New Revenue Streams for Managed Service Providers
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. Most MSPs could be better at acquiring new customers at scale, 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. 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.
- 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.
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.