Most managed services providers (MSPs) know that one revenue stream is inadequate for achieving profitability. A good mix of one-time revenue and periodically repeating revenue is the key to positive cash flow. Knowing what that mix should be can be a difficult answer to derive.
Quality of Revenue
Certain types of revenue are more meaningful than others. For example, actual product sales are less impactful than services provided. Generally the margin is lower on goods like software and hardware due to the cost of licensing, acquisition, or storage. Services can be sold for a substantial price without inventory holding cost or space requirements to diminish margin.
Setting Revenue Goals
Establishing revenue objectives is an exercise that should see participation from all company stakeholders. The corporate level will have metrics that must drive the rest of the organization, while individual departments have the experience and insight to know what can be realistically attained. Historical performance of actual-to-budget numbers can be extremely helpful in projecting revenue and resource usage for company planning purposes, but may not be adequate for forming a complete picture.
A few examples of the managed services offerings typically sold include customer service projects, hardware, software, and standard as-a-service options. Depending upon the existing IT capacity versus projects in planning and execution, it may be necessary to make decisions accordingly to adjust the balance of effort given to new project possibilities. Restricting project work to premium classes of customers can reduce the more trivial jobs and increase the outward value of the managed service echelons to potential purchasers. Existing clients in the basic tiers may also become more motivated to upgrade if they can clearly visualize the reward in doing so.
The most important piece of determining the company’s strategy for managed services is to get the message out to all levels and departments in the organization. If team members are not on the same page as management, the likelihood of achieving revenue objectives is greatly weakened. The organization must have a unified vision for it to be attainable.
Leading providers of managed services typically vary their work between customer projects and operational activities and are selective about the projects chosen for development. In nearly all circumstances, priority is placed on the managed service portfolio segment due to its margin potential. To learn more about how an MSP should balance its revenue stream, contact Copper Statetoday.