A new report published by SolarWinds MSP, a provider of a platform for managing the delivery of managed services, suggests customer churn amongst managed service providers (MSPs) has become a substantial issue.
Developed in collaboration with the market research firm 2112, the survey of 721 MSPs finds that every month on average in North America MSPs are gaining four new customers for every three lost. In Europe, five new customers are gained every month on average while four are lost.
In some cases, losing a customer can amount to good riddance. Some customers are simply more trouble than they are worth. But most customer engagements for MSPs don’t become profitable until into the second year of a contract so that high customer churn can represent a significant issue for MSPs.
Some of that churn is unavoidable. Customers get acquired or go out of business all the time. Some MSPs simply refuse to drop pricing every time a customer dares the MSP it will take its business elsewhere. Other MSPs simply don’t deliver the level of service the customer thought was being promised. Whatever the issue, the rate at which MSPs can first onboard new customers and the automate ongoing operations is critical for maintaining profitability, says Mike Cullen, vice president of customer experience and business strategy for SolarWinds MSP.
The challenge many MSPs now face is distinguishing between simply employing Powershell scripts to automate a specific task versus investing in automation frameworks that automate entire processes at scale, says Cullen. That latter capability requires relying more on platforms designed from the ground up to enable MSPs to manage those processes at scale, says Cullen.
Platform providers such as SolarWinds MSP also provide the added benefit of being able to aggregate the cost of automation across large numbers of MSPs, adds Cullen.
“We’re all in on automation,” says Cullen. “We’re investing heavily.”
In contrast, MSPs that attempt to automate processes on their own first have to find and allocate talent to achieving that goal and then find some way to maintain the platform, notes Cullen.
Overall, the SolarWinds MSP survey finds channel partners that include managed services as part of their portfolio on average see gross margins of 28 percent, which compares to 24 percent in Europe. The survey also notes that channel partners that identify primarily as MSPs in North America versus being an IT consultant or value-added reseller (VAR) see on average gross revenue derived from managed services in the range of 43 percent, compared to 38 percent in Europe.
The top three services being provided by MSPs are ranked as endpoint management (82%), network management (79%), and server management (76%) in North America, and endpoint management (76%), network management (72%), and complete managed services (70%) in Europe. The survey also notes that MSPs continue to make significant strides in terms of adding managed security services, adds Cullen. Well over half the MSP surveyed offered some form of a managed security services in North America (57%), compared to 46 percent in Europe.
Profitability across MSPs tends to vary wildly by size and region. But savvy MSPs know the only way to keep the balance sheet positive going forward is to find one way or another to rely more on automation.