peers and customers after they promised to and forget to log information in the systems. This can signify that they no longer care about work and dismiss the tasks until their peers or managers remind them. ### Lack of interest outside of work It is also a solid indicator of burnout if they were talking about what they do outside of work frequently and then stopped and were not excited about their hobbies anymore. > Sometimes, it takes only a single conversation with a technician to realize that their behavior and attitude have changed adversely. This requires active listening, withholding judgment and a desire to provide advice. The manager's goal in the conversation is to listen and understand. ## **Strategies to deal with burnout** The most effective approach is to reduce the workload and optimize the efficiency of day-to-day operations. [Consolidating the tech stack](../../boosting-msp-productivity-by-reducing-tool-overload), implementing new tools that reduce the time required for processing tickets, implementing customer self-service, and designing an internal documentation system to share information more easily are techniques that free up time. These are prerequisites for implementing other strategies. Then, consider the following strategies that work for successful MSPs. ### Show technicians the impact of their work One reason work does not feel fulfilling anymore is that it does not seem necessary to anybody or it seems unnecessary. When people are unsure why they do what they do, they tend to question why they must put effort into a fruitless job. There are many ways to show the impact. One way is to show dashboards of the tickets handled and customers served. Explain how their performance allows them to grow the MSP business and how their assistance will enable them to maintain or grow their customers' business. Another way is to tell stories about customers, which makes it more relatable. For example, a story about a business owner who was able to send her kids to college because IT allowed her to grow her margins sounds better than just cold numbers on the response time. ### Help them define and defend their borders Understand what a reasonable workload is and what shall be done when the workload is unreasonable. Train people to say “no” to the tasks they can’t complete. Offer your help in routing and processing the tasks. Consider hiring more people or contractors for overflow work and reducing the scope of the provided services or reducing SLAs if there is no way to extend the team's capacity. It may be worth reducing the services offered and having tough conversations with the customers instead of losing the team or failing to deliver on promises. ### Implement fun activities at work Build a schedule of breaks and team activities. These can include a team coffee break or technical or soft skills training—anything that takes people out of their daily routine and brings them together to do something else, connect with each other, or gain new skills. Some people tend to push their limits, trying to handle more and more work, and forget about breaks—skipping breakfasts, lunches, and dinners—and, as a result, burn out. Those people may need help to realize that breaks are useful, and sometimes, a bit of a management push is required to implement them. ### Reduce after-hours workload Customers may work 24/7, and something may happen at any time. Sometimes, it is required to get people to respond to tickets outside of regular working hours. Relying on people taking on work during weekends, holidays and vacations can quickly become a norm, and eventually, it leads to frustration among those agreeing to do it. Until it is too late and employees start to resent their jobs, implement a policy on handling the workload after working hours, making it an exception instead of the norm, and consider splitting the workload between people when it is essential. ## Conclusions Burnout has become a serious issue for MSP technicians after the COVID-19 pandemic. The amount of work grew due to the growing complexity of IT in the remote environment. Many started working remotely themselves, losing the connection to other people, forgetting to take breaks, and not separating their work and free time – as they would spend all the time in the same place doing the same things repeatedly. As a result, burnout has become a severe risk to MSP businesses, and the owners and managers must pay attention to the issue. Luckily, personal attention from managers and simple strategies have proven effective for many MSPs who have managed to help their employees deal with burnout. --- ## Top 5 Ways Cybercriminals Breach Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2024-10-02 **URL:** https://mspnotes.com/top-5-ways-cybercriminals-breach-managed-service-providers **Tags:** Technology, Security Nobody likes to talk about breaches. Public information is minimal, and issues are usually swept under the rug. No CISO or MSP wants to be featured in the news about the following cybersecurity incident. And yet, breaches happen, and it is crucial to be prepared. Below is a list based on multiple conversations with MSPs over the years and recommendations to prevent the incidents. ## **1. Phishing and social engineering** Attackers send sophisticated emails or trick employees and customers into visiting fake websites, tricking readers and visitors into downloading malicious software or providing their credentials to the attackers. Modern attacks may include AI-generated images, audio and video, and employees can be invited into video conference calls, like in the story of an employee who sent [$25 million based on a deep fake call with the  CFO](https://siliconangle.com/2024/02/04/scammers-used-deepfake-cfo-trick-company-employee-sending-25m/). The most important protection method against attacks is mandatory security awareness training for employees and customers. Humans are, and will be, the weakest link in cybersecurity, and that link should be reinforced with knowledge. Additional measures should include email security and anti-phishing/URL filtering solutions to limit exposure to malicious emails and websites, as well as the ability to report suspicious emails and block them for the rest of the organization. ## **2. Weak and re-used credentials** Brute-force password guessing may be a thing of the past, as most applications limit the attempts to enter passwords and introduce significant delays, rendering direct password guessing impractical. However, stolen hashes of passwords are a completely different story. Attackers steal hashed passwords from vulnerable services and applications and then run brute-force attacks, trying to guess the passwords. ![](../../static/img/time-to-brute-force-a-password.jpg) The solution here is to enforce strong password policies – requiring a certain length and complexity and regular password updates. A good practice is to educate people to use memorable passwords with multiple words like “MyFavoriteAddressIsVanDeGraaffDr#1”. Passwords don’t have to be impossible to remember. Otherwise, people will save them in notes or write them down – potentially exposing them to attackers. Another good idea is to have multi-factor authentication enabled and mandatory, with an authenticator app on the phone serving as a second factor. Enabling single sign-on is also a good practice. That way, there is only one entry point, one strong password and one-second factor authentication for an employee to use. Convenience helps avoid insecure workarounds employees can choose to use. ## **3. Unpatched vulnerabilities** Cybercriminals exploit known vulnerabilities in software – operating systems, applications, IoT devices – to penetrate the network, gather information or obtain remote control over the infrastructure. The most dangerous attacks are on remote monitoring and management tools (RMMs) – if there are vulnerabilities in RMM, it means attackers get access to all customer devices. The solution is to establish and enforce [vulnerability scanning and patch management policy](https://www.forbes.com/councils/forbesbusinesscouncil/2024/08/26/update-with-confidence-a-guide-to-safeguarding-your-it-infrastructure/). Run system scans for vulnerable software regularly and apply patches. To avoid issues with updates, test patches in sandboxes or on a limited number of devices before rolling them out to all devices. ## **4. Supply chain attacks** Attackers compromise customers’ infrastructure to penetrate MSPs’ infrastructure and gain access to other customers. Getting administrative access to one customer, accessing tools used to communicate with the MSP, or accessing network shares and applications in the MSP networks can be leveraged to collect information for future attacks on an MSP or its customers. A subset of those attacks is a “man-in-the-middle” attack when the attacker intercepts communications between MSPs and customers and uses them to gather information, influence decisions, or extract money by redirecting payments to the wrong bank accounts. Those types of attacks are becoming more widespread due to the automation of attacks, ease of replacing bank payment information, relatively small payments and delays in recognizing the payments. The solution is to verify the sender and recipient and pay attention to verify any suspicious messages. If something does not seem right, any employee's first reaction should be to call the customer. Any third-party access and privileges should be limited to the minimum necessary to conduct the business, and all activities should be monitored and audited. Not to mention, a VPN or Zero-Trust network policy should be in place for remote access. ## **5. Insider threats** Malicious insiders or former employees who still have access, or employees tricked or forced to act on behalf of cybercriminals, are becoming a real issue for the MSPs. Who do you trust if you don’t trust your team? There is no silver bullet, yet a few things could help to protect the infrastructure. Starting with using the least privilege principle or “need to know” basis for all access and a detailed audit log of all activities and implementing tools for monitoring user activity and flagging suspicious and unusual behavior. It is crucial to have regular security reviews, verify who has access, and be highly swift with revoking access from people who do not need it to do their jobs anymore. A Data Loss Prevention (DLP) solution could also be useful. ## **Conclusions** It is tough enough to be an MSP and responsible for the operations of multiple businesses. Cybersecurity concerns add more to the plate of MSP owners, putting them under much additional pressure. Therefore, it is essential to build security policies and implement the tools to enforce them as soon as possible and then conduct regular reviews and policy updates. With proper tools and processes, making an MSP secure becomes second nature—like pushing pedals and steering the wheel in a car, the necessary activity to get from one place to the other. --- ## Acquiring a Managed Service Provider Business. Part III: Integration **Author:** Gaidar Magdanurov | **Published:** 2024-09-23 **URL:** https://mspnotes.com/acquiring-a-managed-service-provider-business-part-iii-integration **Tags:** Business In [Part II of the series of articles about MSP acquisitions](../../acquiring-a-managed-service-provider-business-part-ii), we discussed valuation, negotiations and deal structure. This article will wrap up the series and discuss the integration process after the acquisition. ## **Planning the integration** Effective integration requires building a detailed integration plan and roadmap that covers all integration aspects—business, technical, and marketing. ### **Integration roadmap** The roadmap shall include enough details to provide the complete picture to everyone participating in the integration project. It should cover the roles and responsibilities of participants, and everyone involved should know what is expected of them at every point. It is crucial to assign success metrics for each milestone and track against those metrics. If the project does not go as planned, metrics will help to understand what should be improved. The metrics may include revenue growth, customer retention, contract renewal, and various [technology and operational metrics](../../metrics-for-managed-service-providers). Look at the processes, workflows, and internal tools and decide on integration, upgrade or discontinuation. The earlier the decisions are made after a detailed analysis, the better. Switching the new team to the same tools and procedures the old team uses usually seems easier. Yet, the integration could be an opportunity to review the tools and procedures and gain additional efficiencies from the improvements and upgrades. The usual integration project for a small to medium MSP can take 6-12 months, depending on the scope of integration. If it implies technology standardization and refresh, it may depend on the customer agreements that may limit the ability to replace and refresh software and hardware on the customer’s side. ### **Team integration** Interview all the team members, conduct skills and qualification assessments and build a team integration plan. It is crucial to assess cultural fit and skill level. Merging teams of experienced technicians often leads to a clash of egos, reporting line issues, and tensions between the teams. Therefore, invest in team-building activities and set up constructive relationships between teams. The number one reason integrations are not going as planned is neglect of the human factor and mistakes in integrating human resources. One often overlooked aspect is the company culture. Say one team is run like a family business, and one team has strict corporate rules and subordination. It will take time to align the culture of the new, larger organization, and proper time should be given to plan the approach to merging the culture of the organizations. > *Tip: Assigning mentors to the new team members to introduce them to the new company and onboard them on the technology stack has proven to be much more effective than providing documentation and suggesting that newcomers do self-paced learning.* The acquiring company's managers should focus on retaining key employees, and retention plans should be well-thought-out. Retention bonuses and options or shares in the company are becoming increasingly common. However, transparent communication and ensuring everybody understands plans, roles, and responsibilities may be enough if the employees share the vision and believe their work lives will improve. ### **Technology integration** Suppose you are one of the MSPs working towards technology consolidation and integration. In that case, the integration will require mapping the technologies used by different teams to your technology stack roadmap, working on migration scripts and educating the team. If you are not standardizing technology and supporting what you have, it is surprising that you could get to the stage of acquiring other companies. It may be a time to consider standardization at this point. Talking to MSPs struggling to grow their business after integration, the author learned that the significant challenges are the team's inability to manage multiple different tools or not having scalable infrastructure to onboard new customers. *Tip: The best practice for integration is to have a staged rollout, including sandbox testing, before deploying the new tech stack to production.* ### **Communication strategy** Develop a comprehensive internal and external communication plan for the integration roadmap. Changes like mergers of MSPs usually worry customers, and it is crucial to keep them up to date with the plans and the vision, build trusting relationships with them, and show them how their managed services will improve. > *Tip: You can assume that when customers hear about the acquisition, they will start considering switching to another service provider if they are left in the dark about the transition. For smaller businesses, acquisition indicates the company's failure, as they naturally assume financial challenges. They may have deep personal relationships with previous management and may be looking to change partners now, but they expect not to have those people in place. Therefore, think about communicating with the customers and what you will tell them.* Communicating a high-level integration roadmap, the vision for the future technology stack managed service offering, and the improvements you plan for the combined company internally and externally should be a priority for management. Otherwise, it is easily forgotten. The best communication practice is to have regular All-Hands meetings with the team about the integration process and send bi-weekly status updates to key stakeholders and the customers of the company you acquired to reduce anxiety from the changes they are going through. > *Tip: A customer survey is a good idea, yet it rarely provides enough information, so having calls with customers is a better option and a chance to build relationships. Be prepared for customers trying to re-negotiate their agreements during those conversations.* ## **Learnings from successful acquisitions** MSPs who went through multiple acquisitions and shared their stories named a few things that helped them get the most out of the integration. ### **Setting strategic objectives** Thoroughly [review metrics](../../metrics-for-managed-service-providers) of your business and the newly acquired company, and define long-term goals, like revenue growth over the next 2-3 years, increase in customer lifetime value, and improvements in SLA – whatever you decide to be the most impactful and inspiring for your business. ### **Communicate early** Get employees involved as early as possible in the planning. Instead of offering the roadmap designed by the management, get your team to participate in building it. This will make your team feel they have made their own decisions and will be motivated to implement the plan. It may also be a good idea to involve the customers in the process, collecting their requirements and looking into improvements they would expect – in the process, being able to upsell additional services and increase average contract value. ### **Identify customers at risk** While building the integration plan and interviewing customers, look for signs of dissatisfied customers looking to switch to another provider. Address their concerns before proceeding with the changes to retain their contracts. However, if the assessment shows that retaining those customers is not profitable, be ready to walk away. ### **Create a dedicated integration team** Consider creating a dedicated team for migration and integration rather than allocating responsibilities among multiple team members. The integration should be a priority; otherwise, it may take longer than initially planned. ## **Conclusions** This article concludes the series dedicated to MSP acquisition. Of course, it is impossible to cover all aspects in a few short areas, and the advice of legal and financial professionals assisting with the transaction. Yet, I hope it gives some food for thought to people looking into acquiring an MSP business for the first time. *If you have gone through the acquisition process yourself, please contact me and share your acquisition experience. I would be happy to write a follow-up article with additional tips.*   --- ## Acquiring a Managed Service Provider Business. Part II: Valuation, Negotiation and Deal Structure **Author:** Gaidar Magdanurov | **Published:** 2024-09-20 **URL:** https://mspnotes.com/acquiring-a-managed-service-provider-business-part-ii **Tags:** Business [In Part I of this series](../../acquiring-a-managed-service-provider-business-part-i) of articles about MSP acquisitions, we discussed the reasons for the acquisition, target selection and due diligence process. In this article, we will discuss valuation, deal structuring and negotiation strategy for acquiring an MSP business. ## **Valuation of an MSP business** There are multiple ways to value an MSP business; choosing the valuation is a negotiation process, and the final results depend on the reasons for the acquisition. If it is purely a financial reason, the valuation tends to be based on the financial metrics. At the same time, if it is a customer base, technology or team acquisition, the valuation may be bound to the customer retention metrics rather than pure financials. ### **EBITDA multiple method** EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization and is a common metric used to evaluate a company's financial performance. [This CFI article](https://corporatefinanceinstitute.com/resources/valuation/what-is-ebitda/) provides more details about EBITDA. The formula for EBITDA: EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization, or EBITDA = Operating Profit + Depreciation + Amortization To put it into the perspective of the MSP business, EBITDA is primarily influenced by the scalability of the business (growing revenue while decreasing cost at scale), customer retention, and the ability to upsell additional services and increase revenue from existing customers. The valuation is estimated by applying a multiple to EBITDA. The multiple depends on the size of the business and actual EBITDA values. Small MSPs with 1-2 employees and under $200k in EBITDA may be valued at 1-2x, while large stable MPSs can be valued at 4-8x. There is no scientific method to assign a multiple, and it will be a part of the negotiation. Knowledge of recent deals in the area and consultation with legal and financial advisors and private equity firms may help develop a competitive proposal applicable to the specific location. The rule of thumb for MSPs is that the higher the EBITDA, the higher the multiple they can expect. ### **Recurrent revenue multiple method** Another popular method to discuss valuation is applying multiples to the annual recurrent revenue (ARR) calculated as the value of all long-term contracts on an annualized basis. For example, a $12,000 yearly contract gives $12,000 to the ARR, yet a $36,000 three-year contract gives the same $12,000 to the ARR (1/3 of the total contract value). The usual multiples for MSPs on ARR are in the range of 1-2x and open to negotiation. Higher multiples are applied to MSPs with a proprietary technology stack, allowing them to scale their business at lower costs and have a higher share of “sticky” services in their portfolio, like backup, disaster recovery, and security. Having significant ARR from reselling software and cloud-based services is also an opportunity for an MSP to negotiate a higher multiple. It is important to note that non-recurrent revenue from one-off projects, time-based jobs, and reselling of non-subscription software is usually excluded from the calculation. If there is a substantial amount of income in that bucket coming in regularly, the revenue many be included in the valuation with a discount, usually less than 1x multiple. ### **Discounted Cash Flow (DCF) method** This method suggests estimating the business's free cash flow (FCF) in the long term, usually over a five-year period. It is more frequently used by private equity and purely financial buyers and rarely by MSP owners acquiring MSPs. The DCF calculations include multiple steps and formulas, and there is [a good article in Investopedia](https://www.investopedia.com/terms/d/dcf.asp#:~:text=Discounted%20cash%20flow%20(DCF)%20is,will%20generate%20in%20the%20future.) explaining the process. For this article, we can simplify it by building a financial model covering the next five years based on revenue retention and growth and then estimating the business's present value based on the future value provided by the model. For instance, a company that generates $300k of FCF now will have a $3.75M value in 5 years, with a present value of $2.3M. A company that generates $10M of FCF now will have a present value of $99.2M. ## **Factors affecting valuation** Independently of the method used to estimate the value of the business, there are common factors affecting the valuation. ### **Financial performance** Revenue growth, retention (revenue from the existing customers), profit margins, share of the recurrent revenue vs. one-off revenue. General directions for the MSPs trying to grow the value of their business are to transition as much business as possible to the subscription model, sign multi-year contracts, introduce price increases in their contracts upon renewal, and upsell additional services to the existing customers. ### **Customers** Critical parameters impacting valuation are average contract length (the number of years customers renew), average