Managed service providers (MSPS) have every right to boast about their attractive business proposition.

MSPs bring in more recurring revenue, deliver better customer service and generate higher profit margins than non-MSPs, according to research by the Institute for Partner Education & Development (IPED). But if your MSP business is still showing room for improvement, you may need to transform certain nontechnical aspects of your business, either on your own or with the assistance of industry partners.

Most solution providers can handle the technical side of managed services. They've been dabbling in remote monitoring and management (RMM) for years. And partners such as Ingram Micro Seismic can deliver a portfolio of managed services that Ingram Micro hosts and delivers to your customer, through you, on a "pay as you grow" basis. This enables you to jump-start an MSP business without the capital expense of buying and setting up your own MSP platform.

The key challenge new MSPs face lies in marketing and sales, experts say, because the MSP value proposition is so different from the traditional business of selling products on a per-project or break-and-fix basis.

"Most of us in the solution provider community have never really had to understand sales and marketing," says Tim Lambrecht, CEO and president of InCompass IT, a Minnesota-based solution-provider-turned-master-MSP. "We were technical companies first and sales companies second. But as MSPs, we need to turn that around and learn to market and sell the business value of proactive managed services." Implementing an effective customer-facing marketing and sales program is only part of the challenge new MSPs face as they build their businesses. To be successful, MSPs early in the process must also transform their company culture.

"You have to sell the MSP concept internally, convincing your salespeople, your marketing team and your engineers why you have to adopt this new business model," says Jason Beal, director of services at Ingram Micro. "It requires a very different approach."

Very different indeed. Traditional project- based compensation packages were designed to compensate on total sales volume for a given period. Under this model, sales representatives, managers and everyone up and down the bonus chain must hit a sales quota. But the MSP model bills customers over time, so when the model shifts from booking hardware and software sales at 100 percent to one that appears to discount sales volume by spreading the cost of IT sales and services over lengthy periods of time, salespeople are going to have trouble hitting the original targets. Sales bonuses will shrink, and if the fledgling MSP is a publicly traded company, the contraction in revenue runs all the way to the boardroom, as CEOs struggle to impress analysts with an eye on falling earnings. Without adequate preparation, a switch in revenue models will have a negative impact on an MSP's books.

Anatomy of a Makeover
When solution providers invest in sales and marketing activities, it has a positive effect on the bottom line. In fact, the most profitable MSPs invest 11 percent of their annual revenue in marketing, 86 percent more than the average MSP, according to IPED.

But where's the best place to direct any increase in marketing spend? Where will it do the most good? Dennis Crupi, senior group manager, marketing services at Ingram Micro, thinks startup MSPs often benefit the most from a marketing makeover. The first stage of this makeover: Devise a new elevator pitch, "a very short way to talk about your business that resonates with customers without throwing the words ‘managed services' around," says Crupi. MSPs should then work this pitch into consistent marketing collateral, in print and online, that repeats your company's pitch, establishes your company's story and works to further the sales conversation.

Computer Systems Integrators (CSI), a longtime solution provider in upstate New York that focuses on the public sector, recently embarked on such a makeover.

"We've been toying with expanding into the broader SMB market for some time, and managed services are the most profitable way to do that," says Bob Knapp, president of the nine-person firm. But since the company's marketing had been mostly word-of-mouth, CSI's existing marketing message and related collateral still dated from the 1990s. So Knapp engaged Ingram Micro's Marketing Services Agency to help formalize an elevator pitch and a company story that effectively sold CSI as a leading-edge MSP.

The engagement began with a collaborative process to discover CSI's unique strengths. "The process Ingram Micro took us through didn't tell us anything completely new, but it helped build a framework for us to articulate who we are, how we do business, what our offering is and how we describe ourselves," says Knapp. "If you took the time to sit down with everyone on our staff, you could have pulled that out, but until now we were just too busy."

CSI's marketing makeover led to this elevator pitch: CSI offers peace of mind to anyone involved in IT management, from the IT director to the owner/partner at an SMB. CSI allows customers to sleep better at night by bringing to bear 30 years of IT experience, whether it's watching over day-to-day operations, helping with future planning, or delivering IT solutions that really do work. The pitch is part of a brand-strategy document that covers marketing best practices relating to sales collateral, the web site and staff guidelines. Ingram Micro also helped redesign CSI's collateral and web site, csiny.com, and helped brand CSI's Paladin managed services.

Although marketing investments can be difficult to quantify, Knapp considers the marketing makeover to be money well spent. The web site has raised CSI's visibility and helped customers see the company in a new way, but the change wasn't so radical as to worry them. The new pitch and collateral have helped staff articulate the company's value to customers. And the table is now set for CSI to build a sales organization to attack the SMB market with managed services. "It's no different from the investments we've made in technology or staff training," says Knapp. "If we're serious about succeeding as an MSP, it was an investment we needed to make."

Simple Marketing Message, Simple Compensation Strategy
Like many solution providers, CenterPoint Direct recently added managed services to an already thriving business. A longtime telephone system reseller with 20 employees, CenterPoint started an IT division a year and a half ago for the sole purpose of providing managed IT and telephone services, says Wayne Gosselin, vice president of technical services at the Atlanta-based firm.

Gosselin decided to keep his marketing message as simple and straightforward as possible, with the customer in mind. "Our unique selling point is that you can try any of our managed services free for 30 days," he says. "During that time, we guarantee it will improve your business or make you more efficient. Whatever you're looking for, or there's no charge."

