How to Transition from Break-Fix to Managed Services and Different MSP Models

The transition from the break-fix business model to managed services is a big one. While it comes with endless opportunities for growth and success, it must be tackled strategically. Businesses that undergo this transition will have to be prepared for shifts in sales, marketing, pricing, and operations, but most of all, their mindsets.

How to Transition from Break-Fix to Managed Services and Different MSP Models. Source: IT Glue
How to Transition from Break-Fix to Managed Services and Different MSP Models. Source: IT Glue

Read this article from IT Glue which explores the differences between a break-fix business model and managed services model, how managed services will grow your business and provide long-term relationships with your clients, and the different MSP pricing models.

This article explores:

  • A Side-by-Side Look at Break-Fix vs. Managed Services
  • The Business Case for Managed Services
  • Approaches to MSP Pricing
  • Next Steps to Start Your MSP Transition

Content Summary

Planning the transition
What is managed services?
The business case for managed services
A new approach
Growth made easy
The MSP pricing model
The proactive operations model
A change in mindset
Next steps

Planning the transition

The transition from the break-fix business model to managed services is a big one. While it comes with endless opportunities for growth and success, it must be tackled strategically. Businesses that undergo this transition will have to be prepared for shifts in sales, marketing, pricing, and operations, but most of all, their mindsets.

It’s worth it, though. Our research shows that the greater the percentage of managed services an IT provider has, the more likely it is to see annual revenue increases.

The greater the percentage of managed services an IT provider has, the more likely it is to see annual revenue increases.

What is managed services?

The managed service provider’s role has less to do with solving downtime issues than it does with preventing them. Your goal as an MSP is the health and well-being of your clients’ IT infrastructure. The MSP steps into the role of a strategic advisor for each and every one of your customers, fostering trust and relationships that go far beyond frantic phone calls and customer complaints.

Break-Fix:

  • Activity-based revenue model
  • Reactive solutions
  • Transactional relationship

Managed Services:

  • Monthly revenue model
  • Proactive solutions
  • Long-term consulting relationship

The business case for managed services

Your customers cannot afford downtime; it costs too much. There was a time when the break-fix business model made sense but as businesses become increasingly dependent on technology, the cost of downtime increases. The break-fix business model no longer provides the kind of consistency that organizations need when it comes to their technological infrastructure. MSPs, however, can provide that consistency.

The MSP space is growing rapidly. Figures vary by source but upwards of 10% per year is about right. Since the SMB space is growing at 7.8% per year, and SMBs are expected to double their technology spend in the next five years, the growth trajectory for MSPs shows no signs of abating. Why? SMBs cannot keep up with technology trends themselves, and they certainly cannot rely on in-house expertise to provide the necessary level of uptime, productivity, and security. That’s where managed services comes in.

MSP Growth vs the GDP. Source: IT Glue
MSP Growth vs the GDP. Source: IT Glue

A new approach

Philosophically, the MSP shift is moving toward a business model that emphasizes a strong relationship with the client and a proactive approach, in exchange for a monthly services fee. This impacts the sales/ marketing side, it impacts pricing, and it impacts operations.

An MSP should ideally present a vision of customer service for a client. You choose the stack, which makes it much easier to service. You implement security solutions proactively rather than cleaning up messes post breach. The best part – instead of getting paid when a ticket comes in, you get paid regardless, and seek to minimize the number of tickets.

A new approach. Source: IT Glue
A new approach. Source: IT Glue

The better you get at minimizing calls, the more time you have to do sales and marketing.

Growth made easy

Sales and marketing are a big part of the MSP shift. Shift your clients’ perception by positioning technology as a core business activity, not just another expense item. An MSP needs to build strong business relationships based on value added, not price. This means focusing attention on the people running the business, and understanding their needs – focus on uptime, security, and modern tech. The better you get at minimizing calls, the more time you have to do sales and marketing.

You will be helping them choose their stack, for example, and working with them on things like security and efficiency. Your goal is to make sure their tech runs as efficiently as possible – instead of servicing calls, you want to minimize calls. The best part – the better you get at minimizing calls, the more time you have to do sales and marketing. It’s a lot easier to grow an MSP than a break-fix operation.

The MSP pricing model

There are a few different pricing models that are used in managed services. The key concept is monthly recurring revenue (MRR). The service you provide is uptime, and for that you charge on a monthly basis. Stable revenue is another thing that makes the MSP model more compelling than the break-fix model.

There are a few approaches to MSP pricing that have been shown to work. Some pricing models are built around an à la carte model, with each service individually priced. Other MSPs prefer the all-in seat price, with all services bundled into a single, set price per user. In a lot of cases, billing systems may need to change, and a PSA becomes much more important.

The proactive operations model

The biggest shift between break-fix and managed services is on the operations side, because you are shifting from a reactive service model to a proactive one. On the one hand, you still resolve tickets, but an MSP seeks to minimize the number of tickets.

You’ll use a service level agreement (SLA) to establish what the client can expect from you and align your service operations to deliver. Streamlining operations, such as through a standardized stack and the use of documentation, will help you resolve tickets much faster, helping you to set competitive service level agreements.

Streamlining operations, such as through a standardized stack and the use of documentation, will help you resolve tickets much faster.

An MSP is built to operate in a very lean manner, and can be designed to scale.

A change in mindset

Most break-fix operations are very small shops, focused on the performance of single tasks. The MSP needs to be an expert at multiple other tasks related to running a business. One of the biggest differences is that an MSP is built to operate in a very lean manne and can be designed to scale, something that is much harder with a break-fix.

But customers are increasingly demanding managed services, the margins are consistently higher, and the growth opportunities are still excellent. Once you’ve got the hang of strategic thinking and set yourself up to scale, you’ll be able to start taking advantage of the benefits of being in the managed services space.

Next steps

Regardless of whether it’s a one-person shop or a company with multiple locations, the most successful MSPs today are focused on automation and the ability to scale without continually adding new staff. Documentation is one of the key components of this professionalization. When information is always available, you can be more efficient. When your ticketing system and your documentation system integrate smoothly, you can deliver a more consistent service.

Source: IT Glue