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As more companies begin to leverage managed services in their transition to an outcome-based business model, developing the right sales strategy is at top of mind. However, due to longer sales cycles, higher cost of sales, and higher risk/reward opportunities, selling managed services is quite different than selling any other kind of technology. Providers can no longer take the “same old sales” approach if they’re to achieve their ROI, but must ensure they have the right processes and people in place to properly sell managed services.
Industry-wide, services revenues have become more important than product revenues. To learn more about how companies are selling services, TSIA conducted a Managed Services Compensation Study that gets a deep-dive look into the way companies are selling managed services, focusing both on their processes as well as their compensation models.
Based on what we’ve learned from this study, here’s a glimpse of the most common models for how managed services are sold and the different ways sales teams are being organized.
(Click image to enlarge.)
The different teams that are responsible for selling managed services based on responses from TSIA's Managed Services Compensation Study.
The different teams that are responsible for selling managed services based on responses from the Managed Services Compensation Study.
More than half of our members that responded to this survey use their general sales team to sell managed services. This is the same team that sells technology, whether its hardware, software, or subscription, and is also responsible for selling services. They own the revenue against each individual client.
24% have a dedicated managed services sales team, and we see this happening in two different models. In the first version, no one else touches the managed services opportunity except for the dedicated managed services sales team. In the second, the deal is shepherded by this team if it is found to be a managed services opportunity. This is an overlay team of specialists who truly understand the differences between general sales and managed services and know how to properly structure these deals.
Some companies choose to lump all of their services together and have created a sales team based on services value propositions. This team is also responsible for selling maintenance contracts and professional services as well as managed services.
There’s an interesting channel play starting to develop in managed services, as we are seeing an increase of companies that are offering their managed services through an indirect private label model, other managed services providers, value-added resellers, and so on.
Looking closely at this data, we can get a better idea of which model drives a better increase on KPIs like revenue growth. We’ve found that companies that use a dedicated managed services sales team have, on average, a 50% total recurring managed services revenue growth rate. This includes not only net new, but also base revenue.
In short, if you really want to drive the highest topline and base revenue growth for your managed services business, it is really worthwhile to invest in a dedicated managed services sales team.
Because managed services requires a long-term customer-supplier relationship, selling managed services requires a different sales approach than you’d take with one-time transactions. You are essentially entering into a business partnership with your customer, which requires emotional intelligence and understanding of the business outcomes they’re trying to achieve. Here are some tips for how to sell managed services.
The goal of your managed services organization should be to help customers achieve a desired outcome, which usually involves overcoming a specific challenge they’re having. Find out your customer’s pain points and identify how a managed services contract can take that pain away.
Are they having trouble operating complex technology? You can do run it for them in alignment with their business goals. Are they unable to store data on-site? You can store it for them. Maybe they just know that they “need” specific technology but have no interest or time to implement and operate it. There’s a managed service for that!
Most customers are used to only paying for service when something breaks, but managed services providers (MSPs) are paid on retainer or a fixed fee basis to ensure that things continue to run smoothly. When things are going well, it’s easy for the value of managed services to become invisible to customers, which is why it’s important to regularly demonstrate that value.
An example of this value can come in the form of time spent learning a tool or paying for data storage and storage maintenance versus outsourcing those tasks to a managed services provider. MSPs already have the know-how and infrastructure in place to handle these tasks, saving the customer time and money getting up to speed and managing additional tasks on top of their day-to-day operations.
Many companies would prefer to “set it and forget it”, which is a value proposition in itself. What value does your managed services organization add to your customer’s operation that is different or better than any alternatives?
One of the challenges managed services providers frequently face is that potential customers simply don’t understand what managed services are. This is in part because there are so many different types of services that fall under the “managed services” umbrella.
For an explanation of what each of these categories mean, read my blog post, “What is Managed Services”.
TSIA defines managed services as “The practice of outsourcing day-to-day technology management responsibilities to a third party as a strategic method for improving operations and accelerating a return on technology investments.”
We recommend that you start by breaking down your complex list of services into categories or tiers and summarizing the business benefits or result of each service instead of getting too into the weeds of technical details. Remember, focus on their outcomes. How will they benefit by hiring your managed services organization for a specified service?
Managed services continues to be one of the fastest-growing segments of the entire technology industry, and if you don’t already have a managed services strategy in place, you’re already behind the curve. But for those who still need a little guidance, be sure to check out my newest ebook, “How to Avoid the 5 Most Common Mistakes Made in Managed Services,” where I offer insight and tips for avoiding some common challenges companies face on their road to establishing a successful managed services business.
Post Date: October 14, 2015
George Humphrey is the vice president and managing director of service and delivery research and advisory for TSIA. Given his extensive background, George also directly supports the managed services research practice. He is a networking and communications industry veteran with over 25+ years of experience. 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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The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at 800-876-6511 or we can call you.