Many service providers view the cloud as the enemy because it has commoditized many of their revenue drivers. I’m not going to sugar-coat it; it does. But, what cloud-resistant service providers fail to understand is that they can leverage the right cloud offerings to decrease their costs and deliver satisfactory profit margins.

The High Cost of IT Labor

Labor is an MSP’s largest expenditure and even when you can afford the highly skilled engineers needed to deliver complex technologies, they can be very difficult to find. The more complex the technologies, the more skilled the engineers are required to be to administer those technologies, which means more certifications, resulting in higher salaries. While this technical talent is crucial for the growth of your business, wouldn’t you prefer to not have to pay so many technicians? A move to the cloud can relieve you of some of this financial burden!

I recently had a conversation with a leader of a highly successful MSP (a Clarity Channel Advisors client) who is in the process of converting one of their on-premise clients to a DaaS solution (good for them!). The current managed services agreement requires that the client have a tech resource onsite one day a week. The MSP currently receives $14,000 per month for 65 end users. In the new DaaS solution, the MSP will be paid $16,000 per month.

Wasting Technician Talent

In reflecting on the transition, MSP leadership was pleased with the uptick in recurring revenue but felt that profitability would be impacted. We analyzed the cost of both solutions and noted that the MSP was still planning on sending an expensive tech resource onsite once a week, when it couldn’t even be guaranteed if that tech’s services would be needed upon arrival. With true IT talent being precious and hard to find, don’t you want to ensure your techs are working on high value projects that will grow your business? Routinely deploying a tech to merely oversee is a waste of his/her time and your money. It’s a totally unnecessary expenditure in a cloud-based solution.

In final review, the DaaS solution agreement was updated to reflect “onsite resource as needed” and modeling shows that even after allocating labor, the MSP’s profit is projected at $10,540 per month on the new solution, compared to the $7,525 they would have realized with the former managed services agreement.

Introduction of an Automated Cloud Solution & the Opportunity for MSPs

What service providers must understand is the automation of turnkey DaaS solutions can dramatically reduce labor costs and change the economics of their business. This is especially important as other revenue streams continue to dry up. This is NOT to say that you should automate everything, fire your techs and rely solely on the cloud. With this new model, rather, as demands increase, your labor expenditures won’t have to. You can keep your existing staff and focus on growing their professional development, both in technical certifications and business savvy, without having to hire more, less-qualified applicants.

Ngenx, the 2013 Citrix Partner of the Year, recently ditched Citrix in favor of IndependenceIT (iIT) because they can leverage automation built into the iIT Cloud Workspace platform to reduce complexity, which in turn reduces their dependence on hiring more highly-skilled, expensive labor, thus lowering their labor costs.

Bottom line: Find a happy medium. Look for a turnkey cloud solution that allows you to automate the business processes that are a waste of valuable tech time. When you’re able to better allocate your technicians’ time to ROI-driving projects and core business objectives, you’ll be able to deliver the margins you want.

For more information about developing an action plan to increase your recurring revenue and margins, email and follow @jimlippie.


Don't Miss the 2015 Guide to Successful Cloud Strategy Webinar

Register Now!