contract value (indicating the size of the customers), and customer churn rate. Red flags would be that most of the revenue comes from only a few large customers rather than multiple customers and that significant revenue comes from the most recent contract. The MSP owner might have inflated the revenue by signing large and not-so-profitable agreements to boost the valuation before selling the business. ### **Services portfolio** The breadth of services allows for the upselling of additional services to existing customers and reducing customer churn. The rule of thumb for many MSPs is that every additional service a customer consumes reduces churn risk by 50% because switching to another MSP becomes more costly and takes significantly more time. ### **Team** MSP business is all about people. Key employees, their contracts, and time with the company are critical to keeping the business afloat after acquisition. The team's operational efficiency is a significant contributor to the valuation—SLA compliance (resolving tickets within the contractual SLA), the volume of tickets resolved per day, the time to resolution, and the number of endpoints managed by the technicians. Perfect financial metrics, but red flags in the team may significantly lower the valuation of the business. ###  **Negotiating a deal** The final valuation of the business and the transaction structure depends solely on negotiation. There is no single source of truth for valuation, and what can be more valuable for one buyer may be less valuable for another. Below is a simple process for preparing for the negotiation. - Conduct a marketing analysis. Look at the information about recent deals in the area. Find comparable companies in the news and analyst reports. Build a case for the valuation based on similar deals. - Identify the synergy from the acquisition – can you grow your customer base or upsell services to your existing customer base after the acquisitions, or can you sell new services to the customer base of the company being acquired? The synergy will help to justify a higher valuation, as well as to help you focus on the goals of the transaction, not solely focusing on the price. - Consider different options to structure the transaction – cash, stock, earn-out structure – we will discuss it later in the article. - List all the red flags and reasons to decrease the business's valuation. Look at the abovementioned factors and document all reasons the valuation may be decreased. - Come to the negotiations with a realistic proposal and arguments to support it and be ready for multiple rounds of talks. For some MSP owners, their business is their “baby,” and negotiations can quickly become emotional. After the price agreement is reached, it is important to discuss the timeline, integration process, and communications with the employees and customers. A single position and vision should be communicated internally and externally. ## **Structuring the deal** The deal structure can be a trading card in the negotiations. Cash today is more valuable than cash in the future, so a higher valuation with a smaller payout today may be preferable to a lower valuation with an all-cash transaction. ### **All-cash** Sellers get their money; buyers assume control. The transaction is clean and fast. It may require a loan for a buyer to pay the cash or a payment schedule consisting of installments taken from the company’s cash flow. Based on the experience of many MSPs, this type of transaction is easier to agree on yet brings the highest risk of overpaying and struggling with the performance of the newly acquired business. ### **Stock transaction** Sellers get shares in the new business and become stakeholders in its success, as their future earnings depend on the combined company's future performance. Pure stock transactions are rare, as most sellers seek a cash-out. Stock transactions may come with tax benefits in some jurisdictions and getting advice from a tax professional makes sense when considering the attractiveness of the stock transaction. ### **Earn-out structure** This structure suggests the earn-out period based on the company’s performance. Usually, it is structured with a portion of the value paid upfront and then the rest of the value paid during a two- to three-year period based on company performance. The usual metrics used for earn-out plans include revenue, EBITDA and customer retention, and an opportunity to receive higher amounts if the company outperforms its targets. This structure is usually employed when there is a need to retain the initial business owners and managers and motivate them to help grow the company.   More and more MSPs are acquiring other MSPs after a hybrid deal structure combining a portion of cash, stock and performance-based earn-outs. The flexibility in structuring the deal is a good card to play in negotiating the value that sellers will receive.   [In the next article of the series](../../../acquiring-a-managed-service-provider-business-part-iii-integration), we will discuss integrating the newly acquired MSP. --- ## Acquiring a Managed Service Provider Business. Part I: Reasons, Targets and Due Diligence **Author:** Gaidar Magdanurov | **Published:** 2024-09-19 **URL:** https://mspnotes.com/acquiring-a-managed-service-provider-business-part-i **Tags:** Business Even though analysts report that the MSP acquisition market [has slowed down](https://www.crn.com/news/channel-news/2024/msp-m-a-market-slowing-but-still-more-deals-than-before-covid-expert), the topic is still hot, and many MSPs start considering acquisitions once they reach a certain size. In this series of articles, we will examine the aspects of acquisition that may be useful for MSPs considering their first acquisition and IT professionals considering starting an MSP by acquiring an existing business. ## **Why acquire an MSP?** There may be multiple reasons for acquiring an existing operational MSP business besides growing the customer base. While getting more customers and more technicians to serve those customers is often named as a primary reason, there are other benefits to consider while working on the acquisition. ### **New services and expertise in the portfolio** Bringing people with new expertise to offer additional services allows MSPs to upsell additional services to their customer base. Diversifying the portfolio also provides for acquiring new customers who demand new services. The most popular services added via acquisitions are security, disaster recovery and virtual CIO services. ### **New location** Most MSPs serve customers within a reasonable driving range, limiting the business's growth to the technician's ability to be on-site within a day. Additional locations expand the geographical presence and potential customer base. ### **Cost savings at scale** More business enables MSPs to negotiate better deals with hardware and software vendors, get additional incentives through distributors, and save on operational costs like finance and legal fees. ### **Reduction of marketing costs by eliminating competition in the local market** Not having a competitor nearby going after your customer base reduces marketing costs and acquiring a smaller but more aggressive competitor can be a way to eliminate the competitive pressure. ## **Identifying acquisition targets** Once the acquisition objectives are defined, it becomes straightforward to look for a match. The best practice is to build a table with the search criteria and conduct market research, populating the table with the information needed to make the decisions. The usual parameters to consider:  - Size of the company – employees and customers, revenue and margin (if available) - Service offering – complimentary offerings, unique expertise - Technology stack – complementary or completely different, consolidated or diverse - Industry focus – critical in case of solid focus on [vertical marketing](../../vertical-marketing-strategy-for-managed-service-providers) - Contract terms – monthly, annual, multi-year - Pricing structure – lower or higher, flexible or fixed - Reputation – social media, reviews, customer interviews can be helpful - Management team and team culture – is it the founder-led company or the company led by the professional management - Partnerships – vendors and distributors used by the company After collecting the information, it is time to contact the owners and discuss the opportunity. Given that many MSPs are “lifestyle businesses” and rarely valued highly, rejection of communication about the acquisition opportunity is usual and should not discourage you from looking at other targets. > Tip: Many MSPs value their relationships with their employees—as they become a family over the years—and at the beginning of the conversations, it is important to have a solid vision for what is going to happen with the team and look for a cultural fit with the existing team. ## **Due diligence process** The acquisition process requires legal and financial support, and the best practice is to retain people with experience driving acquisitions. However, the future owner should delve very deeply into the details of due diligence before making the final decision on whether to finalize the deal, what price to offer or whether to walk away from the deal and look somewhere else. There are multiple areas for due diligence for any sizable business. ### **Financial** Review current and past financial statements and dynamics. Look for discrepancies in the reporting and revenue recognition practices. A change of ownership may force some customers who are on the verge of moving to another MSP to decide to proceed now. Review debts and leases and terms for them. ### **Legal** Review contracts with existing customers and terms of termination. Look for liabilities and protections in place, especially in downtime and cyber incidents. Review insurance agreements and coverage. Investigate any opportunities for litigation and check for the status and impact of any past litigation. If there is proprietary technology in place—acquired or developed in-hours—investigate the intellectual property rights. Be diligent in reviewing compliance with regulations, depending on the industries served. ### **Technical** Assess the technology stack and IT infrastructure in place. Look at the cost of operating and upgrading the infrastructure. Review documentation, especially the documentation for customer onboarding, offboarding and daily maintenance. Weak documentation and relying on employee knowledge are red flags. Be diligent about software licenses and compliance with vendor licensing policies. Quite often, you may discover unlicensed software, and in some cases, even counterfeit software, that will become your problem after the acquisition. Put particular emphasis on evaluating cybersecurity, including the technology used, procedures to maintain cybersecurity, level of knowledge, and presence of incident response policies. ### **Team** Besides reviewing contracts and HR policies, it is crucial to interview employees and understand team dynamics well. There is a chance that the relationships with the management retain employees, and after the acquisition, you may face resignations or have to incur significant expenses for the retention bonuses. Look for the key employees and informal leaders on the team and evaluate if they are a cultural match for you and your team and if you can work with them. The business of MSP is purely people; thus, evaluating the team is the top priority for the leader, and external consultants are rarely able to do it for the leaders.   In [the next article](../../../acquiring-a-managed-service-provider-business-part-ii), we will look at the approach to the valuation and execution of the transaction. --- ## Why Do Managed Service Provider Businesses Fail? **Author:** Gaidar Magdanurov | **Published:** 2024-09-12 **URL:** https://mspnotes.com/why-do-managed-service-provider-businesses-fail **Tags:** Business A reader asked me: “Gaidar, you spoke to thousands of MSPs, and you share best practices and tips, but what about those who fail? Why do they fail?” It is a fascinating question. When I was working on market intelligence at Acronis for a few years, we found out that there are around 300,000 companies that offer or resell managed services worldwide. About 10% of them shut down or are acquired every year, yet new MSP businesses appear every year, quite often to be shut down in the same year or the year after. The question about the reasons for failure inspired me to do deep research in my notes from the last ten years to find comments about previous business failures. The topic became so engaging that I contacted a few former MSPs who joined vendors and channel companies to get their perspectives on reasons for failure. The list started to grow, and completing this article took over four months. This article can be helpful for MSPs suffering through the same issues, knowing that others experience the same issues and that thousands of companies were able to pull through. We will discuss this at the end of the article. So, why do MSP businesses fail? ## **Don’t believe in success anymore** The business is not growing and is hitting a rough patch. Customers are leaving, tickets are piling up, and there are not enough people to manage the workload. The future does not look bright; there is no business stability, and returning to a corporate job does not seem like a good idea. In another situation, business is going okay, yet there are no new customers, the margin is small, and the lifestyle could have been better in the corporate days. Earning money is tough, and getting up for work daily gets less exciting. ## **Fail on expectations of fast results** IT professionals start an MSP business expecting to get a scalable business yet getting themselves just yet another job. Instead of working a 40-hour workweek for a corporation, they get themselves a 120-hour workweek with the same or sometimes lesser pay. Savings are running out; bank account looks grim as they don’t change their spending pattern, expecting the business to grow fast and pay them back. One US-based MSP noted that they were working long hours, paying themselves about $80,000 a year salary, establishing processes, and after they were ready to onboard an employee to do the work, they found out nobody wanted to work such long hours for $80,000, and paying more would reduce the margin the owner takes. They expected to acquire new customers quickly but could land 1-2 contracts a quarter merely to balance the churn of customers that were going out of the business. ## **Focus on mistakes and failures, getting stuck in the past** Bad things happen. Customers have downtime, tickets get incorrectly handled, and customers get upset and leave. This is the nature of business; there is almost always a churn of customers. Proposals are always rejected. There are times when you must let the customer go when the cost of maintaining their contract is too high, and there is no potential to get more value from the account. The ability to move on and keep driving the business despite the failures is essential. Yet, some MSP business owners focus on their mistakes and waste time and effort on retaining customers who are about to leave and stop selling after being rejected many times. Instead of thinking about the future and creating opportunities, owners get stuck with their past mistakes, repeatedly reliving them and being afraid of the future. ## **Fear of changes** Changes are scary. An ancient Chinese proverb goes, “When the winds of change blow, some people build walls, and others build windmills.” This really applies here. Working against the change leads to failure. Technology changes, customer needs evolve, employee performance changes. Trying to work against the change takes away tons of energy and prevents us from investing in the future. MSP service offerings should constantly evolve. Today, you offer anti-virus, tomorrow, you offer EDR, the day after XDR. Now, you have your customers using backup and tomorrow, you will offer disaster recovery. Yesterday, your customers were using on-prem servers, and they moved to the Cloud today. The situation in the lives of employees changes, and top performers can become toxic and destructive, and there is time to let them go. ## **Give up easily** Good things are rarely easy. If you start marketing and fail with a few first campaigns, it is not the time to give up—you must push it consistently. If customers reject your proposal, you must adjust it and go after others. Giving in to the feeling of hopelessness and resignation leads to the end of the business. A UK-based MSP told me they were chasing a large customer for over three years until they had a chance to land a deal. They also failed miserably during onboarding because they underestimated the complexity of the infrastructure and the lack of resources to fulfill the SLA. And they gave up to learn that even smaller MSP was able to take over after them, and those guys kept pushing, provided discounts, worked extra hours for free but managed to retain the account. ## **Believe that relationships will retain customers** The MSP world is highly competitive. Your customer of many years may be approached by somebody offering new services at a lower price or, even better, painting the picture of a much more efficient and effective IT infrastructure driving their business. Business leaders value relationships, yet when the value of a new proposal is too attractive, they tend to move on. If the MSP business doesn’t evolve, doesn’t address technology trends, and does not become a partner for the business leaders – good relationships won’t retain the account. No amount of excellent work in the past overcomes savings and higher earnings in the future. The goal of any business, including MSPs, is to make money for its stakeholders. Thus, you have to perform on a daily basis and show a bright future to keep the customers. ## **Focus on loss, not on gain** Instead of growing a customer base, MSPs that focus purely on retention eventually fail. Customers leave—sometimes they go out of business, sometimes priorities change, or they are acquired, and the services of an MSP become unnecessary. Customers leave, and it is just a fact of life. Thus, focusing on retention will ultimately cause MSPs to lose in the long run. ## **Overwork and burnout** Working hard is good; it gives excellent results. Yet, working hard all the time and running yourself into the ground has negative consequences. You burn out as a leader, lose interest and drive, and influence your team in the same way. You start from rejecting new projects –to avoid more work. You stop investing in developing your team and try to maintain the status quo. Then you become toxic – saying “no” to every employee initiative, forgetting to take care of your team. And then, you, as a leader, make the whole team appear to burn out to the outside world. Customers and prospects start talking about your company as slow and not innovative and look for another partner. ## **Thinking their challenges are unique** The customer was down for a few days due to a faulty update by a cybersecurity vendor and a failure to recover from a backup due to storage misconfiguration. Another one could not fail over to the Cloud due to complicated network configuration. One more had significant losses due to a malfunctioning VPN preventing them from working during the active trading session. And so on, you name it. Every issue or problem may have happened somewhere else, and somebody might have found a way to deal with it. Without looking for best practices from others or solutions applied in similar situations, it is easy to reinvent the wheel every single time and waste enormous resources. ## **The antidote** This list looks scary and relatable for any business owner, not just the MSP. Bad things happen, energy may be low, and things are not going well. It occurs in business, in life, and relationships. Yet, many successful companies managed to survive despite facing the same challenge. So, what solution helped those successful business owners? They believed in their strength and skills, believed in the positive outcome, and believed in success. Believing gives hope in the future, making changes less scary, and it helps to keep working to get the results. Play the game of belief. Here is the same thought delivered with passion by [Sir Philip Anthony Hopkins](https://www.youtube.com/watch?v=RoKcHWSr4r8). --- ## New Revenue Streams for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2024-08-26 **URL:** https://mspnotes.com/new-revenue-streams-for-managed-service-providers **Tags:** Business, Ideas A recurrent topic raised during the meetings with MSPs is finding ways to collect more revenue from the existing customer base due to [declining profits](../../profit-challenges-for-managed-service-providers). Most MSPs could be better at [acquiring new customers at scale](../../game-on-the-cutthroat-world-of-managed-service-providers), so they rely on the existing customer base and upsell additional services to their customers. MSPs commonly object to adding additional services unrelated to infrastructure management, like managing websites, because “it is not our business.” Last week, a Florida-based MSP told me, “Offering something else is like Walmart making money on something but selling stuff.” It's funny they mentioned it because Walmart now makes [significant revenue from advertising](https://www.ft.com/content/1e2a5338-f1ae-41ee-bc08-4c86f2eb5a58). The ad business is more profitable than selling goods at the stores, and its advertising business has grown 30% year-over-year, faster than any other business line of Walmart. It is a good illustration that having access to customers is an opportunity to make money on additional services. ## **How do MSPs make money now?** Let’s look at the “traditional” services MSPs offer and charge for. The most common services include device and network monitoring and management, help desk services, backup and recovery, and basic security services. Usually, MSPs offer various packages with different combinations of services and various service level agreements (SLAs), offering customers a choice to get better and faster service at a higher cost. The usual candidates for additional revenue are software and hardware reselling. MSPs frequently resell Microsoft 365 licenses and help procure hardware, collecting small yet stable margins. Additional services may include managing software and hardware renewals, hardware warranties, and maintaining licenses across all software assets. Another usual source of additional revenue is reselling and managing cloud services—a variety of specialized cloud applications may require monitoring and management, which is charged to the end customers. One-time or project-based sources of revenue may include migration to different software or cloud services, virtualization of infrastructure, one-time renewal of hardware and standardization of software. ## **What can be new revenue streams for MSPs?