What has the biggest impact on the success of your managed services business? Though managed services is one of the fastest growing segments of the technology industry, many managed services providers lack certain organizational processes, which actively hinders their ability to grow and succeed. TSIA has identified hundreds of capabilities managed services organizations can implement to drive compelling results around revenue growth, profit contribution, and revenue retention. Here are 4 of those tips on how to grow your managed services business.

Where Managed Services Organizations Struggle

TSIA’s book, B4B, details how technology organizations are transitioning from traditional business models of make/sell/ship transactions to providing outcome-based, recurring revenue offers that help customers achieve specific business goals. Managed services, at its core, is an outcome-based service. Our most recent book, Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business, takes these observations to another level by introducing a new customer engagement model for this changing era in customer relationships: TSIA’s LAER model (Land, Adopt, Expand, and Renew).

Technology companies are great at focusing on the Land aspect of the customer journey, but sadly, not so great at the Adoption, Expand, or Renew aspects. Are your customers effectively adopting and consuming your technology? Are they seeing the results they’re hoping for? Based on the value they’ve received, will they renew their contracts and investments in your products and services? In his paper, “The Four Phases to Becoming LAER Efficient,” our executive director, Thomas Lah, shares how companies need to optimize their businesses to get better at analytics, which will lead to customers effectively adopting their solutions, in turn leading to future expansion and renewal. In this post, I will share that thought process as it applies to managed services.

Companies that don’t have a formalized strategy in place see only 4% in total recurring managed services revenue growth, while those with a strategy saw a 16% growth rate.

4 Ways to Grow Your Managed Services Business

There are many ways to begin the journey towards optimizing, improving, and growing your managed services business, and TSIA has uncovered hundreds of different practices that are being used all across the technology industry. I want to share with you 4 of those methods that your organization can start using today so that you can begin seeing improvement.

1. Formally Document Your Managed Services Strategy

When we work with our member companies, we start by asking them to show us all of the documentation around their managed services strategy. In many cases, they don’t have one, but if they do, it often comes in the form of a short PowerPoint slide presentation or an Excel doc. Unfortunately, that’s not enough.

In TSIA’s Managed Services Benchmark, we surveyed 89 different managed services providers and asked them to tell us about their managed services strategy. We found that companies without a formalized strategy in place see only 4% in total recurring managed services revenue growth, while those with a strategy saw a 16% growth rate. This data implies that you can improve your managed services business by up to 4x merely by having this practice in place!

managed services strategy data  

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Technology companies that have a formal managed services strategy in place perform better than those that don't.

Rather than a high-level PowerPoint, your strategy needs to be a long-form document (preferably in PDF form) consisting of anywhere between 40-80 pages that include clear goals and their corresponding metrics, which you will need to check in on throughout the year.

At a high level, here’s what TSIA recommends that you include in your annual managed services strategy document:

  • Financial planning
    • Offer team
    • Sales team
    • Client Management team (i.e., Customer Success)
  • Revenue and profit by offer
  • Revenue and profit by customer
  • Investments required (broken down by department)
    • Tools
    • Resources
    • Acquisitions
  • Organizational modifications

This strategy will give everyone within your organization a clear idea of what you’re aiming for in the current fiscal year. It should be updated annually and contain metrics you will track quarterly so that you can make sure your tactical and strategic initiatives are working throughout the year. This strategy document should aim to answer questions such as (but not limited to):

  • What is the charter of your organization?
  • What are the key initiatives you will employ throughout the year?
  • What new offers are you going to introduce (or stop)

You will also need to consider how the elements of your managed services strategy factor into the broader strategy of your business as a whole.

2. Institute a Formal Deal Review Process for Your Sales Organization

While most managed services providers are driving hard to move towards more standard offers, even service portfolios that are 80% standard have around 20% customization. However, even a small number of customized offers can delay deal closures, so you’ll want to create a formal deal review process to identify potential reasons for those delays so you can head them off before they become a problem.

TSIA research has found that companies that have a formal deal review process for managed services sales are growing faster than companies that don’t, at 14% revenue growth versus 8%.