Prospects almost always keep the service, and buy other services as well, said Gosselin.

Success brings its own challenges too. When your marketing succeeds and new customers come rolling in, how do you balance your existing customers with new customers without taking on too much, too soon? Gosselin's best advice comes from the movie "What About Bob?" Bob, baby steps!

Gosselin recommends bringing in new customers with a single managed service offering, such as e-mail security, off-site backup or RMM. This way, your team can get up to speed fast on the new offering, and you're not starting off with anything too complex. This new managed service offering can then become a simple add-on you can introduce to your existing customers. Once existing customers get hooked to the managed service, adding on new managed services can be done at a more balanced pace without too much of a strain on your internal resources.

With more than 1,000 telephone system customers, Gosselin doesn't lack managed services prospects. But he still needs to get legacy salespeople, used to big-ticket sales, to sell smaller recurring service contracts. Monthly lunch-andlearns educate salespeople on the MSP offerings so they can identify prospects, and some take to it easily. "Selling a telephone system isn't about selling a product, it's about sitting down with business owners, learning their business and selling a system that meets their application needs," says Gosselin. "Anyone who can do that can sell managed services." For less consultative sellers, CenterPoint has managed services specialists on call to close promising opportunities.

A front-loaded compensation plan encourages the desired behavior: Say a managed services contract brings in $2,500 in monthly revenue. The salesperson gets a $2,500 commission, plus a percentage of the setup fee and the recurring revenue for the first year. The plan is helping Gosselin reach his goal of bringing in $100 in monthly recurring revenue from every client. "Every quote that goes out the door must have a recurring service on it," he says. "When salespeople realize they can pick up an easy 500 bucks by selling just one service, it's an effective incentive."

Market With the Right Messenger
Tim Lambrecht has given a lot of thought to the best way to sell managed services. As the CEO and president of InCompass IT, an MSP that sells managed services to end customers as well as to other solution providers, Lambrecht has seen firsthand how an MSP's profits can be hurt by kinks in the sales and marketing process, particularly in the relationship between the sales staff and engineering.

MSPs should not just send out a salesperson to make an initial managed services pitch, Lambrecht believes, because a salesperson hungry for a win may hastily overlook the consultative, business-oriented approach that's needed to close a long-engagement MSP deal. "To support the salesperson, MSPs also should send out an engineer, and then have the salesperson back up the engineer," says Lambrecht. Reason is, managed services salespeople tend to be nontechnical, and "you don't want to close a sale, and then be responsible for managing an IT environment that you don't completely understand."

Once sales gets the engineering download, you can light the sales and marketing rockets and go after the customer full-bore with your marketing message in place, and with the confidence of knowing that an engineering assessment has ensured you won't be getting a network lemon if you bag this customer.

Move the managed service into the cloud, and the balance between sales, marketing and engineering gets easier. InCompass' provide managed virtual desktops to customers from its own data centers over the internet. And because InCompass controls the environment, engineers aren't needed in the sales process.

"Managed Cloud Services simplify the technical side of the managed services sale," says Lambrecht. Most salespeople easily grasp (cloud services), eliminating the need for engineers to consult on every sale."

Subtracting the need for a complex engineering discussion certainly makes marketing and selling managed services much easier. "With Managed Cloud Services, we're monitoring and managing the customer's on-premises infrastructure, as well as providing a virtualized environment across the internet. It's much easier for salespeople to sell and has made us quite a bit more successful."

Changing the Sales Mentality
Jeff Boate knew he was on the right track when the company receptionist identified her dentist as a prospect for managed services. Boate is CEO of SMS proTECH, a $13 million solution provider that became an MSP in mid-2008, a journey he describes as "running a startup within an existing business." His strategy for making the startup work rests on two pillars: Getting every employee to buy into managed services, as the receptionist did, and driving managed services revenue via sales compensation.

SMS proTECH had good reasons to become an MSP: The company generates 80 percent of revenue from hardware, half of that as a Cisco Premier partner, and 20 percent from services. Net profit is a respectable 5 percent, but Boate realized he could do better as an MSP. He aims to raise services revenue to 40 percent and net profit to around 10 percent by 2012, and managed services are the ticket.

Easier said than done. After educating himself through Ingram Micro Seismic conferences, MSP University and other venues, Boate launched SMS proMANAGE branded managed services, but the offering failed to sell. The two main hurdles? Poor in-house understanding of managed services and a product-oriented sales mentality. "How do you tell a guy who's been selling hardware for 18 years to go out and sell a payment?" Boate asks. "It seems like total nonsense."

Boate's plan for overcoming sales resistance involved tweaking the commission rate. Product sales commissions were tied to gross margins, but as of December 2008 they were set on a sliding scale based on the number of managed services deals sold. Even a simple sale of e-mail defense or online vaulting counted as one deal, same as full remote monitoring and management. This led to easy wins so the plan wouldn't be demotivating. The number of deals quickly soared, Boate says, since salespeople not with the program would "take a punch in their wallets."

To get the entire staff on-board, Boate instituted twiceweekly mandatory staff meetings -- "we took attendance," he says. One meeting made the profitability case for becoming an MSP, opening more than a few eyes at the employeeowned company. The second involved 45-minute training sessions on each managed service the company offered. These meetings, which continue on a lesser scale today, supported the sales turnaround and put SMS proTECH on track to meet its top- and bottom-line goals.

"When employees truly understand the MSP business case and the services themselves, a positive attitude starts to permeate your culture," Boate says. Just what's needed for a managed services makeover."