** MSPs looking into new revenue sources and open to being creative with their services have a great choice of services they can add to their current offering. End customers now demand cybersecurity and compliance services. Given that human mistakes are the most prominent attack vectors, an MSP can offer education for employees in addition to installing cybersecurity software. On top of essential security, MSPs can offer Endpoint Detection and Response (EDR) and managed security operation centers (SOC). The services can be outsourced to a partner or a vendor if MSPs don’t have the resources to do it themselves, and the margin will be shared with them. - Therefore, for cybersecurity, MSPs can add to their portfolio: - Vulnerability assessments - Penetration testing - Security awareness training - Incident response - Forensics As for compliance, more and more customers, including small businesses (SMBs), have requirements to comply with specific government regulations or requirements of the large enterprises they serve. An SMB, a vendor for an enterprise, may have to comply with the regulations applicable to the enterprise to continue business with them. This creates an opportunity for MSPs to offer compliance services: - Compliance audits - Policy development and implementation - Consulting on compliance requirements (for example, GDPR, PCI DSS, HIPAA) Cybersecurity and compliance are highly demanded services and seem like solid next steps for MSPs, yet there are many more opportunities to expand the services portfolio and generate additional revenue. - Cloud service consulting – helping customers to find more effective ways to do business by employing cloud services. There are opportunities in the management of services and supporting cost optimization. Many customers struggle with multiple services and using various clouds, and consulting on consolidation and management may be a desirable offer if it is correctly [positioned toward generating additional revenue or cost savings for the customer](../../positioning-the-value-of-managed-services-to-prospects-and-customers). - AI consulting – multiple services are available for automating day-to-day operations, yet general knowledge of the services and best practices of their application is scarce. Consulting on AI implementation and ongoing maintenance of processes involving AI tools is in demand, and the market is growing as AI tools become a de facto requirement to stay competitive in many industries. - IoT management— offices are now filled with devices that can create multiple issues if left unmanaged, starting from being a potential entry point for cyberattacks. A few MSPs offer IoT management now, and those services can be a potential competitive differentiation for those who do. There are also opportunities to offer services in addition to infrastructure management, including web hosting and web presence, CRM management and support with marketing automation, virtual CIO services, and the design of a complete IT strategy aligned with the business plan. ## **Conclusions** Having trusted relationships with customers opens up various opportunities to offer additional services, and in most cases, [a partner can provide the services on behalf of an MSP](../../msps-reselling-managed-services). Looking for ways to grow their business, MSPs may explore services their customers want and consider options for offering those services. Besides serving as an additional revenue stream, offering additional services deepens relationships and reduces the risk of customer churn, as customers tend to look for lower-priced offerings from other MSPs if they consume only the essential infrastructure management services. --- ## Smart Goal Setting for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2024-08-07 **URL:** https://mspnotes.com/smart-goal-setting-for-managed-service-providers **Tags:** Business MSP owners and managers, often being technical people, struggle with setting business goals for their MSPs. Quite frequently, the goal sounds like “grew revenue by X% next year,” which is fine, yet without a detailed model behind it, the goal is just a statement. ## Designing business goals Let’s build a simple model to explain the goal design process. Let’s assume we have an MSP with 50 customers; each customer, on average, pays $15,000 per year, resulting in $750,000 in revenue for the MSP. If the business manager wants to grow revenue by 20%, they will need to collect $900,000, which is $150,000 more than in the previous year. There are two ways to do this at a high level: increase collection from existing customers or add new customers. A new customer brings $15,000 per year, and the MSP, from experience, is confident it can acquire two new customers per quarter. To simplify the model, let’s assume the customers start paying from the beginning of the quarter. Therefore, the revenue from the 8 new customers in the next year will be $75,000 (the first 2 will bring 15,000 each, the second 2 only ¾ of that and so on…). So, we assume we will make $75,000 from those new customers and have $75,000 to make on the existing customer base. There are a few ways to grow revenue from the existing customer base: renegotiate the prices (as MSP agreements are most likely to have a clause allowing for price increase), upsell additional services, or offer higher-tier packages of services. Getting $75,000 from the existing customer base would be a 10% price increase, leading to $16,500 per customer per year. From the price increase, adding additional services, and increasing SLAs. We assume that all customers will stay with the MSP in this example. Therefore, the business goals for the MSP business will look like: - 20% revenue growth in the next year - 2 new customers at an average contract value of $15,000 acquired per quarter - 10% average increase in revenue per existing customer ## Cascading the business goals to the organization For the MSP technician, the goal of growing revenue by 20% makes very little sense. They don’t operate in terms of revenues. Their influence on business results comes from their day-to-day jobs, and their goals should be focused on supporting growth. Let’s create a simplified model to estimate the team of technicians needed to support the business's growth. Say we have 5 technicians who spend 20 hours a week each handling tickets from the existing customers, spending an average of  2 hours per customer. Assuming a similar workload, an additional 8 customers will require 16 hours per week. One way to handle the extra time is to recruit one more technician or reduce the time per customer to 1.7 hours a week. The time spent on customers is determined by the number of incoming tickets and the time spent per ticket. For this simple example, let's say that a ticket takes 0.2 hours on average, and each customer generates 10 tickets per week. Ticket volume may be reduced by increasing the reliability of the infrastructure, introducing new software packages, and implementing self-service capabilities like the ability to recover files and folders from the back to avoid contacting the MSP. The time required to handle a ticket may be reduced by implementing an integrated tech stack, reducing the number of consoles to use. Thus, the goals for the technicians can be to reduce the volume of tickets to 8 per customer per week or reduce the time of processing a ticket to 0.17 hours. Quite often, MSP managers choose to use the combination. Moreover, a reduction in ticket processing time can be connected to the price increase for the existing customers, given that they are receiving better SLAs, or it can be connected to the upselling of more expensive packages with additional tools to reduce ticket volume. Therefore, the goals for the technical team can be: - 20% reduction in the number of incoming tickets - 15% reduction in the time spent per ticket ## Discussion The example above is simplified yet describes a fundamental principle. Setting the goals around improving the work that the team is doing focuses the team on finding solutions to improve while providing them guidance in terms they understand. There is no guarantee that all targets will be achieved; therefore, a combination of targets should allow the final goal to be achieved—like reducing ticket volume and processing time per ticket. Using the sports analogy, winning teams behave like winning teams. They don’t have goals defined for winning every competition; they have goals to show their top performance. They may lose certain games, yet they will ultimately achieve top results while working on their performance. The same applies to MSPs. They may not be able to acquire as many customers as they planned or upsell to as many customers as they want, yet due to their higher operational efficiency, they will have the capacity to do so, and over time, that capacity can be used to achieve faster growth. --- ## Pricing and Costs for Managed Service Providers: Defining Per User and Per Device Rates **Author:** Gaidar Magdanurov | **Published:** 2024-08-02 **URL:** https://mspnotes.com/pricing-and-costs-for-msp-defining-per-user-and-per-device-rates **Tags:** Business The most common question from MSPs is how to define and adjust their prices. There is a trap to go down the rabbit hole of following the competition, as customers shopping for rates most likely will do a comparison. However, this is a risky approach, as MSPs have different cost structures, different services and different value they provide. Last year, it posted about [pricing for MSPs](../../pricing-for-managed-service-providers), advocating to target profit margins, and since I received multiple questions about specific examples, his post will expand on the topic. ## The rates In the US, depending on the level of service and technology stack deployed, expected per-device or per-user rates range from $50 to $300. The range is rather broad, as it really depends on what is included in the price. Some MSPs include all necessary productivity, management, and cyber protection tools in the cost and end up at the higher side of the range, while others charge separately for software licenses with little to no markup. And there is a wide range of options there. Some MSPs include only necessary tools like RMM, backup and security, while overs include everything that the customer needs. The all-inclusive approach has its pros and cons. It is usually easier in the initial negotiation, showing customers that there is no additional cost and that the cost of the managed contract is fixed for at least a year. At the same time, it is much harder to upsell by adding additional tools and services even if the customer desperately needs them. ## The margin The usual range of margins in the US is between 30% and 70%. Most of MSPs design their offering target at the last 50% margin and end up at a 30-40% margin during the contract negotiations. To calculate the rates based on the target margin, consider the cost of software, the cost of running the business with the customer, and the cost of the employee's time.  Margin is calculated using a simple formula: *Margin = 1 – (Cost / Price)* Therefore, to calculate the Price, use the following: *Price = Cost/(1 – Margin)* Let’s say your cost per hour is $50 and your target margin is 50%, then your price shall be $100 per hour. To estimate the time required per customer, make assumptions, and then adjust them based on reality. In most cases, you already have some experience with the ticket volumes and time required to handle the tickets.  Also, it is a practice to look at your margins regularly, assess the profitability of customers, and make hard decisions about parting ways with customers if they become unprofitable. ## The reality The sad truth about meeting pricing is that customers will negotiate, and you will make concessions. A good rule of thumb is never to give up discounts without adjusting the level of service. If a customer demands a discount, estimate what you must adjust to maintain your profit margins. For instance, at a lower rate per device or user, you can offer longer response time for the support tickets – saving time for your technicians to serve over customers. Another sad reality is that you will always have customers with incidents that will require a lot of attention and time, and those are hard to predict, as you never know if somebody will force a faulty update for the systems or if a customer will have administrator access, makes some funny changes you will have to fix. If the incidents become a norm, you must re-negotiate the agreement or drop the customer. Many MSPs continue to support customers that become unprofitable and, over time, destroy their own business. ## Charging by an hour With more and more MSPs switching to per-user or per-device pricing, the model for charging per hour of work is still alive, especially in complicated customer cases requiring a lot of extra effort. One option to consider with customers who use a lot of hours is to offer them much lower per-user and per-device prices while establishing an hourly rate for handling incidents. In this case, having the customer's history allows you to estimate the price using the same target margin approach. … In any case, remember to [sell on value](../../positioning-the-value-of-managed-services-to-prospects-and-customers), not only on price. At the end of the day, the customer cares about what you do for their business as long as your services save them money or allow them to make more money. --- ## Positioning the Value of Managed Services to Prospects and Customers **Author:** Gaidar Magdanurov | **Published:** 2024-06-15 **URL:** https://mspnotes.com/positioning-the-value-of-managed-services-to-prospects-and-customers **Tags:** Business, Ideas An active reader, “How can my MSP compete on value when I don’t know what prospects want?” He elaborated that endless conversations about the customers’ needs lead him nowhere. Customers and prospects share ideas on what they would like to receive as services from their IT-managed service provider and then… don’t pay for them or choose another provider offering a lower price. True, it is easier to know what people want once they pay for it and prove they want it. Until they pay for it, they just share ideas on something they would like to have (read “good to have, maybe”). Not until they take money out of their pockets and have other priorities. > Here is another way of thinking about the services to provide. Start not from what people want but what they don’t want to do. It is usually easier to identify and easier to sell to customers. ## **What do business owners want to avoid doing?** Most MSPs would quickly respond to the question. Business owners don’t want to spend time on something that is not their core business. They don’t want to spend time dealing with their IT; they want everything to work so they don’t even have to know what their MSPs are doing. It is so. That is why they are hiring MSPs to manage their IT. Yet, to understand what and how to offer them, we need to go deeper into their needs and business needs to identify their pain points with their MSPs. Below is the list of everyday things I heard from the business owners when I asked them about their pains while working with IT providers. Addressing their pains is the way to pitch value to them. - **They don’t want to pay for services they don’t need**. Often, it is not that they don’t need the services; they don’t understand the benefits. If they have EDR deployed to improve their security, yet they think Windows Defender is more than enough, it would require explaining to them that having the additional layer of protection helps them avoid the risk of dealing with infrastructure that does not work or a security breach that could kill their business. - **They don’t want to learn about the issues when it is too late**. Lack of timely or clear communication leads to wasted time and frustration. Owners don’t want to worry about something that may happen, and lack of communication makes them wonder if something terrible may happen. Regular reports, scheduled reviews or email updates give business owners some predictability. - **They don’t want to call MSPs for support**. Nobody wants to see things break, but even more to that — spending time explaining what has happened, waiting for the fix, and losing productivity is a pain for business owners. Having proactive monitoring and prevention of issues in place helps to alleviate the pain. - **They don’t want to waste time because IT doesn’t work or their computers’ performance is slow. Remote fixes, updates and upgrades outside of working hours minimize the impact on people’s productivity**. Scheduling backups and complete security scans outside working hours is also a good practice. - **They don’t want to waste time working with inefficient applications**. For instance, having multiple productivity applications that are not integrated may be frustrating, and switching to a platform like Microsoft 365, Google Workspace, or Slack with integration of the business applications can alleviate their pain. - **They don’t want unpredictable service levels. **Suppose a response to a critical issue takes minutes one day and hours another, and there is no way to get support outside of working hours. In that case, business owners tend to be unhappy about the inconsistency, even more than the issues. Looking at the list of the pains, you can build the offering and the pitch to sell that offering to the customers — addressing things they don’t want to do by offering them ways to avoid them. ## **One single main point** The list above is long; many business owners can detail their grievances with MSPs for hours. Yet, when I ask them bluntly what is the one single pain they have from working with MSPs, not all of the small details — many say, “We don’t want to spend time teaching MSPs about my business.” > MSPs understanding their customers’ business can be the most critical value they can bring to their customers. An MSP that understands the business can offer solutions and address the pains. Knowing, for example, what a typical dental office needs and offering them the services, software, expertise, and SLAs they need can be the best value that MSPs can provide to their customers. With an understanding of the business of your customers and prospects, you can build your portfolio of services and products and pitch it most effectively. Therefore, defining who your customers are and focusing on them is essential; being everything for everybody is never a sustainable strategy. --- ## Importance of Good Ol’ Backups for MSPs **Author:** Gaidar Magdanurov | **Published:** 2024-05-15 **URL:** https://mspnotes.com/importance-of-good-ol-backups-for-msps **Tags:** Technology, Security Discussing the topic may seem funny. Backup is necessary, and every MSP knows that — and it is almost always part of the managed services offering. However, MSPs often see backup only as a way to recover the system in case of a failure, data loss or cyber attack. Backups are much more than that. ## **Useful data** The secondary copy of data can be used in a variety of ways. Starting from building reports and analytics on the type of data present in production systems without putting additional load on the production system, and continuing with using the secondary copy of data for training AI, looking for data modification patterns, and discovering unexpected and suspicious behavior of data modification. Comparing the data on a production system to a backup can help uncover hidden cyber threats — like ransomware gradually encrypting files on the production system and being unnoticed by security solutions. ## **Archive for investigation and litigation** Having a snapshot of data from the past can be helpful in multiple scenarios. After mitigating a cyber attack, the backup can be a valuable source of information for forensic investigation — to discover how the attack progressed and what happened in the process. MSPs frequently overlook the importance of an investigation after an attack as they focus on getting their customers back to productivity. However, not knowing how the attack happened may lead to repetitive attacks, and not knowing the full extent of the impact may lead to unpleasant surprises in the future. Another application of backup in this context is archiving data for future litigation. Recovering documents and communications may be crucial for litigation and directly requested by courts. ## **Sandbox** Another valuable application for a backup copy is using the data for tests — recovering the data and systems to spare hardware or a virtual environment and testing updates and new software on a system that is an exact replica of a production system. ## **Migration** Another application of backup is the migration between hypervisors, physical servers, including those with dissimilar hardware, and on-premises to Cloud and backup. The backup and recovery process can be used instead of specialized migration tools, saving the IT budget, as no additional software is needed to accomplish the migration. The beauty of it is that migration and recovery are the same process. Thus, migration can also be used as a fire drill to check procedures for handling recovery in case of disasters. … As you can see, a backup is more than just a copy to recover if things go south. As data storage becomes cheaper, keeping copies for future use and covering additional scenarios of using backup to deliver more value for the customers makes sense. --- ## Converting A Business from Break-Fix to Managed Service Provider **Author:** Gaidar Magdanurov | **Published:** 2024-04-30 **URL:** https://mspnotes.com/converting-a-business-from-break-fix-to-managed-service-provider-learnings-from-a-real-life-story **Tags:** Business In this post, I share a story from an MSP about their journey of converting their break-fix shop into a managed service provider I collected over multiple message exchanges last month. In no way is it a guide to starting your own MSP; for that, I would suggest checking out [a great collection of training courses on specific aspects of running an MSP business](https://www.acronis.com/en-us/academy/msp/), yet the stories here can be a source of inspiration for entrepreneurs in the managed services business. > The story’s hero asked not to disclose any information about them besides being a proud American MSP. The story covers over three years as of today, and it started during the Covid pandemic. ## **The mentor** After struggling to maintain sustainable income from one-off jobs at hourly rates for years and getting to the stage of life when predictable income was necessary for the family’s well-being, the break-fix business owner was considering taking a corporate job. Managing a break-fix shop with four employees and a few part-time contractors was an exciting experience, and the freedom to run their own business was the reason they started the shop in the first place, yet struggling with getting enough contracts to pay salaries and not being able to set aside money for the rainy day was too much. Reading Reddit posts about people starting their MSP businesses and attending courses of MSP gurus like Chris Wiser and Eric Simpson convinced the hero of our story that [a long-term contract model](../../../understanding-the-managed-service-provider-model-contracts-billing-and-services-78fedcf1f909) is the only way to continue running their IT business. Yet, they were lacking confidence in their ability to start it. It was a many months-long struggle, and the owner was close to shutting down their shop until they met another MSP owner in the local community at one of the events. The MSP owner suggested serving as a mentor to help with the transition. The mentor gave the owner confidence and reassured them that failure to do so would not take away an opportunity to join a corporate IT department. The mentor also suggested that the break-fix owner try the transition before letting their employees go. As they became family, forcing them to look for jobs will have a detrimental impact on the mental health of our hero. > Having a person with the experience of the transition from break-fix to managed services to advise you and instill confidence in your abilities helps you make the first step. ## **The plan** Our hero sat down with his mentor and made a transition plan. Firstly, they planned the capacity to continue the engagements with an hourly rate for their existing customers and estimated the capacity for one-off jobs that were coming their way based on their experience of the previous years. Secondly, they agreed on a cutoff date for accepting new break-fix customers. They have decided not to accept any work from new customers without a six-month long-term contract. And then, if they get enough customers on the managed agreements to maintain their operations, they will get back to their existing customers and ask them to switch to annual contracts. They prepared a plan, documenting everything they needed to prepare, from contracts to marketing to recruit new customers, and planned the budget for the transition. In the process, they realized how little structure they had in their business and how little attention they paid to driving the business growth, acquisition, and retention of customers. In the process, they also spent time reviewing their technology stack and realized that they never had preferred solutions documented, and they were supporting whatever infrastructure customers had. As a result of the planning exercises, they selected RMM and PSA solutions to manage customers remotely and automate their business operations and decided to standardize their backup, agreeing that they would accept customers “as is” and then, over time, standardize their infrastructure-based on the preferred technology stack. > Building [a checklist](../../../a-checklist-for-a-new-managed-service-provider-6cae01a42a7b) of activities and assets needed for an MSP business and then building a specific plan with dates, resources and dependencies is the key for the successful transition. ## **The transition** Our hero was offering managed contracts for any new customers reaching out for IT support through word-of-mouth. Yet, he admitted that he still readily accepted one-off projects until the first three customers signed annual agreements, as he had struggled with cash flow. After getting the first three