In my last post I discussed the worsening economy and its impact on the spending behavior of business owners, who tend to tighten their belts during periods of economic uncertainty, and look to cost-cutting measures in order to "hunker down" until the storm blows over.
In extreme conditions, these same business owners also look to staff reductions and outsourcing labor-intensive business functions such as HR, Payroll and IT Services, which is an excellent opportunity for the well-prepared Managed Services Provider to capitalize upon.
With the proper messaging and an effective marketing and sales process, MSPs will be more successful at winning business and more profitable in 2008 than System Builders, reactive break-fix and professional services providers. Let's break down the reasons why:
Of the four types of service providers mentioned (system builders, reactive break-fix, professional service providers and MSPs), the system builder's profit margins are generally the lowest, and worsening this initial disadvantage is the reality that orders tend to slow down during economic downturns.
Reactive Break-Fix Service Providers
This group's profit margins may be higher than the system builder's, but the challenge will be in maintaining and growing revenues while clients and prospects are attempting to cut costs. Existing clients may not be quite so willing to authorize a billable service call, instead choosing to attempt to troubleshoot matters themselves, and in many cases exacerbating the issue and creating an even more expensive problem to solve. This doesn't do much to engender goodwill with the reactive break-fix service provider, who must now attempt to collect on an invoice that has become a high, unexpected expense for their client.
In terms of winning new business, the reactive break-fix service provider has their work cut out for them, as business owners are less likely to switch vendors for critical services when times are tight, instead opting to "ride it out" with existing relationships, especially when there is not a compelling differentiator to tip the decision in the new vendor's favor. In these situations, many reactive break-fix service providers resort to cutting their rates in order to win new business, further eating away at their profits, and creating a service relationship that becomes increasingly difficult to sustain.
Professional Services Providers
When times are good, delivery of professional services is an ideal way to win new client business, and create a consistently sustainable revenue stream as clients' business needs can be effectively identified and properly managed through quarterly business reviews and yearly technology road-mapping activities, allowing for budgeting and forecasting of regular infrastructure and service upgrades over time.
But, as mentioned earlier, unless critical to a business' operation or profitability, IT projects are among the first to be put on hold during economic downturns, so the professional service provider may find themselves resorting to cost-cutting measures themselves; in order to weather the uncertain economic climate, just like the clients they serve.
Managed Services Providers
Of all of the previous groups mentioned, the MSP enjoys the highest profit potential of all, based on their ability to illustrate real cost savings to their clients and prospects. As business owners look to reduce their costs in 2008, the ability to outsource the management of their IT infrastructure for a fraction of the cost of maintaining their own internal staff for this purpose is very attractive.
With the right tools and technology, processes and procedures, the MSP will benefit from the highest profit margins for their services as well. Implementing and extending the capabilities of technologies such as vPro gives the MSP the competitive advantage to increase profits in 2008 and beyond. Extending the remote management and remediation capabilities of the MSP's existing tools and technology to reduce truck rolls to 8% of all service calls or better*, vPro technology augments the MSP's efficiency and utilization significantly, netting additional profits to their bottom line.
Last time I said I would discuss how to shape our marketing message and value proposition to take advantage of our current economic downturn, but this topic will have to wait until next time...
*Source: Zenith Infotech