Gone are the days when managed service providers (MSPs) built their businesses around break/fix shops and operated via a project-based business model. The advancement in digital technologies such as cloud computing, and new ways of working (remote and hybrid work model), are transforming the way small and midsized businesses manage their IT infrastructures. Unlike older generation IT systems, modern business environments have far more sophisticated IT infrastructures.
As businesses grapple with complex IT challenges every day, they rely on MSPs for ongoing IT services instead of the traditional project-based work or as-needed basis. This has resulted in a decline in the use of the break/fix business model.
If you are an MSP looking for ways to grow your business through an MRR model, this blog will get you up to speed regardless of whether you are a startup, an established MSP or just stuck in the process.
What Is a Monthly Recurring Revenue Business Model?
To better understand the MRR model, let’s take a look at what monthly recurring revenue actually means. According to TechTarget, “monthly recurring revenue (MRR) is income a company can reliably anticipate every 30 days.”
For MSPs, a monthly recurring revenue model is where they provide a range of IT services — software updates, patching, endpoint and network monitoring, business continuity and disaster recovery (BCDR), and more — based on a Service Level Agreement (SLA), and charge their clients a fixed amount each month. For instance, software as a service (SaaS), which is a monthly subscription service model where a cloud service provider charges its customers a fixed monthly fee to use its software application. The MRR model provides MSPs like yours with a reliable source to generate predictable income every month.
Advantages of MRR for You and Your Clients
A monthly recurring revenue business model has several advantages for both you and your clients. And one of the most important benefits is predictable income. With a steady stream of cash flow, your MSP can achieve financial stability. With the MRR model, you know exactly how many clients you will be serving and how much revenue it will generate. This helps you plan efficiently and allocate resources accordingly, which results in superior customer service.
The MRR model is especially beneficial for budget planning. MRR allows you to determine the exact cost of your services, which translates into predictable IT expenses for your clients. The monthly fixed fee also helps eliminate guesswork and variable IT expenditures, which is common in the break/fix model. Another benefit of MRR for your clients is proactive service delivery. Unlike the break/fix model where clients call for assistance only when something goes wrong, with the MRR model, you actively monitor and troubleshoot IT issues before they cause any damage to your clients’ business. This helps minimize downtime and data loss and ensures your clients’ business run smoothly.
Monthly recurring revenue is an important metric to determine the financial health and value of your MSP business. Having a consistent MRR stream will allow you to expand your MSP portfolio, invest more in your sales and marketing initiatives, and hire skilled IT professionals to take your MSP to the next level.
Top Reasons Why Now Is the Right Time to Switch to MRR
Businesses across the globe, irrespective of their size, have been a part of the massive transformation in recent times. The global pandemic forced businesses, especially small and midsized businesses to adopt and adapt to the new environment, leading to a change in priorities and the way they function. Considering the role IT plays in today’s always-on business landscape, it’s only natural that your clients will opt for MSPs for ongoing support and services instead of the traditional break/fix shops.
Let’s look at the top reasons that make “now” the right time to switch to MRR.
- The COVID-19 Pandemic: The sudden shift to remote work induced by the COVID-19 pandemic led to an increased reliance on MSPs. Companies of all sizes hired MSPs to transition business operations to a remote work setup. MSPs continue to play a crucial role in enabling businesses to adapt, survive and thrive during these unprecedented times. The growing reliance of small and midsized businesses on MSPs to manage their IT services and keep their data secure is driving the growth of the MSP market. According to Business Wire, the global managed services market size is expected to reach $552.35 billion by 2028 and is projected to expand at a CAGR of 12.7% from 2021 to 2028.
- Hybrid Work Environment: After work from home became a necessity in 2020, companies started looking to adopt a hybrid work model, which is a combination of working from home and from an office. To adapt to this new hybrid work environment, companies will increasingly look to MSPs to ensure the transition is smooth while also maintaining cyber hygiene and business continuity.
- Cloud Rush: Since working remotely became the norm for the majority, businesses quickly adopted cloud-based SaaS platforms, such as Microsoft 365 and Google Workspace, to improve productivity and collaboration. The cloud is cost-effective and offers greater flexibility and accessibility, enabling users to work from anywhere, anytime. Many businesses are also migrating to the cloud due to security reasons. Small and midsized businesses that lack skilled IT professionals and resources to manage security in-house, turn to MSPs to deliver robust security and data protection solutions.