customers with long-term contracts, he took a firm position not to accept break-fix jobs anymore and had to refer a few customers to his competitors, with a few exceptions. In the first few months, our hero learned that the choice of RMM and PSA solution was not the best and switched to another vendor. After a review of the contracts by attorneys per customer requests, many changes were implemented. Service level agreements (SLAs) were defined for the work customers expected from the MSP. They also had a few major security incidents with compromised infrastructure and some of their customers’ data being encrypted for ransom. Since then, they added additional security services and partnered with an MSSP to offer incident investigation, as they acquired customers that needed this for compliance with cyber insurance requirements. They also introduced a policy to mandate offsite backups for customers and run recommended security on all computers on customers’ networks. They switched to another distributor due to regular billing issues and the distributor’s lack of support. The transition period barely looked like they had planned. Yet, in about a year and a half, they had built a working MSP model delivering over 50% of their revenues. Transitioning break-fix customers took longer than expected, and they had to retain some older accounts on the break-fix model due to personal commitments and relationships that were chosen not to strain. Surprisingly to them, the difficulty came from the employees, who were not used to working with customers on long-term contracts. Shifting their mindset from a one-time project to continuous maintenance of customers’ infrastructure took a while, and one person left the company unwilling to handle the incoming volume of support tickets. Initially, the team had to increase the hours they worked per week, yet after the transition was completed, they saw a significant reduction and “in general are much happier people to be around.” > Being flexible and open to making changes to their plans during the transition was something that allowed them to see it through. ## **The learnings** Most customers were reluctant to transition to annual agreements and required special discounted offers to agree to sign the managed services agreements. Most received a 30–50% discount from the initially published rates for the first year, with some having discount reductions for a few years after the initial contract. The owner thinks that they would retain 50–60% of their existing customers without the deeply discounted offers if they were not afraid to push harder and would be open to losing some customers. Yet, they were constrained with cash flow. Therefore, they retained almost 80% of their break-fix customers after the transition, and then about 80% of the overall customer base renewed contracts after the first year and nearly everyone after the second year. Most customers left for MSPs offering lower prices, yet a few returned after a year of getting a lesser quality of service. Looking back, our hero claims that making discounted offers instead of [selling value](../../../positioning-the-value-of-managed-services-to-prospects-and-customers-f77258ab17f1) was their biggest mistake, and they would be better off with fewer, higher-paying customers. Yet, they don’t have precise calculations, and they only speculate. > “Exit interviews” with leaving customers were the most important ways to learn how to improve the services and offers and taught how to sell value rather than price. The hardest part was learning to pitch the services to prospects. The old pitch of “we will fix issues when you have them” was easy, and selling on the value of a long-term agreement was hard. Luckily, most of the new customers were coming through word-of-mouth referrals and did not require convincing regarding the quality of the service. The key asset for the transition was the loyal customer base. What started as a break-fix shop for friends and family evolved into a sizable MSP business, thanks to loyal customers helping recruit other customers and actively advocating for the MSP in the local community. > Fostering relationships with customers helped generate a constant flow of referrals and references, leading to prospects signing up. A quick conversation with an existing customer is an effective sales tool. Still, the hardest thing to do is to say “no” to prospects unwilling to sign up for long-term agreements. Some projects look like easy money and are hard to refuse. Our hero sees that they are improving at that while still accepting projects if those are small, simple, or “come at an outrageously good rate.” ## **The road ahead** Their immediate plans include investing in marketing to acquire more customers, adding additional services to make their offering more valuable, and increasing the amounts they charge their customers based on the different packages of services they offer. They started by charging $75 per workstation and $150 per server per month for a limited scope of service, with additional service coming at an hourly rate of $200 per hour, and over time, introduced additional options that would include everything at $120 per workstations and $300 per server, with some of the customers paying $150 per workstation and over $300 per server, plus $75 per printer or specialized endpoint like POS terminal. They still maintain hourly rates for some agreements, yet they are trying to transition customers to the all-inclusive model with defined service SLAs. They aspire to transition most of the on-premises infrastructure to Azure and all file servers to Microsoft 365 OneDrive and SharePoint. Yet, they are not pushing it hard due to existing contractual agreements. Their other aspiration is to include the annual price increase in their agreements at a 3–5% rate. They missed that at the beginning of the transition. Many customers agree that it has become a standard practice and allows both parties to plan their financials. They have doubled their revenue in the last two years and look forward to expanding and hiring more people as they grow. The next hires they plan to have soon are an operations manager and a marketing manager. For technology, they want to build their own stack to make a standard for all customers at onboarding to grow their [operational maturity](../../../msp-maturity-and-scalability/) and increase productivity. They are cautious of signing large customers, even though they have a few strong prospects, as they are afraid of the workload with those customers and are scared of growing dependency on a few large accounts. Our hero considers going “upmarket” as the next step after he builds efficient operations. ## **The conclusion** The transition from a working break-fix model to an MSP may seem scary. Yet, it is not only doable but also necessary to maintain a sustainable, predictable income. Building a detailed plan, finding a mentor or adviser to help with the plan and to answer questions on the go, and finding the courage to start making changes open up the opportunity to succeed. The market for managed services is large and growing. Canalys, in July 2023, estimated the global market for managed services at $488 billion in 2023, with over 300,000 companies offering managed services, yet less than 50,000 generate more than 50% from the managed services. Given the model’s predictability, we can expect more and more companies to transition to the “pure” MSP model. I hope the story inspires the break-fix shop owners to plan the transition today. --- ## Replacing Another Managed Service Provider **Author:** Gaidar Magdanurov | **Published:** 2024-04-15 **URL:** https://mspnotes.com/replacing-another-managed-service-provider **Tags:** Business Sometimes, customers are unhappy with their current MSP partners and start looking around for another partner. They might have received a recommendation from somebody they trust or just got fed up with issues and poor SLAs with the current MSP, or they don’t believe they get the value for the money anymore. Whatever the reason they started the conversation with a new potential partner, it does not mean they will be ready to switch right away. There is a cost associated with it, and the customer should be confident in the new partner to go through the hassle of switching. Even if the customer had a major disaster and doesn’t want to avoid staying with the existing partner, winning the account is not easy — as they will be shopping around and talking to other MSPs in the area. In this article, I offer helpful tips on how to pitch to customers in a competitive situation. ## **Start with the improvements** Instead of discussing all the excellent services you can offer, investigate the prospect’s infrastructure, understand their frustrations, and discuss the improvements you would implement. It may sound counterintuitive; however, instead of telling customers how good you are, tell them what poor quality of service they are getting now. Be specific when discussing the issues customers are experiencing to make the conversation about them. The generic pitch of everything you can do or how you are better than other MSPs rarely works — everybody tells the customer the same thing. ## **Gain credibility by being specific** Based on the information about the customer issues and your knowledge of the competitor serving the customer, explain to the customer the weaknesses of the competitor (for example, lack of cybersecurity knowledge, using only basic antivirus and not an EDR solution) and your strengths (for example, number of security experts on your team, their experience, certificates, customer references). Again, be specific; discuss the weaknesses and strengths of the customer’s situation. They may be excited to know you have experience putting network cables in the deep sea. Still, if it is irrelevant to the customer’s environment, it rarely gives you additional points for consideration. ## **Praise the competitor a bit** A neat trick is to highlight the strength of the customer’s current partner while focusing on their experience that is irrelevant to the customer’s environment. The customer did not choose a bad MSP; they chose a good MSP, but not the one with the relevant experience for the particular customer infrastructure. In summary, the winning pitch requires understanding the customer’s needs and being very specific about the customer. They always hear generic pitches and want to trust that your expertise is relevant to them. --- ## Simple Sales Tip: Talk About Money They Make, Instead of Money They Pay **Author:** Gaidar Magdanurov | **Published:** 2024-03-30 **URL:** https://mspnotes.com/simple-sales-tip-talk-about-money-they-make-instead-of-money-they-pay **Tags:** Business, Ideas In many sales conversations between MSPs and business owners, the communication revolves around the service cost. MSPs tell the business owners how much they have to pay for the services, and the business owners assess the cost, not the value of the service. In this post, let’s look at how to transition the conversation from the cost to the value. The tip is simple — start by talking about how much customers can save or make if they deploy the managed services first instead of talking about the cost of the managed services. Customers can save or make money by stopping doing certain things they used to do. For instance, automating the preparation of quotes and delivering digital documents instead of paper documents may save time and expenses. Therefore, discussing the cost of the services before discussing the cost forces customers to adopt the mindset, “We are making money, not spending money.” --- ## Niche for Managed Service Providers: Remote-First Businesses **Author:** Gaidar Magdanurov | **Published:** 2024-03-15 **URL:** https://mspnotes.com/niche-for-managed-service-providers-remote-first-businesses **Tags:** Business, Ideas COVID-19 forced many businesses to implement options to work remotely — online meetings, collaboration platforms, and file cloud storage. Since then, many companies have supported fully remote or hybrid work — allowing employees to work remotely with occasional visits to the office or team meetings. MSPs were crucial in supporting remote work, taking the workload of managing remote offices and supporting the rapid adoption of cloud-based collaboration services, and the expertise of supporting remote workers became crucial for many MSPs. Now, many MSPs are focused on helping companies transition back to “office live,” with many businesses requiring employees to be on-site. However, at the same time, there is a new niche for MSPs — remote-first businesses. Businesses built around the concept of remote work hire employees worldwide without the expectation of getting them to work from a single location. Those businesses start by implementing cloud-based collaboration tools, building the workflows from remote collaboration, and not trying to move existing workflows to the Cloud. The emergence of those businesses creates an opportunity for MSPs to manage their delocalized infrastructure and collaboration tools. ## **8 Mandatory Competencies for Remote-first MSP** MSPs willing to position themselves as experts for remote-first businesses and become leaders in the market require a specific set of skills and expertise. 1. **Strategic planning**. It starts with planning the infrastructure architecture to satisfy the customer’s needs while providing high-cost efficiency. Hyperscalers offer much flexibility, yet unwise planning may lead to remarkably high costs. All customers want to get guidance from their MSPs on the most efficient and economical way to implement IT for their business. Remote-first businesses tend to be even more frugal and have higher expectations for cost efficiency. 2. **Cloud infrastructure and services**. Expertise in Azure, Amazon, and Google Cloud and collaboration suits like Microsoft 365 and Google Workspace are essential, as they are the backbone of remote-first businesses. 3. **Cybersecurity**. Containing cyber threats inside a corporate network is easier than with cloud-based services available 24/7 worldwide. Cloud security expertise may be used as an advantage when pitching potential remote-first customers. **4.** **Data protection and disaster recovery. **Cloud-based infrastructure is also prone to disasters — data center outages and malicious or accidental data deletion. 5. **Endpoint management**. While almost everything is in the Cloud, users still have their devices and local network infrastructure that requires management and security. 6. **Compliance**.** **Distributed** **businesses operate in multiple jurisdictions and require specialized knowledge of privacy, data storage, and retention from the MSP. 7. **Automated Helpdesk and self-service. **Remote-first businesses usually demand 24/7 availability and fast reaction, and the usual helpdesk system should be augmented by automation to be able to handle ticket volume spikes within SLAs. Offering self-service tools, like the ability to recover accidentally deleted emails or files, and AI-based chat-bots for quick diagnostic and triage of the issues in a language preferred by the user, may significantly improve the experience and reduce the support cost. 8. **User training. **Systems are as good as the people that use them. As a Microsoft Teams user with previous Slack experience, I can testify that the approach proposed by the vendor and the way users got used to their tools may be very different and require continuous training. Having the expertise differentiates an MSP targeting remote-first businesses and [makes it easier to win the business](../../../vertical-marketing-strategy-for-managed-service-providers-ad59147bf6c0). Maybe it is a niche for you to consider if you already have the required talent and the expertise. --- ## Who do I sell to? A Quick Tip for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2024-02-29 **URL:** https://mspnotes.com/who-do-i-sell-to-a-quick-tip-for-managed-service-providers **Tags:** Business, Ideas A managed service provider is looking at a mid-size business in their area and considering offering their services. The service provider sees a good match — as the business works in the same vertical where the service provider has vast experience. The service provider has a lot to offer and can reduce costs and increase the productivity of the business’s employees, yet… all conversations with people from the business lead nowhere. It looks like the business is just not interested in any savings, any productivity increase or making more money… sounds surprising, yet it is a common situation because the service provider is not talking to the right person. ## **Finding your champion** To sell into a somewhat sizable business, it is important to find the person who will be the champion for you, and that champion will directly benefit from the partnership with the managed service provider. To find the champion, consider who will benefit from the services the MSP provides earlier than others. It takes time to see the impact of increased reliability and accelerated issue resolution. Yet, the impact of new business systems is visible immediately. > I can share a story here. An MSP replacing the old, slow file server with OneDrive and Microsoft 365 helps the team collaborate on proposals. Since COVID, they work from home and have to edit the same document together during a call or take turns editing the files. It leads to multiple files named something like Customer_Proposal_v123 piling up on the file server, and sometimes people publish versions simultaneously and need to merge the changes manually. Implementation of Microsoft 365 leads to real-time collaboration on documents. No more “version hell” and a lot of time saved. After hearing what MSPs offered them, the team working on proposals immediately started to pressure the CEO to employ the MSP. It is important to note here that the most active champion is the person or the team that is getting the benefits now. Promises to deliver something over a long time do not have the same effect, as people think they may not be in the roles they are in over that time or don’t feel it is important enough to invest their energy. ## **How do we discover the scenarios to sell?** Start by talking to your existing customers. Ask them what they use daily and when they save the most time and effort. Find those who love the service and understand what they did not like before or why they love the service. Then, look for similar scenarios in new accounts. Almost nobody will provide useful information if you ask them, “What is your pain?” or something like that. However, if you start with something specific like “I guess you are spending a lot of time collaborating on documents,” you will frame the thinking of the person you are interviewing. Also, making a statement drives them to argue with you and share more information in the process. They may not have a collaboration issue, but sending large files over the network is an issue. Or the issue may be restricting access to confidential documents. Whatever it is, start by showing that you know their scenarios. Be very specific, talking about their business process and the tools they use. --- ## Metrics for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2024-02-15 **URL:** https://mspnotes.com/metrics-for-managed-service-providers **Tags:** Business, Technology In a famous experiment, people are asked to slow down or speed up their heart rate using breathing techniques, and those who are provided with real-time data on their heart rate can do it much easier than those who have to rely only on their feelings. To understand, control and improve anything, we need to be able to measure it first. We can effectively influence what we can measure. Yet, many smaller MSP businesses have very few metrics defined and measured. In this post, I will list metrics many successful MSPs find useful, grouping them into three categories — operational, technology, and financial. ## **Operational metrics** This group of metrics is helpful in understanding the capacity and performance of an MSP business and forecasting the ability of the team to handle more workload as the business grows, with reasonable degradation of the quality of the services. - **Ticket volume**. Data measured and reported per time and per client. It is important to monitor trends in the volume as those can indicate degradation of the IT infrastructure or the impact of mismanaged updates and patches. Volume per client and trends per client allow MSPs to understand if there are specific customers experiencing a high volume of issues. Client ticket volume can also help identify non-profitable customers that may have to be discontinued. - **Response time**.** **Average time to respond to a ticket and comments from the customers. In practice, quite frequently, this is the most impactful metric for the customer’s perception of the service quality. For larger MSPs with a variety of customers and types of tickets, it may be sensible to measure ticket response time based on the severity of the issue or priority of the customer, frequently defined by the contractual SLA on the response and resolution. - **Resolution time.** Average time to resolve the issue since it was reported. Issues should be grouped in similar types and severity to make sense of the metric. - **Service Level Agreement violations**. The** **measure of how many times SLAs on response time and resolution time were violated. It is important to measure the metric by customer and technician to understand the risks for customer churn and technician performance degradation. - **Customer Satisfaction**.** **Few MSPs focus on measuring satisfaction now; however, surveys started to be implemented more often in recent years after the ticket is closed, and technicians are offered bonuses based on the trends of improving customer satisfaction. ## **Technology metrics** This group of metrics is useful to evaluate the performance of the technology stack and infrastructure, spot degradation before it becomes an issue, and analyze the impact of the implementation of new tools on the overall performance. - **Uptime**. Uptime of servers and applications critical for MSP and the customers. Incidents, patches and maintenance impact the uptime. The decline in uptime metrics may indicate that technicians have to spend more time on maintenance, and it is time to upgrade the infrastructure and consider implementing new tools or automation. - **Update success rate.** This metric serves as an early indication of the potential volume of tickets related to updates of operating systems, applications and MSP tools. Failed updates lead to security vulnerabilities, ticket volume, and additional maintenance time. - **Backup success rate**. Monitoring the frequency and success rates of backups is extremely important, as there is nothing more disappointing than discovering an unusable backup after a major incident at a client’s site. - **Security incidents frequency**. It is important to track all types of incidents, including false positives. A growing number of security incidents may indicate the need to review the security architecture and implement additional measures. Growing false positives that usually annoy customers and technicians indicate that it may be time to consider switching to another security vendor. - **Automation coverage**. Share the scenarios covered with scripts and automation. More sophisticated MSPs measure the number of steps required and time required per technician for routine tasks; however, even simply assessing how many of the usual scenarios are automated and making automation a priority leads to significant long-term improvements in the MSP efficiency and capacity. ## **Financial metrics** Operational and technology metrics are directly connected to efficiency and influence most of the financial metrics. Yet, it is important for a successful business to monitor and optimize the metrics related to customer acquisition and retention besides looking only at the revenue and expenses. - **Revenue**. It is important to measure revenue per client and trends over time and understand the structure of both revenue and expenses. Revenue from long-term and short-term contracts, revenue from on-time jobs, revenue from direct customers and from sub-contracts. Knowing the structure allows MSPs to understand and forecast their income. - **Expenses**.