BIGGER BUSINESSES have bigger budgets. As a result, the midsize market holds big potential for channel pros.
Moreover, the services such companies demand today—security, backup and disaster recovery, and compliance chief among them—will be the services that smaller companies need tomorrow. In this way, says Paul Farr, executive vice president and chief product officer at IT management software vendor Kaseya, MSPs that offer more advanced solutions to midsize companies can have a competitive advantage when it comes to gaining smaller clients.
But midsize companies also have more complex IT requirements, and most already have their own internal IT staff. So MSPs looking to capitalize on the midsize opportunity must weigh the benefits as well as the challenges.
Profitability is the top potential reward. Larger clients have more endpoints under management—a simple equation for calculating recurring monthly revenue. More broadly, though, they have higher-margin needs and understand the business value of IT.
“In general, medium-size businesses value IT more, and they see it as a utility for productivity rather than a cost center,” says Rob Stephenson, CEO of Thrive Networks, an MSP in Foxborough, Mass.
Smaller companies, on the other hand, “are slow to upgrade hardware, software, and other technologies,” he adds, because they view IT as an expense. This means MSPs are typically supporting older infrastructure with outdated software. As a result, labor costs tend to be higher, and refreshes—when they occur—involve lower-margin equipment sales with shorter-term agreements.
In contrast, Stephenson says, midsize customers “are looking more for a pathway to the cloud, and for disaster recovery with recovery point objectives around full replication and paying for the services 24/7.”
Midsize companies are also more inclined to sign up for a monthly service contract versus paying for services based solely on time, says Ciera Cole, COO of The 20, a business development group for managed service providers based in Plano, Texas. “It’s always important to not have all of your eggs in one basket,” she says. “Midsize businesses provide a nice relief when it comes to money versus time. These are the clients that will help you be able to afford the marketing budget, which in turn brings in additional clients.”
More Mature, More Complex
Operationally, midsize companies tend to have a higher IT maturity level when it comes to processes and methodologies, according to Brian Place, founder and principal at Interplay, an IT services company in Seattle. Such processes can be critical in preventing issues from getting out of control and eating into MSP profits. “When we deal with emergencies, that drains people’s time and margins,” Place says. “If we’re on-site fixing problems, the less money we’ll make on the flat-fee contract.”
In addition, Place sees a significant difference between how small and midsize clients make IT decisions. “In our experience, it’s never just one person making decisions at a midsize client,” he says. “It is usually three or four people in an approach that is methodical and much more collaborative.” Hence, an MSP can plan appropriately in terms of putting a proposal together, calculating revenue projections, and determining staffing needs—all important activities to maximizing profits. “You can’t really do these things for a very small business running by the seat of its pants,” he adds.