After the past few months’ uncertainties, many MSPs are looking at the recent calendar change as motivation to make some major transformations. After adapting to deal with all the adversity in 2020, they are ready to put those challenges in the rear-view mirror and focus on ways to improve their businesses. Boosting monthly recurring revenue is a top target.
For most MSPs, growing net income took a back seat in 2020 to protecting family members and employees during the pandemic, as well as keeping their clients operational. The WFH movement took precedence, even though all the added cloud services and new support options were driving incremental monthly recurring revenue.
COVID 19 continues to increase the opportunities for MSPs in 2021. However, this is also the perfect time to put a concerted effort into upgrading your portfolio with more services that add to your company’s monthly recurring revenue. “Out” with the inflexible legacy systems, from software to servers and infrastructure, and “in” with any of a host of remote workforce-enabling “as a service” options.
Monthly recurring revenue provides many benefits
Digital transformation allows MSPs to achieve two primary goals. First, your clients need cloud services and mobile applications to increase their business efficiency, boost productivity, improve support for remote workers, and most of all, remain competitive. The digital transformation is not just a hook to drive more monthly recurring revenue for your business; these changes allow the organizations you support to increase their operational efficiency and expand their workforce options.
The second objective concerns the ability to scale your business. SaaS solutions not only increase MSPs’ monthly recurring revenue and improve cash flow, but those applications require little support and make it easier to onboard new clients. The cloud allows providers to take on new business customers without adding staff, or at least without hiring as many technicians as they would with traditional software and hardware-based solutions.
Combining those cost controls with increased monthly recurring revenue means more cash in the bank each year for your MSP. That creates a larger pool of money for hiring and adding management tools to increase your operational efficiencies. Strengthening your monthly recurring revenue streams gives you the financial power to boost sales and marketing efforts and lets your team build the infrastructure to onboard new clients at breakneck speeds.
Scaling your MSP is so much easier when you can leverage your own earnings to expand, rather than paying interest to others for borrowing their money. That single point explains why IT services firms must double-down on their digital transformation efforts in 2021.
Craft an aggressive cloud/mobile strategy
The best way to effect change is to execute a well-designed plan. Growing your monthly recurring revenue is no different, so MSPs should start the year with a solid strategy to assess and take advantage of all the potential opportunities. Which legacy systems do your clients and prospects need to replace, and more importantly, which of their previous investments is impeding their growth?
Could cloud and mobile solutions provide those businesses with more flexible workplace options? Of course, a significant benefit of those application changeovers for MSPs is new monthly recurring revenue streams.
The first step in any plan is to assess the current state. Are your clients’ existing technology solutions and business automations optimizing their efficiency and enabling sales and market growth? If not, which virtual solutions or “as a service” offerings could empower those companies? Would they benefit by replacing their traditional office phones with a hosted-VoIP service or by swapping costly email servers with a cloud-based system?
These transformations can be advantageous to both parties. Your clients gain tools for remote and hybrid workforces that can also improve productivity and reporting capabilities, and the SaaS model provides more monthly recurring revenue for your MSP business.
A targeted “legacy to cloud/mobile” strategy can help your employees understand the value of these transformations and ensure they focus on these opportunities with each customer and prospect.
The monthly recurring revenue options are limitless
One of the most extraordinary things about running an MSP is that no two business clients are the same. Each organization has its own unique philosophy, personnel, processes, and technology preferences, and providers can tailor their solutions and support to maximize monthly recurring revenue opportunities.
From Microsoft 365 and Google G Suite to many other cloud-based platforms and applications, the options for building new services stacks are virtually (no pun intended) limitless. The IT ecosystem contains thousands (perhaps millions) of combinations of the web- and app-based solutions that MSPs can customize and integrate to serve each client best. A growing number of providers offer channel programs and partner portals to boost your management capabilities and financial options.
Allow for churn in your monthly recurring revenue model
Satisfied customers are a sure way to keep the amount of predictable revenue high. However, those monthly payments can disappear quickly when clients experience technical issues, or your team members fail to address one or more of their big concerns. A successful monthly recurring revenue model relies heavily on strong customer satisfaction ratings, simplifying the contract renewal process for sales and account managers.
As any business owner knows, you cannot please everyone. Clients will leave; some may have what they feel are good reasons, and others will walk away without explanation. MSPs should track the amount of income lost from churn, including businesses that fail.
Entrepreneurs must expect to lose a few relationships along the way. When following a monthly recurring revenue model with its predictable sales and steady income, be sure to factor in churn. Owners should estimate what portion of the company’s revenue is expected to drop and develop a plan to exceed those lost sales far.
There are several ways to offset those losses. Upselling new services on a MRR model to existing clients will increase average revenue per account (ARPA) and your MSP’s profitability. Of course, you can also offset churn by landing new customers and securing them with long-term managed services contracts. Either option will ensure growth in the amount of predictable revenue and cash flow.
SaaS and services drive the recurring revenue model
Unlike one-off sales (i.e., projects, hardware, software), pitching monthly subscriptions helps provide your MSP business with a steady income requiring little if any additional support. Your clients regularly receive and regularly pay their invoices for those services (preferably using an automated payment portal) and help fuel higher bank deposits for your company.
The transition from traditional offices to WFH and hybrid workforce ecosystems is driving the recurring revenue model to new heights, with cloud, SaaS, and other monthly support programs in high demand. MSPs can increase their MRR simply by leading their business clients across the digital divide, transforming and securing workstations for all their remote employees.
WFH specializations are a sure way to get more revenue from existing customers. By increasing SaaS solutions, MSPs can grow recurring payments exponentially, especially when factoring in higher-margin support options such as cybersecurity and helpdesks.
These revenue streams are more predictable than one-off sales, allowing you to better estimate cash flow over a longer period of time. When scaling an MSP, that type of financial stability will minimize the need for bank loans and credit lines, allowing you to use your own money instead of paying interest to others. Monthly recurring revenue provides IT services companies with more freedom.
The cloud offers a wealth of new opportunities for MSPs. Between WFH and hybrid workspaces and the phenomenal growth of cybersecurity services, there is no limit to what, and how much, your team can sell.
Are you ready to ramp up your virtual offerings and monthly recurring revenue opportunities in 2021? With a little planning and possibly some new vendor partners, you can make the new year quite successful for everyone. Putting a big bullseye on monthly recurring revenue can boost your MSP’s profitability while better enabling all the businesses your team supports. Curious what else could be waiting for MSPs in 2021? Check out this recent article about the top Channel trends for 2021.