** **Expenses per employee, expenses per client, technology expenses per vendor, one-time payments, short-term and long-term agreements, and lease payments. All of it is important to understand the cash flow and avoid getting into a situation when an MSP has to pay expenses now while revenues from the customers are coming in the future, leading to business loans and paying interest on the loans. - **Recurrent revenue **(monthly — MRR or annual — ARR). Recurrent revenue is so important that I put it as a separate line here. Recurrent revenue comes from long-term contracts and is committed by the customers. Recurrent one-time jobs for customers, even if those are coming in steadily, are not recurrent revenue and can be tricky for long-term planning. - **Customer lifetime value (LTV)**. For MSPs that have been in business for multiple years, it makes sense to track the average time customers spend with the MSP and the average value they bring per year to understand the value of each new client MSP acquires. - **Customer acquisition cost (CAC). **Understanding the** **sales and marketing costs required to acquire a new customer is crucial to drive business growth. Knowing the LTV and cash flow of the business, MSPs can estimate the amount of money they can invest in sales and marketing. Calculating CAC per the activity MSPs do to acquire customers — offline and online events, digital ads, marketing agencies, offline ads — helps guide marketing efforts and focus on the channels that deliver profitable customer acquisition. - **Sales cycle length**. The time it takes to sign up a new customer since the beginning of the negotiations allows MSPs to predict how quickly the business can generate revenue from sales and marketing activities. It is extremely important for MSPs with low margins to know how quickly they can replace a customer after losing one. - **Customer churn**.** **How frequently and quickly customers churn is important for predicting revenues and planning sales and marketing activities. - **Employee churn cost**. The metric is sensible for larger MSPs, yet many don’t pay enough attention to it. Knowing the cost of recruiting and replacing an employee allows one to make business decisions when the competition or corporations are pouching employees. For smaller businesses, some owners try to retain everybody, while others look only at the average cost of the employees. Yet, the cynical view of comparing the employees’ compensation to the market and the costs of recruitment and onboarding to the expense of retaining employees makes business decisions easier. Of course, this is not a comprehensive list of metrics for MSPs, yet it may be a good start for an MSP owner just starting up the business or for MSPs who are looking into optimizing operational efficiency. Many MSP businesses have owners who want to exit by selling their MSP to a larger competitor or private equity. The acquirers will be interested in metrics, and having current numbers and historical data may be extremely helpful in increasing the business’s value. --- ## Managed Service Providers Selling Drills, While Business Owners Buy Holes **Author:** Gaidar Magdanurov | **Published:** 2024-01-30 **URL:** https://mspnotes.com/managed-service-providers-selling-drills-while-business-owners-buy-holes **Tags:** Marketing Many articles about sales and marketing share the famous quote from Harvard professor Theodore Levitt: “People don’t want to buy a quarter-inch drill; they want a quarter-inch hole.” The quote illustrates that people are looking for solutions to their problems, not products. Yet, marketers keep selling drills. Going deep into the details of the way the drill operates. While details may appeal to the professionals, they can quickly imagine how long it will take for them to drill holes knowing the power of the drill; many regular consumers would prefer to see the time it would take to drill a hole in the wall of their house. That is why the iPod had a “thousand songs in your pocket” message for the consumers, while professionals would understand the capacity in GBs at the time. MSPs are notorious for selling their services. Talking about the servers and networks, backup and security agents they will install to make the IT infrastructure reliable. It makes sense for a professional, and it is comfortable for an MSP to discuss it. Yet, for a business owner, it does not make much sense. They care about making sure everything works, and if something does not work — it is being quickly fixed. Only some business owners want to hear the details of the tools MSPs use or the network architecture they will implement. Most will want to know how much it will take to fix broken things, and they want to be assured that things won’t get broken often. Some MSPs tend to oversell their expertise, talking in abbreviations of their certifications, technologies they know, and scripting languages they use. Most of it sounds like gibberish for most of the business owners. “We do the IT so that you can do your business, and we are capable of doing it” — this is what they want to hear. Therefore, an effective pitch starts by talking about the problems that the business owner is facing and explaining the solutions in terms that they understand. The technical details may follow as needed, yet it needs to make more sense to lecture business owners on technology. --- ## Inside SMB Owner’s Mind: Negotiating Managed Services Agreements **Author:** Gaidar Magdanurov | **Published:** 2024-01-15 **URL:** https://mspnotes.com/inside-smb-owners-mind-negotiating-managed-services-agreements **Tags:** Business We discussed negotiating a managed services agreement with an SMB that is looking to switch to another service provider. The MSP was surprised that whatever they were offering was not accepted, while they were offering all the good stuff — improve reliability and security, implement a robust business continuity plan, and refresh the software the business runs. ![](../../../static/img/smb-owner-graph.png) The proposal was an obvious “yes” for the MSP and an obvious “no” for the SMB because they had different views on the proposal. What seems to be a reasonable thing to do for the MSP to deploy more software was just the increase in the technology cost and decrease of margin for the business owner. The business owner wants to increase margin, getting more efficiency from the technology and the new MSP partner for their business — reducing the cost of doing business and the cost of the headcount. Therefore, the negotiation hits the wall. One party suggests decreasing the margin, while the other wants to increase it. The way to unblock it is to go beyond the current state of the business and discuss what can be done on the technology side and which tools relevant to the company can be deployed to increase employee productivity, resulting in business growth. For instance, it is deploying Microsoft 365, improving collaboration and processes, enabling businesses to provide services to more customers and increasing revenue. Or reducing time and administrative overhead and freeing up the time of employees and contractors on hourly rates by deploying applications that automate accounting and billing. It is essential to start by discussing what is important for the business owner — increasing their profits. --- ## Understanding the Managed Service Provider Model: Contracts, Billing, and Services **Author:** Gaidar Magdanurov | **Published:** 2023-12-30 **URL:** https://mspnotes.com/understanding-the-managed-service-provider-model-contracts-billing-and-services **Tags:** Business In summary, the managed services model is a subscription model for IT services. To put it simply, long-term contracts are preferred over one-time jobs. A company that provides IT services on request usually has a price list, including services with fixed fees, like setting up a new machine or reinstalling an operating system on a broken device. For more complicated cases, they charge per hour of work needed to complete the job. This type of service is usually called the “break/fix” model. Any time there are one-time service contracts only, it is a “break/fix” model. Managed services imply a long-term contract. Customers pay a fixed fee for a certain level of service and additional fees on top of their contract. In exchange, they get proactive support for their infrastructure and higher quality of service, as the MSP knows and manages their infrastructure. > The primary differences between management services and break/fix models are proactive management and long-term contracts. ## **Break/fix model** The break/fix model is easy to implement, and many MSPs start with that model. One or a few IT professionals get fed up with corporate jobs and start their own business. They publish ads in the local newspapers and social media groups, promote their services via friends and family, and start helping people on a one-time basis. They only need basic IT skills and prices that local business owners and residential customers will pay. The model is highly unpredictable. Sometimes, the demand for IT services spikes (thinking migration from Windows 10 to Windows 11), and sometimes, it dies down with economic fluctuations, changes in the demand from the local business, or competitive pressure with a rival computer shop offering break/fix services at a lower price. There are no long-term customer relationships, and switching service providers is easy for them. ## **Managed services model** The managed services model is predictable if adequately implemented. Long-term contracts guarantee a certain income level, and MSPs can estimate their margins, given that they know their costs. It also allows them to scale their business with a limited number of IT technicians. As they manage their customers’ infrastructure, they can set up the tools they need to manage it remotely and set up backup and security solutions to prevent incidents and decrease the workload for handling the issues. Given the long-term relationships, the MSPs can become trusted advisors for business owners and help them increase efficiency using modern IT solutions, increasing the value of their services, charging higher prices and getting higher margins. The managed services model is more challenging to establish, requiring capacity planning. There are multiple questions to answer: - Given the existing resources, how many customers and incidents can the MSP handle? - What service level agreements (SLAs) can they provide when responding and resolving issues? - How can they maximize their margins by lowering the cost of people or technology and increasing the value of contracts? - What is the plan to increase capacity in case of a peak workload? - Do they use subcontractors for services outside of the area of their primary expertise? For instance, many MSPs outsource security and physical network installation. However, even given the more complicated planning required, the MSP model allows for a stable business that can scale. The break/fix model is unpredictable and hard to scale, and scaling break/fix almost always requires hiring more technicians, who have been in high demand and low availability for the last few decades at least. ## **Contracts in the managed services model** Most MSPs support multiple contract options based on customer requirements: monthly, annual, and multi-annual (usually two or three years). Longer-term agreements are more predictable, but many customers prefer not to commit to long-term agreements. Thus, MSPs have to maintain a mix of different contract types. Higher maturity MSPs usually don’t offer contracts under one year. Multi-year contracts are a good negotiation tool when customers try to lower the monthly payment; an option is to offer a monthly payment with a longer-term agreement. Many MSPs prefer to trade margins for predictability, planning to increase margins with growing efficiency. Frequently, contracts also include onboarding and offboarding fees that cover the expenses of MSPs to take over the customer infrastructure or transition the customer to the new MSPs. Onboarding fees are usually waived for long-term agreements and serve as a tool to negotiate an annual contract instead of a monthly contract. Offboarding fees are often replaced with a 30-day notice for termination requirements, allowing MSPs to execute the transition while still being paid by the customer they are offboarding. ## **Pricing in the managed services model** There is a great variety of pricing options used by MSPs. In general, most MSPs estimate their costs and add a margin on top of it; however, the way the price is calculated for the end customer may differ, and it may depend on the customer, on local practice, or on the way MSPs sell their services to the customers. The most popular models are per device and per-user payment, and less popular models are per hour and per incident. In the per-device model, a price is assigned per device under management. It may vary between types of devices (workstation, laptop, server, printer) or maybe a flat fee per device under management. In the per-user model, it is either the total number of users — employees of the company or the number of users using the IT infrastructure daily. For instance, in a store with three shifts per day, it would be tough to charge per employee while only about a third of the staff is on duty at the same time. Per-incident and per-hour models usually include a minimum monthly fee under the contract, including a certain number of incidents or hours, and everything on top of that is charged according to the price. Models can be mixed. Monthly payment is calculated based on the number of devices or users; however, the pricing is calculated hourly for non-standard situations not covered by the monthly fee. ## **Pricing tiers** Some MSPs include everything in their per-user or per-device pricing, and some add additional charges for software, consumption of services and cloud storage as separate lines on the monthly invoice. Those that include everything into one monthly payment usually offer options for the customers for the level of service they receive — tiers. It allows them to offer additional tools and higher quality of service while maintaining their target margin. The tiers may differ by the SLAs on response and resolution time or by the services included and usually follow the “Good — Better — Best” pattern. One example could be the Silver, Gold and Platinum tiers of one friendly MSP I know. Silver includes basic security software, remote management and incident response within 24 hours. Gold includes backup and additional endpoint security software with a 12-hour response SLA. Platinum includes email security, backup for M365 and a 6-hour response SLA. Some MSPs may offer local backup only in the lower tiers and cloud backup in addition to the local backup in the higher tiers. Another example is a lower tier including antivirus only and a higher tier including EDR solution. ## **Services** The core services that most MSPs provide are remote infrastructure management (computers, servers, network), data backup and security. At a fundamental level, MSPs can use free tools to provide services, such as remote desktops for remote access, built-in backup, and antivirus software for backup and security. However, as MSPs scale operations, the basic tools are not enough, and they transition to professional solutions for MSPs, jointly with the expansion of the portfolio of their services. As MSPs grow their portfolio of services, they offer proactive infrastructure management, driving hardware and software upgrades and advising customers on how to increase their IT productivity. Successful MSPs grow from the “break/fix” shop to the “trusted advisor” when they deliver measurable value to their customers’ businesses. ## **Business Automation** At any reasonable scale, MSPs need automation for their operations, starting with the basic need to receive and track customer requests in a **ticketing system**. Tracking requests and the time spent on them allows MSPs to better plan capacity, identify problematic customers and implement solutions that decrease ticket volume. Without a ticketing system, it is next to impossible to understand the performance of employees and the cost of maintenance of each customer. The other important parts of automation are **contract management and billings**. While smaller MSPs use Excel spreadsheets or accounting software to calculate monthly bills at any reasonable scale, it becomes hardly manageable and time-consuming. Not to mention that time spent on back-office operations takes away time that could be spent managing customers or selling services to new customers. A good billing solution would track contracts and expiration, time and incidents, and calculate and issue invoices with minimum time spent by the MSP. The third piece of automation is a **Customer Relationship Management** (CRM) system to track customer interactions. Having solid customer data helps successful MSPs to upsell additional services or upgrade customers to higher offering tiers, as well as to prevent churn of customers by building stronger relationships and acting as trusted advisors to the business. CRM is also extremely important for recruiting new customers — collecting information on prospects in one place and acting on it promptly is necessary to sign up new customers continuously. An MSP business that cannot recruit customers risks getting shut down, as the existing customers can churn for various reasons. ## **Conclusions** The managed services model benefits both the customer and MSP. The customer gets reliable and cost-effective IT services. The MSP gets predictable revenue and the opportunity to provide proactive maintenance to increase the reliability of the infrastructure while decreasing their maintenance cost — resulting in a growth in their margin. --- ## Boosting MSP Productivity by Reducing Tool Overload **Author:** Gaidar Magdanurov | **Published:** 2023-12-15 **URL:** https://mspnotes.com/boosting-msp-productivity-by-reducing-tool-overload **Tags:** Technology A typical MSP technician works with dozens of different tools every day. Most technicians create routines and checklists and automate their work as much as possible, yet if they take a quick break to think about the amount of time they spend dealing with various tools, they may be dismayed. Instead of productive time doing something useful for the company or just having some free time to have fun, they are spending cycles on updating, configuring, verifying, diagnosing, and fixing a wide variety of software. ## **Understanding Tool Overload** To name a few tools in the MSP toolbox, remote monitoring and management tools, antivirus, firewall, backup, help desk system, service automation system, and a variety of productivity and collaboration tools like Microsoft 365 or Slack. There are multiple studies of [context switching](https://www.techsmith.com/blog/context-switching/) being a productivity killer. A technician has to change context multiple times daily, depending on their task. Switching between tools is not only a risk to productivity, but it can also lead to numerous mistakes, ranging from misconfiguration, which can lead to performance issues for customers, like running all backups of all systems at the same time, to critical configuration failures, which can lead to customers going offline and forcing technicians to go on-site to fix the problem. We are all human; we all make mistakes. I still remember when I was supporting a bunch of small companies as an MSP back in my university days. I had to come to fix a server that went down because somebody with root privileges ran “rm -r” in the wrong folder. By the way, the memory is painful, as the company used a tape device to back up, and neither their IT guy nor I could get the backups working. Multiple tools with different UI, policies, and design philosophies increase the “surface of the possibility of a mistake.” Not to mention, a significant tool update requires going through training or reading the documentation. Therefore, comes “tool overload.” This is a state that is not realized by many. They are getting used to dealing with multiple tools and don’t see how much time they spend and how many avoidable mistakes they make. ## **Reducing Tool Overload** There are many ways to do it, and most MSPs start with automation and standardization. Whatever is possible to automate with scripts is automated. What is impossible or too complicated to automate is put into checklists and standard operating procedures (SOP) documents and forced on technicians to follow. > Automation is excellent and extremely important to stay competitive in the MSP market as customers’ infrastructure grows fast. MSPs need to catch up by being able to manage more workloads. However, automation has one serious risk — the wrong script run on multiple workloads quickly creates a lot of damage. Therefore, automation should be tested in sandboxes and monitored in a production environment. Having various tools to automate leads… You guessed it right: more chances to fail and more complicated scripting. Yet again, tool overload plays a nasty role in making automation cumbersome and less reliable. Thus, the solution that goes hand in hand with automation — reducing the number of separate tools, choosing integrated tools or using integrations. The most effective integrated solution would offer the same UI for various devices, the same policies, the same configuration, preferably one agent, and a standardized interface for scripting and automation. Getting on the path of reducing tools and simplifying business processes for most of the MSPs I was talking to led to building their own technology stack and getting to a higher [operational maturity level](../../../msp-maturity-and-scalability/). ## **Evaluating the benefits** Before taking on the endeavor of replacing the familiar tool with something else that would allow for the reduction of tool overload, it is important to define the metrics of success and set reasonable goals for the project. Here are a few metrics that MSPs use to evaluate the success of the project: 1. **Time waste reduction**. Measuring the time technicians spend before and after implementing new tools and integrations. Some MSPs prefer to measure time per ticket; some measure the total time spent between different tasks — handling customer tickets, onboarding new customers, and performing regular maintenance. Some MSPs go even deeper and classify the types of tickets and look at the time reduction for different kinds of tickets — like backup and recovery, security incidents, network issues, and performance incidents. 2. **Reduction of mistakes**.** **Measuring** **the** **number of issues or time spent resolving problems caused by human error may be challenging, and many MSPs do it based on the expert evaluation or tracking activities of technicians for a few days before and after the implementation of new tools. 3. **Reduction of training time**. This one is huge for growing MSPs and MSPs with a high churn of employees. Reduction in training time due to consolidation of tools allows to scale faster by hiring new employees and hiring junior technicians right out of college (who are we kidding, there are not enough IT pros anymore, and MSPs higher right of high school…). Another hidden benefit of standardization, integration and reducing the number of tools used is having more “generalists”—technicians capable of executing various tasks. Instead of having “a backup guy” and “a security guy,” MSPs can have people able to handle a more extensive scope of functions, reducing the wait time to get an expert allocated in case of a customer issue. ## **Executing tool overload reduction** I hope you are convinced now that reducing the number of tools is good; let’s look at how many MSPs execute it. Based on numerous conversations, the process that works for the most looks like this: - **Audit the tools you use**. Start by listing everything a technician does and when they use the tools. Then, estimate the time it takes for them. - **Identify redundancies**. Look for the tools that could be integrated or managed together. Review the vendors with the integrated tools available, and check if their integrated solutions can replace your technicians’ tools. - **Prioritize**. Based on the time spent and issues raised because of various tools, prioritize which devices should be replaced on integrated first. Often, replacing everything at once makes little sense, as the overhead and cost are prohibitive. Based on the experience of others, the first candidates are backup and security. - **Test**.** **Implement the tools in a subset of the infrastructure and test how it works with your customers before rolling it out to everybody. - **Educate**.** **After the choice is made, educate the team. Get vendor certifications. Build a checklist to verify the technicians’ competence to handle new tools. - **Deploy**.