All-Or-Nothing IT Contracts May Be Losing Their Appeal To The SMB Market
One of the best parts about my job is being able to talk to IT Providers on every continent and re-learn the industry I thought I knew so well through a more worldly point of view . It is through these different windows that I have been starting to identify the need for change. Many Providers that I have come to know have lost a substantial portion of their customer-base, as businesses have been forced to downsize expenses and make due with less in order to survive.
If you are an MSP that was not recently impacted in this way, consider yourself fortunate, but that does not make you immune to potential shifts in customer demands as a result of what is to come. The “need for less” will continue to grow until the market reacts. This is much like the post-recession innovations that kicked off the gig-economy that now makes up a major part of the way we purchase goods and services.
Why Demands Are Due For A Change
For the longest time, industry leaders pushed providers away from break-fix support, in favor of “all or nothing” contracts. While this was reasonably good advice under normal circumstances and has led to the growth of the industry as we know it, I personally am beginning to question whether or not these rules still apply.
While I don’t think break-fix is making a come-back, I think the market for “lightly packaged” recurring services is growing. I compare this to the frustrating all-or-nothing bundles that became common in the cable television industry, which led to the rise of live TV streaming services (Hulu, YouTubeTV, etc.) that followed. If you were to look at the cost of these services on a “per channel” basis, it may even be more expensive than traditional television, however the packaging and delivery of these channels in smaller groupings creates the illusion of choice that can’t be compared.
The way I see these offerings are more of a way to protect your profit margins than they are to cheapen your services. If a quality customer wants to cancel their Managed Services contract because they need to operate on a bare minimum expenses, you may think that your only options are to let them walk or discount your services. Neither of these scenarios are beneficial to your business or your bottom line.
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Repackaging Services For A Less Confident Buyer
I would recommend creating light bundles of your recurring services (both managed and unmanaged) to create a bare minimum level of service that you can offer with as short of a commitment as possible. Instead of unlimited support, bill these contracts at an hourly rate that is above your standard. This way you are keeping your customer status active, you are getting a small recurring monthly income to keep them committed, and you now have created an incentive for them to transition back to a fully supported contract once their business can afford to.
These lighter service bundles can also be used as sales tools to acquire new customers at a lower cost. There will be an increase in the number of prospects looking for IT services as they leave their provider or look for competing quotes as any business does when they evaluate their expenses. By creating these minimum level service bundles, you are now able to offer something that likely is not comparable in your market at a price point that will be unmatched.
This is important now more than ever because purchasing risk is at an all time high. This time last year, many businesses would be willing to sign a three year all-inclusive service contract with no questions asked. This is no longer the case. Buyers are now approaching these expenses with more caution than they ever have, primarily because they have just been dealt the hard consequences of the unexpected.
Focus on Core Customer Needs in a Lean Capacity
If you are considering offering these minimalist bundles, I recommend a focus around specific business problems that each one may help to solve. For example: productivity, continuity, security, and collaboration are all points of emphasis right now in the modern business world. Think about the minimum level of products and services you can offer toward a problem by combining both software and hardware with as little support required. Then offer each of these bundles at a stand-alone recurring rate. This is the freedom of choice that I mentioned previously that will motivate buyers by lowering the perceived risk.
Lowering the financial commitment and shortening the agreement (all while protecting your margin) will now allow your buyer to commit with confidence and will help you gain new customers at a time when it seems impossible to do so. Once these customers are onboarded, it is important to have a plan to not only retain them, but to increase their value over time.
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Up-selling Customers into Higher-Margin Offerings
Our MSP did something similar several years ago when we offered what we called our “Monitoring & Maintenance” package. This was essentially just our RMM, Backup, and Antivirus which we offered almost at cost to the end user and then charged them full rate for support. The reason we did this at the time was because our marketing was producing a byproduct of opportunities that didn’t quite fit our full managed services offering.
Rather than turning down these small customers, we designed a program that would allow us to grow our customer base and potentially upsell services later on, all while paying us an appropriate rate for support when they needed it. Some of these ended up turning into really great contracts and purchased high margin add-on services such as VoIP and File Sync & Share. These customers also were far less intensive on our service desk, primarily because they realized there was a cost for almost every ticket that they submitted.
If I was still operating an MSP right now, I would certainly be building a low cost / high volume offering simply to get my foot in the door at as many businesses as possible and then work on automating account management to harvest opportunities when the economy bounces back. In my opinion, as long as my margins are protected and the cost per customer acquisition is manageable, then the reward is far greater than the risk and if anything it is simply a defensive effort to keep these customers away from my immediate competitors.