- Technology Dependency: Technology is the backbone of modern business. Today’s competitive landscape requires businesses to be online 24/7/365. As newer technologies come into play, IT complexity also increases. For businesses with limited budgets and resources, MSPs prove to be of significant advantage since they provide access to the latest tools and technologies and act as an extension to clients’ IT teams.
How to Switch to an MRR Business Model
While MRR offers multiple benefits, switching to an MRR-based business model can be confusing. Here are some tips that will help make the transition smoother for your MSP.
- Identify Your Ideal Client: Start by making a list of clients that you think are an ideal fit with regard to the services you provide. The criteria for choosing your ideal client must match your business. For instance, clients that you enjoy working with, who pay on time, who value their technology, etc.
- Find the Hidden Gems: Once you have identified your ideal clients, you can then start to look for the hidden gems. Segment and filter your list across commonalities. For instance, if you provide compliance management services, your hidden gems would be clients like healthcare providers and accounting firms who share the need for HIPAA. Identifying those commonalities will help you find the hidden gems among your list of ideal clients that compliment your service offerings.
- Make the Cut: This is one of the hardest parts of the transition process, where you determine who stays and who goes. You must realize that you won’t be able to serve everybody in the best way possible, for e.g., break/fix customers. This might mean letting go of some of your existing clients that aren’t MRR customers.
- Identify What’s Special About the Keepers: You must ask these questions to find out what is special about the clients that you are keeping.
- What do they have in common?
- What pain points do they all have?
- What problem can I solve for them?
- Determine Your Service Offering: Build your service offering around the problem(s) your clients face on a regular basis. For example, if security and data protection is the top concern for your clients, you must include business continuity and disaster recovery (BCDR) solutions in your service offerings. That way you can retain your clients while meeting their business requirements.
- Launch Your New Service: The next step is to inform and educate your clients on why the new service solves their problems. Listed below are four essentials steps you can use for your launch process.
- Start addressing the pains of your ideal clients via marketing.
- Announce your new service. Address why it solves their problems. Include introductory pricing.
- Announce a deadline for introductory pricing. Add a bonus for early enrolment.
- Before “Cart Closing,” announce another bonus for early sign-ups.
Grow Your MRR With BCDR
With the majority of global workforces operating remotely, the risks of data loss and cyberattacks are at an all-time high. As per the 2021 State of Remote Work Security Report, nearly 80% of respondents expressed security concerns associated with remote work. Additionally, data is growing at an exponential rate and now lives in more places than ever before. Protecting this highly scattered data that now lives on-premises, in remote workers’ machines, in the cloud and in SaaS applications like Microsoft 365, Google Workspace and Salesforce, is a daunting task.
Since most SMBs operate with limited budgets and resources, they rely on MSPs like you to ensure that dispersed employees as well as their devices and data are secure. MSPs that provide comprehensive BCDR solutions are making the most of this opportunity. According to the Kaseya 2020 MSP Benchmark Survey, 59% of MSPs experienced a revenue increase in the past year through providing backup and disaster recovery services.
The survey also revealed that nearly 90% of MSPs consider the expansion of their service offerings important. In fact, high-growth MSPs (with an average monthly recurring revenue [MRR] growth greater than 20%) have added about four to five new services to their offerings in the past two years. Having a unified BCDR solution in your tech stack will not only help keep your clients’ business and data safe, but will also allow you to expand your MSP practice.
Take the Leap to MRR
“FOMO on MRR is real,” and your peers are seizing the opportunity. Don’t miss out! Make the switch now before time runs out.
But before you take the leap, watch this on-demand webinar where Nancy Sabino, CEO and co-founder of the Houston-based MSP, SabinoCompTech, shares the secret sauce of her MSP business success. Nancy’s claim to fame was her ability to reach 90% recurring revenue and maintaining it through thick and thin. It’s no surprise SabinoCompTech has grown by leaps and bounds over the years.
Watch the video to find out how to switch to MRR and achieve financial stability for your MSP.