** **Roll is out to all customers. The faster customers access standardized infrastructure, the faster you realize the benefits and see the improvements. If you have been in the managed service business for a while, chances are high that you suffer from tool overload without even suspecting it. It is easy to overlook, as you see your technicians busy, customers happy, and everything seems fine. However, if you look into it, you will realize there is an opportunity to reduce mistakes, reduce overhead, and increase capacity to onboard and maintain more customers if you lessen the tool overload. --- ## Vertical Marketing Strategy for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2023-11-30 **URL:** https://mspnotes.com/vertical-marketing-strategy-for-managed-service-providers **Tags:** Business, Ideas In the post about [bringing value to the customers](../../../positioning-the-value-of-managed-services-to-prospects-and-customers/), I mentioned the need to define the customers and focus on them. This is important for designing the best services that fit the customer needs, and it is crucial to stand out from the crowd of competitors as experts in the areas essential for your target group of customers. The target groups are most likely specific industries, also known as [vertical markets](https://www.techtarget.com/searchitchannel/definition/vertical-market); therefore, we are discussing vertical marketing strategy. Let’s start with a simple example. If you want to fix your iPhone, would you rather go to a company specializing in “electronics repair” or an “expert in iPhone repairs”? If your eye hurts, would you go to the general practitioner, or would you instead go to an eye doctor? I hope the analogy is clear. Being a specialist in a particular problem or offering specialized service helps to differentiate your offering from the competition. **Marketing to a vertical** Let’s examine what is needed to market to a specific segment of customers and then review an example. - **Solutions tailored for the vertical**. The offering should be built based on the needs of the companies working in a specific industry — support for specialized applications, packaging of the services and service level agreements (SLAs). - **Pitch tailored for the vertical**. It is essential to use the language that the people working in the industry use. Know the major vendors. Know the scenarios. Know their pain points with their IT systems and how to solve them. To be convincing, it is crucial to sound like somebody who works in the industry. - **Credentials**. You need more than just claiming you are an expert and speaking like one. You can watch an excellent[ movie about Frank](https://www.imdb.com/title/tt0264464/), a skilled forger who has passed as a doctor, lawyer and pilot. Customers want to be reassured they are making the right choice of partner for their business. Therefore, certifications and customer stories are essential. General IT and specialized IT training and certification for the technicians and required compliance certifications for the company (like HIPAA, for example) can be a start. As the practice grows, the success stories of other customers in the industry are adding additional credibility. - **Marketing and branding**. The website, the social media, and the ads you post should not be controversial, with the image of an expert in one or a few industries you are trying to build. The vertical defines where and how to advertise what images and texts are appropriate and well-accepted. Look at every asset you produce or request from a marketing agency to be aligned with your target audience. - **Content interesting for your vertical**. The best marketing tools are the articles, videos, recorded and live webinars discussing the IT challenges in your chosen vertical and how they can be resolved. Paradoxically, the more educational the assets are, and the less they talk about your expertise and services, the better they are accepted and build the trust of your potential customers towards you. - **Participation in the relevant events and communities**. Joining industry communities and attending industry events is necessary to continuously learn about the vertical and showcase your story to potential customers. The vertical marketing strategy requires a lot of research — interviewing prospects and customers, reading specialized resources, and following relevant influencers and industry news. **Dental practice — an example of a vertical** An MSP willing to support dental practices needs to know what those dental practices use and what they expect from MSPs. Let’s look at a few examples. - **Specialized software for dental practice**. Management system for the practice like Dentrix. Software to manage instruments used in the practice, like imaging solutions by Dexis. - **Specialized software for healthcare providers**. Electronic medical records solution and patient portal, like Epic. Telemedicine software like Spruce. - **Generic business software**. Accounting, like QuickBooks. Productivity and communication software, like Microsoft 365. CRM, if not covered by the practice management system. And other systems, like inventory management, compliance management, backup and recovery, and security. - **Compliance**. Industry requirements, like HIPAA. Data retention and clean-up are generally a headache for every business, and healthcare practices are even more complicated. Those are a few examples of what could be a differentiator for the dental practice vertical, which should give a general idea of the direction for developing the vertical strategy. Implementation of a vertical strategy takes time and requires continuous reviews and adjustments to be a strong differentiator against competition. And one of the best sources of information is the existing customers from the vertical. A strong feedback loop is essential to stay up-to-date with what is going on in the industry. --- ## Game On: The Cutthroat World of Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2023-10-30 **URL:** https://mspnotes.com/game-on-the-cutthroat-world-of-managed-service-providers **Tags:** Business, Ideas Let’s admit a hard truth: MSPs are not good at getting new customers. Many only do prospecting once they have to replace a churned customer in their portfolio. Many are not keeping up with maintaining their CRM, not doing events, not investing in advertising — doing nothing, just waiting for good referrals. Sometimes referrals come, sometimes don’t… Yet, new MSPs are constantly appearing, and they need to get customers. They start by offering lower prices or better service portfolios and, eventually, win over customers from older MSPs. The competition is pressuring older MSPs, and they must [compete on their services’ value.](../../../pricing-for-managed-service-providers/) However, I am hearing more and more often from MSPs that whatever services they offer, their competition quickly copies what they offer. Thus, they are reluctant to advertise what they offer, slowly updating their websites, preferring to “sell” value in direct conversations with the prospects. Yet, prospects are not running to the MSPs’ doors to listen to the pitch, as they don’t see a reason to do it — as everyone in the area offers the same. At least, it looks like from whatever one can find online… So, what if whatever you offer will be copied by the competition? There is only one sensible solution — don’t worry about it and keep changing, keep improving your service, and be better at what you do. Accept that those services you launch and the SLAs you offer will be copied. So, it is not your current portfolio of services that allows you to compete — it is the continuous change and improvement. Looking after the trends and future needs and offering what the customers in your area will need is the solution. Even if the competitors copy it, they will play a catch-up game with you. Therefore, successful competition is about competing on “future value” rather than the value everybody can deliver today. Being an innovative MSP in your area will set you apart from the competitors. Of course, it is not easy and requires time for research, updating your strategy, and delivering services to your customers. Yet, it is time well spent if it allows you to offer new services to your customers and prospects. --- ## Rebranding for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2023-10-15 **URL:** https://mspnotes.com/rebranding-for-managed-service-providers **Tags:** Business, Marketing Why would somebody even care about the brand of a managed service provider? Do customers remember “the IT guy that comes, then things don’t work”? It may not make much sense when the “IT guy” is the brand. People know the person, rely on what they can do, and sign up for their services. Yet, it may be necessary if a company is established, has a name and reputation, and tries to change its direction. Various market studies from IT Glue and Acronis show that over 70% of MSP businesses are over six years old. This means the companies have some history, established reputation and customer base. And for many, customer referral is the most effective way of acquiring new business. However, for the established customers, there is a clear connection between what the MSP does and what services they receive, and they talk about their experience with their peers. When an MSP tries to offer new services — for example, [managed security practice](https://www.forbes.com/sites/forbesbusinesscouncil/2023/08/22/crafting-a-winning-cybersecurity-practice-for-your-msp/), it may be brushed aside by the existing customers, who may not be willing to increase their bills or don’t believe they need the service, and MSPs have to revert to marketing to promote their services to new customers. And here, it may be the time to consider rebranding, to disassociate the old knowledge about their business from the new things they are trying to build. There is usually a negligible risk, as existing customers won’t go away just because of the name change. Referral is still the primary channel, yet there is an opportunity to get those who knew the old brand and associated it with a set of services to consider new services — just because they will hear a different name. Not to mention, buying security services from “Your Neighborhood Backup Guy” may not look like a great idea. At the same time, “The Security Expert in Your Town” may sound more appropriate to potential customers. Another example is if an MSP changes focus from dental clinics to retail, the name “Dentists’ Favorite IT Guy” may not be the best anymore. Rebranding may be a good idea if there is a strategy change or an opportunity to expand the services offered to another market segment or provide new types of services. If the answer to the question “Will it bring value to the business?” is a definite “yes,” it makes sense. However, for many business owners, even considering rebranding is a daunting task — not clear what to do, how to do it, and the old brand is so dear to their heart, and they still have that first t-shirt they made with the company name somewhere around the house. ## **Checklist for rebranding** It is easier than it seems, and only some things should be addressed immediately. Below is the checklist of the simple steps to plan and execute a rebranding: - Come us with a **new name**. ChatGPT can be of help here to brainstorm and research with you. - Register a domain for the new name. One of the criteria for the name is the availability of a **domain name**. Searching for domain zones may be an option to get the domain name you like. - Hire a designer or use an online service to design the **new logo, business card and website template** (or color guide). With this minimum set of material, the next steps can be executed. - **Brief employees** about the rebranding and that they should look for all mentions of the old brand and implement the new one every time they see the old logo. It is hard for some internal systems, external services, and social media to cover everything at once, so updates will be gradual. TSA’s “See something, say something” phrase works well here. When employees see the old logo or name, they replace it. - Build a **website** and host it with the new domain. A website builder is a simple and cost-efficient solution. Picking a template and adjusting the color scheme to match the brand may be enough for the initial launch. - Create **new content **for the website. ChatGPT is again helpful in creating and editing drafts of the pages. - Configure **email** and **helpdesk** for both old and new domains or set up forwarding. - Update **email signatures**. It is a step easy to overlook, yet it is something that many customers will see. - Optionally, print **t-shirts, caps**, **and cups** with the new logo. The easiest way to get the new logo out there is to brand the team — giving them wearables. - Update the **logo on the vehicles** used. If you don’t have a logo on the cars you use, consider adding it, especially if you have long drives to customers. - Create new **social media accounts** or rename existing ones, referencing the old name in the brackets, so old users won’t be surprised when they see the new name in their social media feed. - Send an **email** and a nice **postcard** to your customers and partners, informing them about the name change and sharing a few words about what you did with your strategy or product portfolio. Rebranding may seem scary, yet it is a simple procedure. A bit of patience and a bit of time spent on replacing the old logo and name, and it is done. --- ## Pricing for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2023-09-30 **URL:** https://mspnotes.com/pricing-for-managed-service-providers **Tags:** Business New MSPs are frequently obsessed with learning of the prices other MSPs on the market charge. Quite often, they try to compete on price — offering the same package of services to the same customer segments at lower prices than others. This path leads to nowhere. Margins are getting smaller (and there is already [a lot of pressure on margins](../../../profit-challenges-for-managed-service-providers/)), competition responds with matching prices, and everybody loses in the end. While working at Microsoft with hosting providers, I have seen the same situation unfold in the web hosting market, helping them sell more services on the Windows platform. Initially, pricing competition caused hosters to lose money on lower tiers of shared hosting plans and small virtual private server (VPS) instances, making money only on larger VPS and physical server hosting. After some time, most of the smaller players were pushed out of business, acquired by larger players, or introduced additional services, making web hosting a way to acquire customers while making money by offering a variety of add-ons. Knowing the market and competitive pricing is useful. However, fixation on pricing only eventually leads to huge issues with the business. Effective price is based on the value that MSP delivers to their customers. There is a massive opportunity for differentiation based on the variety of services, technology stack, and service level agreements (SLAs). At the end of the day, the best MSP customers are looking for a reliable IT partner, not for the lowest price. The pricing strategy I suggest to MSPs is to calculate backward from their target profit. They target the profit, estimate the profit margin, and then estimate the pricing and number of customers needed to achieve the target profit. They evaluate how realistic the goal is regarding the number of customers and estimate the service offering that would allow them to provide the level of service they need. When competition attacks you on price, you can respond by comparing the value of services and the cost of transitioning from a trusted partner to a partner offering a lower price. ## **Key takeaways** - Price is based on value, not competition. - Design prices based on profit margin target. - Compete on the services’ value, not the price. --- ## Practical Market Research Trick for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2023-09-15 **URL:** https://mspnotes.com/practical-market-research-trick-for-managed-service-providers **Tags:** Business, Marketing The primary struggle for smaller MSPs is acquiring new customers. Sales and marketing activities are outside the “technology” scope, and hiring an agency or dedicated salespeople is expensive. Therefore, the owners of MSPs serve as sales and marketing leaders for their firms. MSPs are facing the question of what to offer to whom and how, which requires researching the local market where they offer their services. It can be time-consuming and complicated to understand the local needs and who the buyers of managed services in the area are. Common issues with market research are related to various cognitive biases and the desire to see things that may not be like they seem. Coming to the market with the idea that types of businesses should have a higher demand for managed services — for example, healthcare — may lead to focusing on the healthcare professionals in the area who are not even looking for managed services. There is one nasty trick that can be done for the market research that many software startups employ. Instead of researching the market, research the successful competitors in the market. What do they sell? To whom? How? Analyzing websites and advertisements of successful local MSPs, attending the same events, and joining the same business associations could help understand the offerings already working in the market. And then offer a better service, extended service, or recruit those customers who are not yet using those services. ## Step-by-Step Competitor Analysis You do not need an MBA or a marketing budget. You need a browser, a spreadsheet, and a few hours of honest work. ### Step 1: Build Your Competitor List Start by identifying every MSP operating in your geographic market. This is easier than it sounds: - **Google it.** Search for "managed service provider [your city]," "IT support [your city]," "cybersecurity services [your city]," and similar variations. Go at least five pages deep --- most people stop at the first page, which means they only see the competitors who are already winning at SEO. - **Check Google Maps.** The local pack results often surface smaller players that do not rank organically. - **Search industry directories.** Look at listings on sites like Clutch, UpCity, and the Better Business Bureau. Channel partner directories from vendors like Microsoft, Datto, or ConnectWise often list local partners. - **Ask around.** Talk to vendors, distributors, and colleagues at peer groups. They know who is operating in your area, including the ones with no web presence at all. Aim for at least 10 to 15 competitors. If you are in a smaller market, you may find fewer. If you are in a major metro, you could easily find 50 or more - in that case, focus on the ones targeting a similar customer size and vertical to your own. ### Step 2: Analyze Their Websites Systematically This is where the real intelligence comes from. For each competitor, work through the following checklist: - **Services offered.** What is on their services page? Do they lead with cybersecurity, cloud migration, co-managed IT, or traditional break-fix? The services they promote most prominently are likely their best sellers. Pay attention to what is conspicuously absent, too - gaps in their offerings are your opportunities. - **Target customer.** Who are they talking to? Look at their case studies, testimonials, and industry-specific landing pages. If three of your competitors have dedicated pages for dental offices, that tells you something about local demand. If none of them mention manufacturing, that might be an underserved niche or a dead end - you will need to investigate further. - **Pricing signals.** Most MSPs do not publish pricing, but many give clues. "Starting at $X per user per month," package tier names, or even the absence of pricing (which often signals enterprise-level or premium positioning) all tell you something. Look at whether they sell per-device, per-user, or all-inclusive bundles. - **Social proof.** Read their testimonials and case studies carefully. What types of businesses are quoted? What problems did those businesses have before switching? What outcomes do they highlight? This is market research handed to you on a silver platter - these are real customers describing real needs in their own words. - **Team size and capabilities.** Their "About Us" and "Team" pages reveal headcount, certifications, and partnerships. A competitor with 50 employees and a SOC is playing a different game than a three-person shop. - **Content and thought leadership.** What do they blog about? What webinars do they run? The topics they invest content in are the topics generating leads for them. If every competitor is producing content about compliance, your market cares about compliance. ### Step 3: Use Digital Intelligence Tools You do not have to stop at what is visible on their website. Several tools, many with free tiers, let you peek behind the curtain: - **SpyFu** (from $39/month) is built specifically for competitor analysis. Enter a competitor's domain and you can see which keywords they are bidding on in Google Ads, which organic keywords they rank for, and how their strategy has evolved over time. SpyFu maintains over 15 years of historical keyword data, so you can spot trends. If a competitor recently started bidding on "HIPAA compliance managed services," they are probably seeing demand there. - **SEMrush** (from $139.95/month) is the broader platform. Beyond keyword data, it provides backlink analysis, traffic estimates, and AI-powered competitive gap analysis that highlights opportunities your competitors are missing. The free tier gives you limited but still useful access. - **SimilarWeb** (free tier available) estimates total website visits, traffic sources, and audience demographics. Useful for quickly sizing up which competitors are actually generating web traffic versus those with nice-looking sites that nobody visits. - **Google Alerts** (free) lets you set up email notifications whenever a competitor is mentioned online. Set alerts for each competitor's company name, their key employees, and relevant industry terms. This runs on autopilot and surfaces news, press releases, and blog mentions you would otherwise miss. - **Ubersuggest** (free tier available) offers site audits and keyword tracking that can help you understand what content strategies are working for your competitors. - Step 4: Go Beyond the Website The internet only tells part of the story. The rest comes from showing up: - **Attend the same events.** If your competitors are sponsoring the local chamber of commerce luncheon or presenting at a business association meeting, show up. You will learn who they are targeting, what message resonates, and who their prospects are. More importantly, you will meet the same prospects. - **Join the same associations.** Professional and industry groups --- local chapters of CompTIA, ISACA, or your state's technology council --- put you in the same rooms. But also look at where your competitors show up outside the IT world: construction industry associations, medical practice management groups, financial advisor networks. That reveals their vertical focus. - **Monitor their hiring.** Job postings reveal strategy. If a competitor is hiring a vCISO, they are building out security services. If they are hiring salespeople focused on a specific vertical, they are expanding into that market. LinkedIn and Indeed make this easy to track. - **Talk to their former customers.