Now, your Sales team might push back saying, “Don’t slow us down! Making us go through this review will delay closing the deal!” However, the opposite is actually true. TSIA research has found that companies with a formal deal review process for managed services sales are growing faster than companies without one, at 14% revenue growth versus 8%. This is because following an effective process at the Land phase of the customer journey can pave the way for efficiencies in the Adopt, Expand, and Renew stages. By creating a deal review process, you’ll be ensure these deals align with the objectives of all organizations within your company. As a result, there will be less discounting, and Sales will be able to move the deal along more effectively and efficiently.

TSIA recommends either a weekly or biweekly deal review depending on the volume of activity you have. You should also require the following roles to participate in every deal review:

  • Head of Managed Services
  • Sales leadership
  • Solution Architecture teams (the Financial and Architecture team that assembled this deal)
  • Finance
  • Service Delivery
  • Legal
  • Product Management

If the leader can’t be there, have a designated function available. This way, you can all stack hands across the organization to identify if Sales is effectively employing the offers, whether there are offers that are constantly requiring customization, and other issues that can contribute to closure delays.

By reviewing each deal, you will also be able to get a better picture of the total projected revenue. Get an internally agreed upon gross margin target based on these deals and perform deal risk analysis. Finally, don’t be afraid to ask hard questions—sometimes big deals can be more trouble than they’re worth.

3. Establish a Managed Services Quota for Your Sales Organization

Most companies expect their Sales teams to generate as much revenue as possible, but they often don’t specify which kind. But in your portfolio of products and services, mix matters, so there should be a quota for managed services sales, as well as other service lines with profitability as a qualifier. Companies that have a managed services sales quota see 12% managed services revenue growth when compared to the 5% growth of those that don’t.

In addition to a quota, it also helps to have incentives to sell managed services. Here are some recommendations you’ll want to consider:

  • Offering a bonus for exceeding profit target
  • Accelerators for longer contract terms
  • Contracts should not have termination for convenience

Many product-centric organizations don’t think about these aspects of a services-centric deal, so you’ll want to offer incentives to drive the behavior you want out of your Sales team.

4. Implement a Quarterly Review with Your Customers

How frequently do you review your performance with your customers? Companies that only do it yearly are growing their revenues at roughly 3%, while companies that do it monthly are growing at 19%. Routinely checking in with your customers, which is part of the Adopt phase of the customer journey, lets them know that you are there to help them achieve their business objectives and ensure they receive value from your products and services.

performance review data  

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TSIA recommends that you regularly survey your customers on a quarterly basis to track how satisfied they are with your products and services.

These customer reviews can be led by a managed services client manager (customer success manager) and supported by a managed services delivery manager. You can blend these reviews into a quarterly report so that, as a company, it’s easier to keep tabs on customer health throughout their life cycle. You should also tie this into a standard documented process so that each function within your company can all run on the same plays. Measure customer behavior, leverage tools to track this behavior, and conduct both transactional and executive-level surveys so the customers can give you real-time feedback that you can analyze.

You can take it one step further by creating dashboards that show these performance metrics so that you can communicate interactions and the value you’re delivering both within your Managed Services team and company-wide. Over time, you’ll be able to get a better look at your strengths and weaknesses to see how you can improve customer interactions and grow your business.

Benchmark to Understand Where You Are and Where You Need to Be

Most of these steps involve knowing your organization’s baseline performance. If you’ve never benchmarked your managed services business, you don’t know how healthy you are. That’s why TSIA offers benchmarking as part of membership, using fact-based data that we gather from our membership community and industry data so that we can help our members identify observed performance improvements (OPIs) and best practices. If you’d like to know more about our benchmarking process, I encourage you to reach out to TSIA today to discuss the benefits of membership.

In the meantime, be sure to check out my on-demand webinar that covers more details about the tips presented in this blog, “Do ‘This’ Not ‘That’ to Successfully Grow Your Managed Services Business.” Again, this is just a small snapshot of four of the hundreds of recommended best practices that TSIA can offer you on your journey to improving your business, so be sure to drop us a line if you have questions.

 
 
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George Humphrey

About Author George Humphrey

George Humphrey, is the vice president of research, Managed Services, for TSIA. He is a networking and communications industry veteran of over 20 years with extensive experience in managed infrastructure and application services. Throughout his career, he has held several leadership positions in managed services, including global strategy, product line management, marketing, operations, and client management.

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