The top reason IT services providers are seeing more customers renew contracts is an increased demand for managed services.
A recent survey of over 1,000 IT services providers conducted by Autotask, a provider of professional services automation (PSA) platform, finds nearly half the respondents (48%) credited managed services with improving customer loyalty; followed by improvements to service desk processes (41%), and improved service technician performance (37%). That’s critical because when it comes to customer loyalty, it’s already been established that IT services providers are significantly challenged.
Too many channel partners still don’t apply a structured set of processes to running their business, says Len DiCostanzo, senior vice president of channel development for Autotask. Smaller partners especially are running their business trying to stitch together spreadsheets, accounting software, and field service applications, says DiCostanzo.
Many channel partners came into being because the founders had technical expertise. But if the business is going to scale, they need to put a professional services automation (PSA) platform in place, says Dicostanzo.
“Technology may have got them to where they are,” says DiCostanzo. “But it’s sales and marketing that will keep them there.”
Managed services are especially critical, adds DiCostanzo, because it’s recurring revenue that drives valuation, growth, and stability.
Overall, the Autotask survey finds only 17 percent of the respondents reported an increase in the volume of projects. But well over half (63%) say the number of endpoints they are managing has increased more than 50 percent. But only 39 percent of the respondents say that are managing over 1,000 endpoints, so much of this growth by extrapolation is occurring among smaller customers.
That growth is providing the motivation and incentive to increase headcounts in the areas of service Desks (64%), sales staff (40%), project staff (36%), operations (35%) and marketing (20%), the survey finds.
The top drivers of demand for IT services in 2017 cited by respondents are data security (44%), backup and restore (36%), endpoint management (31%) and business continuity (30%). In terms of actual revenue, the top areas generating sales were identified as endpoint security (71%), Internet security (52%), and email security (26%).
From an operations perspective, the survey finds that IT services providers remain bedeviled by multiple issues. The top management issues include having to enter data into multiple systems (73%); inability to optimally schedule technicians (70%); maintenance of on-premises hardware (68%); maintenance of on-premises software (68%); Inability to capture billable time (67%); and maintenance of disparate operational systems (65%). Autotask estimates the average IT service provider is losing as much as ten billable hours a week due to these issues. At a rate of hours an hour that’s almost $50,000 a year; enough notes DiCostanzo for smaller IT services providers to hire another engineer or sale representative.
At the same time, IT service providers are getting better at keeping track of key performance indicators (KPIs). Key metrics that are tracked include customer satisfaction (52%); response times (52%); billable resource utilization (51%); gross profits (47%); and profitability by customer (44%). Just over half (52%) attribute improvement in customer services in part to increased reliance on social media to engage customers.
It’s clear from the survey that most IT services providers are generating the bulk of the revenue from providing fundamental IT services. The issue that many of them face is that it’s those services that tend to be the most competitive segments of the IT services industry, which typically results in razor-thin margins. That in turn often makes it hard for IT service providers to free up the capital needed to invest in automation. However, without making those investments it’s hard to see how many IT services providers will remain profitable in the future.
In the meantime, most IT services providers would be well advised to expand their portfolio of managed services. Most IT services providers today have embraced multiple business models spanning everything from reselling hardware and software to providing consulting. But when it comes to generating recurring revenue that creates enough cash flow to reinvest in the overall business there’s no substitute for managed services.
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