** This requires tact, but prospects who switched away from a competitor will often tell you exactly what went wrong --- if you ask the right way. Frame it as understanding their needs, not as trashing the competition. ## Research Techniques Beyond Competitor Analysis Competitor analysis is your fastest path to actionable intelligence, but it should not be your only path. Here are additional sources that fill in the gaps: ### Industry Reports and Market Data The managed services market is projected to grow from roughly $424 billion in 2026 to over $1.27 trillion by 2035, with a compound annual growth rate above 12%. More usefully for a local MSP, you can find vertical-specific data showing where spending is concentrated. Reports from sources like Kaseya's MSP Benchmark Survey, Datto's State of the MSP Report, and ConnectWise's IT Nation research provide data on average revenue per endpoint, common service bundles, and pricing benchmarks. Many of these are free in exchange for an email address. ### Census Data for Market Sizing Here is a trick most MSPs have never heard of: the U.S. Census Bureau's **County Business Patterns** dataset provides establishment counts, employment figures, and payroll data broken down by county and 6-digit NAICS code. Want to know how many businesses with 10 to 49 employees exist in your county? How many medical offices, law firms, or manufacturing plants? The data is there, it is free, and it is updated annually. Look for NAICS codes like: - **5415** Computer Systems Design and Related Services (your competitors) - **6211** Offices of Physicians (a common MSP vertical) - **5411** Legal Services (another common vertical) - **2382** Building Equipment Contractors (if you target trades) Pair this with your competitor analysis and you start to see the real picture: how many potential customers exist in your market versus how many competitors are serving them. ### Local Business Associations Your local chamber of commerce, economic development authority, and small business development center are gold mines of market intelligence. They publish reports on local business growth, new business registrations, and industry composition. Many offer free counseling for small businesses, and the counselors often have deep knowledge of the local business landscape. ### Your Own Customer Base Do not overlook the research asset you already have. Interview your current customers: - Why did they choose you? - What other providers did they evaluate? - What services do they wish you offered? - What business challenges keep them up at night? Five honest conversations with existing customers will teach you more about your market than a week of Googling. ## Competitive Intelligence Worksheet To make this practical, here is a template you can adapt into a spreadsheet. Create one row per competitor and fill in these columns: Field What to Record **Company Name** Legal name and DBA **Website URL** Primary site **Estimated Team Size** From About/Team page or LinkedIn **Primary Services** Top 3-5 services promoted **Target Verticals** Industries mentioned in case studies, testimonials, or landing pages **Target Company Size** SMB, mid-market, enterprise - inferred from messaging and pricing **Pricing Signals** Per-user, per-device, bundled; any published rates **Key Differentiator** Their main positioning claim **Certifications/Partnerships** Microsoft, Cisco, SOC 2, etc. **Content Focus** Blog topics, webinar subjects **Ad Keywords** From SpyFu/SEMrush **Web Traffic Estimate** From SimilarWeb **Strengths** What they do well **Weaknesses/Gaps** Missing services, bad reviews, outdated site **Recent Moves** Hiring, acquisitions, new service launches After filling this in for 10 to 15 competitors, patterns will jump out. You will see which verticals are crowded, which are underserved, what the standard service bundle looks like, and where pricing is anchored. ## A Warning About Survivorship Bias Here is the most important caveat in this entire article, and the one most people skip: **you are only studying the survivors.** When you analyze your competitors, you are looking at the MSPs that are still in business. You are not seeing the ones that tried the same services, targeted the same verticals, and failed. This is survivorship bias, and it can lead you badly astray. If five of your competitors focus on healthcare IT and all five appear to be thriving, you might conclude that healthcare is a great market. But what if ten other MSPs tried healthcare in your area over the past five years and went under? You would never know from competitor analysis alone. To guard against this: - **Look for the "dead".** Search for MSPs in your area that have closed, been acquired, or pivoted. The Wayback Machine (web.archive.org) lets you see defunct competitor websites. Old business registrations and dissolved LLC filings are public record in most states. - **Talk to vendors and distributors.** They know which MSPs churned out of their programs and often know why. - **Weight your conclusions by base rates.** If you find that 8 out of 10 surviving competitors target healthcare, but your census data shows only 30 medical offices in your county, the math may not work for another entrant. - **Consider the failures you cannot see.** For every successful service offering you observe, ask yourself: is this working because it is a great market, or because that particular competitor executes well? A service that works for a mature MSP with 20 technicians and deep vendor relationships may not work for you at your current size. Survivorship bias does not mean competitor analysis is useless. It means competitor analysis is the *starting point*, not the final answer. Combine it with census data, industry reports, customer interviews, and your own judgment before making big bets. --- ## MEDDIC Sales Framework for Managed Service Providers **Author:** Gaidar Magdanurov | **Published:** 2023-08-30 **URL:** https://mspnotes.com/meddic-sales-framework-for-managed-service-providers **Tags:** Business Technical people love frameworks. Frameworks make things easier — instead of sitting in front of a blank page and trying to put ideas on paper to develop a format, you follow the guidelines, fill in the blanks and get an actionable result. While MSPs quickly adopt cybersecurity frameworks like NIST, MITRE ATT&CK, and CKC, they are usually not as well-versed in sales frameworks, partially because of the natural tendency of technical people to stay away from sales and marketing and partially because there are multiple frameworks. It is unclear which one to apply to the sales of management services. In this post, I would like to explore a [simplified MEDDIC framework](https://meddicc.com/meddic-sales-qualification-and-frameworks) for lead qualification for MSPs. The framework is designed to simplify the decision to allocate efforts to recruit a customer. Focusing on the “wrong” customer is the number one sales productivity killer. Instead of spending time with those who can become customers, MSPs tend to spend much time trying to convince those who will not be good customers. Given limited time and marketing resources, the wrong focus is an easy way to lose money on sales and marketing and get disappointed. Let’s avoid that by using MEDDIC. The MEDDIC acronym stands for: - Metrics - Economic buyer - Decision criteria - Decision process - Identify pain - Champion Let’s discuss each section and come up with relevant examples from different businesses that can be MSP customers. ## **Metrics** Most MSPs’ customers are driven by the goals they set for their businesses: revenue, cost, and profit margin. Thus, defining the impact of the services provided by MSPs in terms of the metrics valued by the customers makes much more sense than pitching vague benefits like “everything will work fine” or “you will be happy with our service.” Let’s consider a business that requires salespeople to pitch a product and process orders. The company’s profitability directly depends on the productivity of salespeople — the number of orders they can pitch and place during the working day. Their productivity depends on the skills of the salespeople, their training, and the availability of the IT systems they use. Suppose they are on a call with a customer, and the system goes down or performs slowly. In that case, it may result in losing a customer or spending significantly more time with the customer, taking away the time from another customer. Therefore, an MSP can help with Uptime and Performance metrics that directly influence the business. Imagine a salesperson being able to place 10% more orders by making the IT system work faster and with less downtime — that would lead to 10% more revenue for the business using the same resources. An MSP offering to increase sales productivity by 10% would be a much better suitor for a technology partner than an MSP offering to “keep things running.” Therefore, it is crucial to define the types of customers, which metrics an MSP can influence, and what the sales pitch to the customers can be regarding business-specific metrics. ## **Economic buyer** The economic buyer is the person making the decision. For most SMB customers, it is the owner of the business. It is essential to understand which metrics and criteria the buyer uses to decide and appeal to that information, even if the conversation is with a person working for the buyer. Understanding the buyers requires research, and the most valuable resource can be the existing customer base if an MSP already has it. Talking to existing customers allows us to understand the perspective of similar customers and improve the sales pitch. For example, MSP serving dental practices can learn that one way to increase profits for their customers is to offer additional services like producing dental aligners, which may be a priority. From the IT perspective, they need a quick and easy way to place orders with labs making aligners. This requires IT infrastructure to be set up to allow data exchange while maintaining the healthcare industry’s necessary security and privacy standards. Conversing with the prospects while knowing their specific needs and offering them particular solutions goes a long way. If an MSP is expanding to a new market segment or just starting the business, online research, a few visits to SMB meetups and asking prospects out for a coffee may be practical ways to collect the intelligence needed to better understand their needs. ## **Decision criteria** Knowing the metrics and the buyer is crucial to understand the decision criteria. Do they value lower cost, faster implementation speed or higher reliability? Understanding the factors implementing the decision-making process would help to build the most effective pitch. For instance, a law firm partners when choosing an MSP looking for a quick onboarding with minimum downtime and a guarantee of protecting against a critical failure — like a ransomware attack or hackers accessing sensitive information. For that firm, specific details of the implementation and security measures in place are the best pitch from an MSP. For most SMB customers, there are standard decision criteria: - Cost - Time for the implementation - Time for employee training - Risk mitigation - Return on investment As cost is quite often the primary factor, MSPs frequently have to assume the existing infrastructure and licenses already purchased by the customer. That leads to the need to maintain a non-standard technology stack. Yet, pitching to other factors may shift customers’ decision-making to agree to higher costs for additional benefits. If adequately connected to the business metrics, it is possible to convince customers to change their technology stack while moving to a new MSP. ## **Decision process** A typical SMB owner makes decisions after consulting his trusted advisors (like a “classmate that became an IT guru”), looking at his peers in the local community, and relying on their gut feeling. It helps to understand who is impacting the decision and influence those actors as well. A dental practice is considering a new MSP, looking for references from other dental practices, and asking about the metrics the MSP was able to improve for other dental procedures. A local retail chain considers how many engineers live in the vicinity and how long it takes them to get to the store locations. Some owners look for online reviews from businesses in the same industry or exact location, and some owners rely on the advice of their customers or suppliers. ## **Identify pain** MSPs offer a solution to a problem — running IT infrastructure with external IT staff, lowering the cost of managing IT infrastructure, improving reliability and performance, implementing innovation, and improving existing processes. This all sounds good, yet generic words rarely work well. Customers trust specific propositions more than promises of making things better. The successful MSPs can look at the current situation, identify the pain and offer a measurable improvement. For instance, a small online store needs help with slow order processing and losing customers unwilling to wait for the order system to go online. The average order is $50, and the store sees ten customers not finishing daily purchases because of low system performance. Solving the issue will bring $500 a day in sales. A manufacturing company loses thousands each month in employee productivity because employees spend an enormous amount of time recovering accidentally deleted files that require creating tickets with a Helpdesk and offering self-service solutions to free up the time that can be used to produce more goods. A media production company loses hours daily on following up with their customers that have issues receiving large files because of an unreliable network and poor file sync and share solution — an MSP can solve the problem and calculate the improvements in actual costs of the hours saved. A specific pitch increases a customer’s confidence in the partner. Knowing the language and the pains and providing clear guidance and recommendations is a strong competitive advantage for an MSP. Time spent researching the pain points pays over time, yet without it, winning deals from the competition becomes increasingly difficult. ## **Champion** The champion is the person inside the organization who will help the MSP land the customer by advocating for their services. It can be any employee whose voice will be heard by others and the company’s owners. A salesperson struggling to hit their targets because of frequent network downtime can be an extremely active (and even aggressive) advocate of switching to an MSP offering a solution for that problem. An employee familiar with the quality of service the MSP delivers to another customer can be a strong reference for the MSP. One of the best champions for MSPs is the former employees of their customers. When they change jobs and land in companies with less than efficient IT infrastructure, they are happy to advocate for the partner they used to be pleased with. Therefore, keeping a good CRM and tracking the contacts of people changing jobs is a strong sales channel for MSPs. ## **Now, how do I use it?** The MEDDIC framework forces an MSP to do two things — define segments of customers they want to go after and learn more about their customers and prospects. Defining segments requires saying “no” to other types of customers, which may be hard to do. Yet it is a vast sales productivity booster. Going after “random” customers is expensive and rarely productive. The sooner an MSP defines a segment, the sooner they can work on sales productivity. Collecting information about customers and prospects is time-consuming and an investment in itself, yet with defined segments and a good CRM to keep records, it becomes easier and faster over time. The more you sell to a particular feature, the more you learn about their customers—the more effective you become in their sales process. A sales framework is an investment. You must practice, train our team, get your engineers to help you collect the information, and use every opportunity to learn more. However, if done well, it gives good ROI. --- ## MSPs reselling managed services **Author:** Gaidar Magdanurov | **Published:** 2023-08-15 **URL:** https://mspnotes.com/msps-reselling-managed-services **Tags:** Business If you are to listen to most of the MSP owners, they could be better at selling their services. They go to endless local business events, buy ads in local newspapers, put their ads on local bulletin boards, participate in online forums, buy digital ads, use social media, optimize their websites, and… nothing happens. They rarely get new leads and rarely sign up new customers. At the same time, sales and marketing activities take significant time and effort and distract from the cool stuff — deploying and managing technology. At the same time, some MSPs are good at selling. They are technical yet speak the customers’ language and can adjust their pitch on the go and sign up customers. Therefore, there is a profitable model for the MSPs struggling with customer acquisition to discover — partnering with those good at sales. The model works for any MSP; however, it becomes more profitable if the MSP can offer some unique expertise — security and incident mitigation or expertise in specialized software. However, the “reseller” part of the business is even more interesting, as any MSP with solid relationships with its customer base can become a reseller of other MSPs’ services. As long as they can offer new services for the customers and bill them more than the MSP they resell, there is an opportunity to earn additional margin from the services others provide. The most popular services added on top of the basic infrastructure management and helpdesk are: - **Security**. Ranging from deploying and managing EDR solutions to incident mitigation and investigations. - **Cloud services**.** **Offloading infrastructure to the cloud, managing specialized cloud services, and hosting line-of-business applications. - **Disaster Recovery**.** **A great addition to primary backup usually includes regular failover testing. - **Compliance**.** **Analysis of compliance requirements, implementation of regulations, and certifications. - **Training**.** **Generic IT training, specialized security training. Finding a trusted partner to provide the services can be a challenging task, as many MSP owners are protective of their customer base and need to make an effort to agree to provide access to their customers to other MSPs. Yet, if the reseller model is implemented correctly, it not only allows them to generate additional profit from somebody else’s services but also increases customer satisfaction and decreases the chances of a customer moving to another MSP. The more services customers consume through their MSP, the lower the chances they will be looking for another partner, understanding the high cost and inconvenience of the transition. --- ## MSP Profit Challenges **Author:** Gaidar Magdanurov | **Published:** 2023-07-30 **URL:** https://mspnotes.com/profit-challenges-for-managed-service-providers **Tags:** Business A few weeks ago, we talked with [Dave Sobel](https://www.davesobel.com/) (I strongly recommend his podcast to people interested in the managed services market, by the way) about the MSP market and our observations of new trends in the market. Among the topics we discussed were the present-day challenges for the smaller MSPs. Since that conversation, I have been asking MSPs I am talking to about their challenges at every suitable opportunity, and the general theme seems to be the same across the world. ## **Declining profits** For the smaller MSPs, the central issue of the last 3–6 months is the decline in profits. Their customers are going out of business, decreasing their IT budgets, and requesting to downgrade their service level or demand discounts. Some MSPs shared stories of customers not paying the bills and suggested going to court to collect the payment or offering only a partial payment. Businesses that depend heavily on foot traffic around major office buildings suffer, as fewer people go to the office and fewer people turn to them to consume their services and goods. This impacts the MSPs. Vendors serving those who depend on foot traffic also suffer losses, which affects the MSPs serving them. Many SMBs struggle with timely cash collections, which leads to cashflow gaps. As a result, they cut expenses and reduce expenses, often including IT spending in the list of expenses to cut. When everything works, MSPs are rarely visible, and business owners start to think they don’t need to pay them as much as they did. ## **Simplified illustration** Let’s examine how changes in a smaller US-based MSP’s customer base impact its profits using a simplified business model. Their “pre-pandemic” model allowed them to collect 14% profit, run a company with 10 highly skilled engineers, and spend about 10% on sales and marketing to constantly source new leads for customers to replace the churn that, sadly, happens every year. Their administrative costs are around 5%, and they spend around $10,000 monthly on the technology and tools—internal and the software they deploy with their customers. ![](../../../static/img/profit_1.png) *Pre-pandemic business model* During the pandemic, due to the increased economic pressure, they lost 10% of their customer base, and the remaining customers requested to reduce their contracts. The MSP was really good at pitching the value of their services, and the reduction on average was not extreme — as they were able to replace some of the customers that were churning and maintain the same or slightly lower contract value for those who stayed, with average annual contract value falling from $26,000 to $24,000. However, combined with the churn of customers, profits went to zero. To mitigate the impact, they reduced the technology cost, switching to free tools and reducing the services they deploy to their customers to $6,000 monthly. They reduced G&A to 3% and sales & marketing expenses to 7% (as they have tested that going below that generates not enough leads to sign up any new customers, and in their situation, they desperately need to replenish their customer base). This brought their margins to 9% and made the owner nervous; for any future redaction, she would have to reduce the number of engineers, most of whom worked for her for over 6 years and became her second family. ![](../../../static/img/profit_2.png) *Business model during the pandemic* In the last year, the churn continued. Some old customers got out of business; some switched to MSPs with much lower costs (speaking of loyalty, huh). Even though marketing activities helped recruit new customers and replenish the customer base, new customers came with significantly lower contract values, driving the average numbers down. Profit dropped, and the owner had to decide to remove two people from the company. The profit margin is just 4%. However, further reduction in staff will make it extremely difficult to maintain the customers’ infrastructure. It would increase the risk of losing them and, eventually, going out of business. ![](../../../static/img/profit_3.png) *More customers, smaller contracts* So, what is going to happen next? ## **Going after the big fish** Looking at the customer base, the MSP owner realized that a few larger customers have significantly larger contracts. They have more employees and more workloads to manage, and their business is growing. Therefore, the owner focused on upselling additional services and offering strategic IT guidance to those customers to increase their contracts. The offer includes additional security and disaster recovery services and higher SLAs for issue resolution. Refresh their network infrastructure and hardware. Introduction of new cloud-based services for employee time tracking, desk and conference room sharing, migration of the on-premises email system to the Cloud and many others. The direction is to collect more money from the bigger customers. ## **Scaling the operations** Another avenue to increase revenue is to support more smaller customers. The issue is that the contract value is small; while they may take up a significant capacity of technicians, more is needed to justify the value those customers bring. Also, customers constantly looking for cheaper service are not loyal, and onboarding and off-boarding become expensive. The only way to scale the business and include customers with smaller contracts is to implement automation and standardization where possible—standardizing the technology stack and increasing the [operational maturity](../../../msp-maturity-and-scalability/). [Consolidating tools](../../../boosting-msp-productivity-by-reducing-tool-overload/) and introducing a standard technology stack decreases technicians’ time and allows the same team to handle significantly more workloads. Automating most tasks allows for uniformly taking care of most customers, freeing up more time for technicians. A side effect is that technicians with more free time from their day-to-day jobs can participate more actively in marketing activities—going to local events, talking to prospects, and participating in online communities of business owners. ## **Light at the end of the tunnel** From the collective image example above, the MSP found a way to improve profits, and they are willing to continue bringing profits back to the pre-pandemic level. Given that they can scale, they are looking into acquiring customers lost by other MSPs who could not accommodate lower contract values or went out of business because of the shrinking profits. The story’s moral is that scalability through automation and standardization becomes necessary. For MSPs without unique