A recurring, steady stream of income is the lifeline of every managed service business. The cash flow from a monthly recurring revenue (MRR) stream can boost expansion and give MSPs the scope to launch new technologies and services.
There’s no denying the fact that one-off projects and hardware sales can fill the pockets. However, today’s MSP must focus on a steady monthly income stream through recurring services to pay their bills while expanding their business. The more an MSP can grow their MRR every month, the more it can invest in its expansion plans.
Technology is constantly evolving, and small businesses are becoming more reliant on technology that is constantly evolving across their operations. That provides opportunities for managed service professionals to support even the smallest business. Cross-selling and upselling play an important role in generating MRR for MSPs. The more services an MSP can provide to existing customers, the easier it is to generate additional revenue while keeping expenses down.
The shift in the MSP model
Traditionally for MSPs & IT Service providers, revenue came from large but unpredictable project-based payments or by fixing issues (the break/fix model). This model may seem very lucrative when business is moving, but there is no safety net to fall back on when sales are down. MSPs had to move to a more sustainable model to keep their business afloat and allow them to plan and execute growth plans.
With the recurring revenue model, MSPs can expect long-term profitability owing to its predictability. All an MSP needs to do is to ensure they agree on deliverable and realistic service level targets from the outset. If they meet, or better yet, exceed customer expectations against these targets, and then maintain them, the customer should stay loyal and be open to adding more services.
Five ways to boost monthly recurring revenue (MRR)
The world is embracing subscription models, especially with SaaS software. This shift to services means businesses are more willing to pay a regular subscription to ensure their critical technology infrastructure stays operational. Here’s how every MSP can capitalize on this trend and boost their profitability by increasing monthly recurring revenue or by decreasing costs:
- Catering to customers’ requirements: Customers don’t want to have to worry about the technicalities of their IT infrastructure. They just want it to work when they need it – securely and efficiently. Therefore, MSPs should focus on describing how their services will keep their customers’ businesses operational and their staff productive. By doing so, MSPs can also reinforce themselves as an integral part of their customers’ revenue stream.
- Leveraging automation: Automation is an essential tool for any MSP looking to grow. In addition to the tools that help MSPs manage business admin, freeing up valuable time to recruit new customers, there are many tools that automate actual service delivery. These can be important as they introduce operational efficiencies by automating routine tasks such as patching, software updates, and general maintenance. This allows MSPs to expand their business without increasing headcount (and related costs) so it becomes easier to onboard new customers.
- Optimizing pricing modules: Relying on ad-hoc projects such as responding to specific issues (e.g. Break/Fix services) for the bulk of your income makes it difficult to plan or predictably grow your business. However, with a recurring revenue model, you have the ability to set predictable pricing that offers demonstrable value to your customers, while covering your costs and providing sufficient margin to help you grow and be able to unforeseen issues without damaging your business.
- Ad-Hoc projects: Even in a managed model, there will still be a need for ad-hoc projects outside the scope of the service. A well-managed service with regular monitoring and reporting can help justify any such additional projects to the customer and the MSP could even offer discounts to their managed services customers to ensure they get this additional work.
- Security is a major growth area: With the recent increase in cybersecurity incidents, there has been a growing demand for MSPs to move beyond providing basic monitoring & management services and become security experts to protect their customers – especially SMBs. Potential additional services could include:
- Business continuity and disaster recovery (BCDR)
- End-User Security Awareness training
- Proactive protection against modern threats such as phishing and ransomware
- Email security
- Regular scanning for vulnerabilities
- Managed AV services
There are many automated tools available for MSPs that can allow them to profitably offer these premium services without adding headcount or increasing workloads – and allowing MSPs to present themselves as trusted advisors.
The final word
The key factor of running a recurring service model is an emphasis on customer service. MSPs must relentlessly focus on improving customer satisfaction, delivering on their contract and developing additional services to be able to respond to additional needs of existing customers. An unhappy customer will not renew their services with their MSP. Even a happy customer might move on if you do not provide all the services they need – whether they realise it or not!
MSPs must continuously demonstrate their value to their customers. It is often difficult for customers to appreciate the work regularly carried out on their behalf as part of a managed service so regular reporting on statistics such as uptime and responsiveness will help and engagement with the customer is essential. If MSPs focus on proving they are delivering value for their money and keeping customers satisfied, recurring revenue will follow.
MMSOFT Design, Ltd. is the maker of Pulseway, a mobile-first IT management software that helps busy IT administrators look after their IT infrastructure on the go. Easy-to-use, cloud-hosted solution with a user-friendly mobile app that abstracted the desktop away, Pulseway is used by over 13,000 businesses worldwide including BestBuy, DELL, Louis Vuitton, Canon and Siemens.