services and working at scale, scalability is crucial for survival. --- ## MSP Maturity and Scalability **Author:** Gaidar Magdanurov | **Published:** 2023-07-15 **URL:** https://mspnotes.com/msp-maturity-and-scalability **Tags:** Technology, Business In the 2022 Global MSP benchmark survey, Kaseya reports that most MSPs support up to 50 clients. Multiple reports from Datto, Kaseya and Acronis indicate that most MSPs have been in business for over six years, and over a quarter have been in business for nearly 15 years. Many companies have been in business for a long time and have yet to grow beyond 50 clients. Based on numerous conversations, there are three primary reasons: the inability to support more customers, the inability to recruit more customers and the general lack of desire to scale the business when the owners are content with their profits. In this article, we will talk about the inability to scale due to a lack of technical talent to support more customers and manage more workloads. While many MSPs can’t afford to hire more people, without adding people, they cannot scale the business; others can scale and support more customers. What differentiates them is the level of operational maturity. There is a model with [five levels of maturity](https://www.auvik.com/franklyit/blog/msp-operational-maturity/) based primarily on financial performance, yet I prefer a model based on business and technical maturity. The level of maturity is not directly related to the financial performance, as many small MSPs can collect reasonable profits, and it is more of an indicator ability to scale the business using the existing resources. The maturity level is not directly connected to an MSP’s size. I met high-maturity MSPs with only two technicians, and I regularly met low-maturity MSPs with over 25 technicians. ## **Low-maturity MSPs** The primary differentiator of low-maturity MSPs is their willingness to take any customer with any infrastructure and maintain that infrastructure as it is. Therefore, technicians must support multiple software packages and services and different types of hardware. They readily accept break-fix customers without long-term contracts, show up to fix a range of issues and charge customers by the hour. Low-maturity MSPs often offer only a basic set of services—remote infrastructure management, backup and security—and different tools for each based on what a previous MSP already installed at the customer’s location. The vast scope of tools to support leads to difficulties for the technicians, who have to be experts in too many different tools. Onboarding new people is complicated, and shifting technicians between customers is also complicated, as each customer’s infrastructure is very different. ## **Medium-maturity MSPs** They are still willing to take any customer with any infrastructure; however, they have documented procedures to standardize the infrastructure over time, replacing existing hardware and software with their preferred choices. Often the standardization is presented to the customers during the onboarding process, and initial buy-in for the standardization is received. Some technicians specialize in certain tools or services. For example, dedicated people are responsible for backup, disaster recovery, and security services, and they support a set of technologies. Medium-maturity MSPs focus more on preventative maintenance and push break-fix customers; they occasionally serve to transition to long-term contracts, pitching them lower risks from preventing the issues. Automation is developed for the standard tools they prefer, usually a set of standard scripts to implement recommended policies. Switching technicians between customers is much easier in comparison to low-maturity MSPs, and standardization of infrastructure that happens over time leads to increased productivity and capacity to onboard more customers. ## **High-maturity MSPs** The primary differentiator for high-maturity MSPs is their own stack of technologies. They have pre-selected vendors and tools tested in the various environments they support. Standardization of the infrastructure is documented in a contract with the customers and begins right at the onboarding process. Standard hardware, standard software and a set of documented standard operating procedures allow transitioning technicians between accounts, faster onboarding of new customers and providing more reliable service to the customers with shorter times to resolve problems. Preventative maintenance and automation are the keys to success, and with all infrastructure needs handled, high-maturity MSPs have time to provide strategic IT advisory to their customers, not only handle their infrastructure. ## **Measuring scalability** One key metric to compare the capacity of MSPs to handle more workload is the number of endpoints per technician that the technician can maintain at a level satisfactory for the customers. Based on multiple interviews, I estimate that on average, low-maturity MSPs can manage less than 200 endpoints per front-line engineer, medium-maturity up to 300–400, and high maturity over 400 endpoints. So far, the lowest number I heard was about 60, and the highest was over 1,500 endpoints per front-line engineer. The technicians’ productivity is dramatically different based on the experience and type of customers they support; thus, the numbers mainly indicate the scale that could be achieved with a higher level of operational maturity. A higher level of operational maturity allows MSPs to scale and grow the business with the existing resources. Therefore, if you target to grow the business, it makes sense to look at the maturity of your operations and consider what can be improved to increase it. --- ## A Checklist for a Managed Service Provider **Author:** Gaidar Magdanurov | **Published:** 2023-06-30 **URL:** https://mspnotes.com/a-checklist-for-a-managed-service-provider **Tags:** Business After my previous post about [starting an MSP business](../../../from-it-professional-to-entrepreneur-starting-an-msp-business/), a few people asked for a checklist that a new service provider could use to determine whether they have all the necessary elements covered. ## **1. Business plan** - Identify your target market — location, industries, types of companies, and size. - Define the services you want to offer. - Research the competition and assess the demand for MSP services in your chosen market and the prices you can charge. - Define pricing for the managed services (for example, per user, per device, per incident, per extra time spent). - Build a model showing how many contracts and at what value you need to win to make the business sustainable. > Many service providers use multi-tier pricing options, offering different service levels like Silver, Gold and Platinum. Therefore, the model can include estimates of the number of contracts of each type. The business plan should be reasonably documented, regularly reviewed, and updated, as life will correct the assumptions. The document is also an excellent way to onboard partners and employees and explain who the customers are, what the offerings are and how they are packaged. ## **2. Service catalog** - Define your service offerings. For example, remote monitoring and management of endpoints, telephony, helpdesk, cybersecurity, data backup and recovery, cloud services, and IT infrastructure consulting. - Estimate the cost of offering the services and capacity based on the number of users or endpoints you can manage to validate the business model — as the model may imply the ability to support more customers than the actual capacity with the current team size. - Define preferred tools and vendors. - Document processes for deploying and maintaining services. - Establish service level agreements (SLAs), providing enough buffer for responses and issue resolution, given that workload can peak during certain times (for instance, significant customer sales events and the release of Windows updates). ## **3. Legal Structure and Registration** - Decide on the legal structure (for example, sole proprietorship, partnership, LLC, or corporation). - Register it with the appropriate government authorities. - Obtain necessary licenses and permits. - Ensure compliance with relevant regulations. ## **4. Insurance** - Obtain appropriate insurance coverage: - General liability insurance - Professional liability - Property insurance - Cyber insurance - Consider the option of reselling cyber insurance to your customers. - Investigate how your insurance will handle cases like ransomware attacks on the customer infrastructure or major outages of cloud-based services that lead to significant business losses for the customers. ## **5. Technical expertise** - Obtain relevant industry certifications (for example, CompTIA A+, Network+, Security+, MCSA) — the credentials are important for marketing to customers and improving your team’s skillset. - Obtain vendor training and certification (for example, Acronis and ConnectWise). ## **6. IT infrastructure and tools** - Acquire necessary hardware. - Acquire software tools to deliver your services (for example, RMM, PSA, backup, DR, antivirus, EDR). - Implement security policies — it is essential to include guidance for handling customer information and protecting the privacy of customers and employees. - Implement maintenance policies to prevent outages of your infrastructure. ## **7. Relationships with distribution** - Find preferred software and hardware distributors. You may find better deals for projects that include hardware and software packages. - Enroll in distributor communications—do not miss opportunities to save on acquiring or renewing software and hardware for yourself and your customers. - Enroll in training activities offered by distributors—quite often, distributors provide opportunities to learn products and services that can be valuable for customer recruitment or improving your team’s skills. ## **8. Customer service** - Set up email and messaging accounts. - Set up a phone system and call tree for incoming customer calls. - Set up auto-response for after-hour support. - Document procedures for customer service and building relationships. - Train your team to solicit referrals and positive reviews. - Define metrics to measure the quality of the service to be able to early detect and respond to decreasing levels of service (for example, time to first response, time to resolution, the time between responses, the share of cases resolved on the first contact) ## **9. Online presence** - Create a professional brand identity (e.g., logo, website style, marketing materials). - Build a messaging document to highlight your unique selling points and emphasize your expertise, reliability, and customer service. Use it for all of the materials produced about your MSP. - Publish a website. - Publish credentials and case studies. - Create social media accounts. - Build a regular practice of reviewing social media, searching for reviews of your business, and responding to complaints and praise. > Many MSPs prefer to outsource all or some marketing services to an external agency or a part-time consultant; however, it may be too expensive or unnecessary at the earlier stages of an MSP. In any case, the owner of the MSP needs to stay closely involved with marketing, as they know their business and customers better. Not to mention that marketing activities can be costly and, if uncontrolled, can quickly destroy margins. ## **10. Marketing** - Set up online advertising. - Consider offline marketing channels (direct mail, newspaper ads) — find opportunities for local promotions. - Join local business communities, get information about your business posted there and attend their events. - Consider hosting online webinars or offline events for small business owners on relevant topics (for example, best practices of IT infrastructure for dental clinics or how to avoid being ransomed for data). - Proactively ask customers to refer prospects. ## **11. Business development** - Build a network of partners to deliver services you are not offering. - Build a network of referral partners and businesses, exchange leads and services. - Join industry associations. - Attend professional and SMB conferences. - Participate in local business networking events to build your professional network. ## **12. Customer relationships** - Implement a CRM solution. Don’t rely on notes or Excel spreadsheets—they will quickly become obsolete. In the modern world, customer competition starts with knowing customers well and following up with them on time. - Define data needs (for example, what you need to know about your customers and prospects). - Build profiles of customers and prospects in CRM — the more relevant data you have, the easier the conversations with them will go. The data in your CRM will also help you build and offer new services and spot growing customer needs you are not addressing now. - Track the history of interactions and contracts. - If the business plan includes hiring sales, implement a reward program for new customer acquisition. This checklist may look like a handful. Do not be scared. If you sit down and write down what you do in your current job and which projects you run, you will discover many things you are doing. Also, all of it looks like it is a lot of fun! --- ## From IT Professional to Entrepreneur: Starting an MSP Business **Author:** Gaidar Magdanurov | **Published:** 2023-06-15 **URL:** https://mspnotes.com/from-it-professional-to-entrepreneur-starting-an-msp-business **Tags:** Business, Marketing In this post, I share observations on how many new MSP businesses started based on hundreds of stories I heard over the last ten years of working with MSPs. The MSP market is growing with the growing demands of business customers for quality IT services. [Grand View Research](https://www.grandviewresearch.com/industry-analysis/managed-services-market) estimated the size of the global managed services market at $276 billion in 2022 and predicted growth at 13.6% CAGR from 2023 to 2030. [Markets and Markets](https://www.marketsandmarkets.com/Market-Reports/managed-services-market-1141.html) valued the market at $242 billion in 2021 and projected growth to $354 billion by 2026. [Microsoft](https://www.channelfutures.com/business-models/microsoft-spotlights-420-billion-small-and-medium-business-smb-opportunity) calls SMBs are $420 billion untapped opportunity for SMBs. The opportunity is there, and there is room for the new MSP firms. Let’s look at the typical scenario of starting a new MSP business, its challenges, and how MSPs overcame them. ## **Getting ready to start an MSP business** It starts with an IT person entertaining the idea of running their own services business. They have the skills and experience; they know how to handle customers –even the annoying guy from the next cubicle who looks like a personality from “The Office.” They can build networks, manage physical and virtual machines, and deploy security and data protection. They have what it takes to run IT infrastructure for a small business customer. Usually, by they already have a few occasional customers. Friends and friends of friends ask for help and pay them for occasional service. Not yet a stable source of income, yet something, and clearly shows an opportunity. Many stop at the stage of entertaining the idea, as they have bills to pay and are afraid of the stability of the corporate job. Yet, some find ways to overcome the fear of failure. Below are the steps successful MSPs take to launch the business. ## 1. Write down the worst-case scenarios and plan how to overcome them Having a plan for each scenario helps to gain confidence. Worst-case scenarios are unlikely to happen; however, in the process of coming up with ideas on how to mitigate them, backup plans are made. Quite a few people start by looking at their savings accounts, estimating that they can cut down on their expenses, and planning when they will have to look for a job with a stable income in case their business fails. Remembering that there is a [shortage of tech talent](https://qubit-labs.com/it-talent-gap-still-growing-in-2022-2023/), and good IT professionals don’t stay without a job for long, helps too. ## 2. Write a plan for transitioning from a corporate job to owning an MSP business Having a plan and visualizing the next steps helps to overcome anxiety about getting the business running. Many start by listing the engagements they had in the past to understand how many customers they can sign up easily. Then look into their networks for initial conversations with potential customers to understand who else may need their services. Researching the pricing for the MSP services in their area, starting from the global reports like the [one from Kaseya](https://www.kaseya.com/resource/msp-pricing-managed-it-services-pricing/) as a general direction, future MSP owners can build a simple financial model, estimating the number of contracts they need to get the desired level of income that will allow sustaining their business and their lifestyle. ## 3. Prepare for the transition from the corporate job Not everyone has enough customers to sustain the business right away. Thus, many chose to have a gradual transition. Starting from getting more productive at their corporate job to freeing up time for customers and transitioning to remote or part-time positions to have the flexibility to build the business. The best practice here is to become effective in delivering on daily tasks. Automation plays a significant role here. Writing scripts for routine tasks takes time, yet it saves us much time in the future. Being efficient in the primary job gives time to do the side gig while also helping automate many tasks for the future MSP business. ## 4. Develop service-level agreements and standard contracts Before offering services to more customers, MSPs decide on what level of service they can realistically provide. While combining the corporate job with the business, quite often, the agreements will indicate service during the evenings and weekends, which means that customers may have to wait sometimes 24–48 to get issues resolved. Yet, getting a consultation with a lawyer, drafting the agreements and offering services at a fixed monthly fee, calculated from the number of devices or users, and then pitching it to customers converts the relationships with “break-fix” to proper managed services arrangements. The primary selling point for the customers is the reliability of the infrastructure that has preventative maintenance, as the same person maintains the infrastructure. ## 5. Transition to the MSP full-time Customers tend to tell other businesses about the quality service provided to them by their MSP, and the customer base slowly yet steadily grows. Customers demand more and more attention and get impatient to have service provided during evenings and weekends. MSP gets to the point where combining a full-time day job with an MSP business is impossible. Usually, by this time, there are established procedures for client intake and onboarding and experience with taking over unmanaged and previously (poorly) managed infrastructure. Basic tools for management, protection and automation for the business are in place, and it is possible to scale the operations by adding more people to manage clients’ infrastructure. Many new MSPs look to recruit former colleagues whom they know through past experience, as they know their qualifications. However, new MSPs often look to recruit recent graduates with little to no experience, as they can train them on their procedures and technologies while paying relatively small salaries. ## The financial reality: How much runway do you actually need? ### Startup costs Starting an MSP is not capital-intensive compared to most businesses, but it is not free either. Here is what a solo-operator budget looks like based on a feedback of a few new recently started MSPs: Category Estimated Range Business formation (LLC, insurance, legal) $3,000 - $5,000 AI assistant (Claude, Codex) $200/month RMM and PSA tools $200/month Cyber protection stack for the initial set of custoemrs (EDR, backup, email security) $300/month Hardware (laptop, networking gear for lab/testing) $3,000 - $5,000 Website, branding, business cards $500 Professional liability and E&O insurance $1,000 - $3,000/year Initial marketing (local networking, online presence) $2,000 **Initial investment** ~$13,000 **Monthly operating overhead (before salary)** ~$1,000 (inc. insurance) These numbers assume a lean solo operation. If you plan to rent office space or hire a technician immediately, add $3,000 - $6,000 per month. ### The break-even calculation This is the math that matters most. Industry benchmarks show the average MSP contract for a small business with 20-50 users runs $2,000 to $5,000 per month. Per-user pricing for SMB-focused MSPs averages around $150 to $200 per user per month, with top performers commanding $250 or more. Here is a simplified break-even model example for a solo MSP owner who needs to replace a $90,000 annual salary: - **Monthly personal income target:** $7,500 - **Monthly business overhead:** $1,000 - **Monthly revenue needed:** $8,500 - **Average contract value (small business, 15-25 users):** $2,500/month - **Minimum viable client count:** 4 clients - **Realistic target to have breathing room:** 5-6 clients Four managed services clients at $2,500 per month gets you to $10,000 in monthly recurring revenue. That covers your overhead and matches your previous salary. Five or six clients gives you a cushion for slow months and the ability to start investing in tools and growth. ### How much savings do you need? Plan for 6 to 12 months of personal expenses with zero business income. Here is why: - **Months 1-3:** You are still building your pipeline. Revenue is inconsistent or nonexistent from managed services contracts. You may pick up some break-fix or project work. - **Months 4-6:** Your first 1-2 managed services contracts are signed. Revenue is growing but does not cover your full expenses. - **Months 7-12:** You are approaching break-even with 3-5 contracts. Cash flow is stabilizing. If your monthly personal expenses (mortgage, groceries, insurance, everything) are $5,000, you need $30,000 to $60,000 in savings as your runway. That sounds like a lot, but remember -- this is the same buffer that lets you negotiate from a position of confidence rather than desperation. Desperate MSP owners undercut their pricing, and underpriced services are the fastest path to burnout and failure. ## What I have learned from watching transitions to MSPs After a decade of watching IT professionals become MSP owners, a few patterns stand out: - **The ones who succeed plan financially before they plan technically.** They know their break-even number, they have their runway calculated, and they have a shared agreement with their family about what "success" and "failure" look like at specific milestones. - **The ones who fail usually fail on sales, not on service.** They are excellent IT experts who cannot bring themselves to pick up the phone, ask for referrals, or quote a price without apologizing for it. If selling makes you uncomfortable, that is the skill to develop first - not another certification. - **The gradual transition almost always outperforms the leap of faith.** The MSP owners who spent 3-6 months building their client base while still employed had significantly better outcomes than those who quit first and figured it out later. Savings buy you time, but signed contracts buy you confidence. - **The ones who last build recurring revenue from day one.** Break-fix work is tempting because it produces immediate cash, but it is unpredictable and unscalable. Every hour spent on break-fix work is an hour not spent building the managed services contracts that will actually sustain your business. - **Technology adaption is now a business survival skill, not a differentiator.** AI and automation are changing how MSPs deliver services, create margins, and measure value. The MSPs launching now need to think about AI-assisted monitoring, automated remediation, and efficient service delivery from the start - not as future enhancements. The MSP industry has room for new entrants. The demand for managed IT services from small and medium businesses is not slowing down. But the bar is higher than it was five years ago. Customers are more sophisticated, security requirements are more demanding, and the competitive landscape is more crowded. Succeeding requires more than technical skill - it requires financial planning, legal awareness, emotional resilience, and the willingness to become a business person first and a technician second. ---