A solution provider should not only be a source for a managed service provider (MSP), but rather a partner. As a partner, he supports the MSP in many ways. With his technical knowledge, he helps to solve problems that arise and offers training courses on his products.
He advises the MSP on the best sales tactics and supports the sales cycles. If one succeeds, both succeed. At least that’s how it should be.
Some providers are satisfied with just selling their product and do not offer any form of support. Others lure MSPs with a bait offer followed by unfavorable terms. Others leave the arduous task of attracting new customers to their solutions to the MSPs and have no interest in building customer lifetime value together.
But how do you recognize a committed provider who focuses on working in partnership? MSPs should look for the following six criteria when looking for a solution partner and not just a source of supply. If one of the points applies to an existing provider, it is advisable to take a close look at this business relationship again.
1. Advice and training are non-existent
The business relationship between the solution provider and the MSP initially appears to be clearly regulated. The MSP purchases the product from the provider, includes it in their portfolio and resells it to their customers. However, it is not quite as simple as it looks at first glance. In reality, the business relationship is much more complex. In order to get the most out of it, both sides must understand the product as well as possible and thus also know the decisive sales arguments.
As a general rule, MSPs should expect their vendors to conduct workshops on new products and updates so engineers can easily deploy the products. Professional providers also provide material for sales promotion, such as product brochures or data sheets. Some also conduct product training or sales training.
On the other hand, if the support is limited to PDF or Word documents, this is not a good sign. This shows that the provider does not want to sell anything more than its solution and is not interested in a partnership.
MSPs should look for vendors whose support is not limited to just documentation and training, but also includes consulting. When your own range of services flourishes, the provider also benefits.
2. Higher margins require more work from the MSP
Gross margin is an ongoing issue for MSPs. Some boast peak values of 70 to 80 percent, others complain that they are stuck at 40 to 60 percent and cannot increase their margins. No matter what margin area the MSP is in, a solution provider should always contribute to increasing the margin.
The margin can often only be increased through additional work. Worse still, some vendors build pitfalls into their licensing models. If the MSP is dependent on a product, the conditions will be adjusted. The provider phrases it as if they would accommodate the MSP and offer a better contract in their favour. Only later does it turn out that in reality the tariffs and prices have increased.
MSPs should look for vendors with business models that incentivize co-growth. As the MSP’s customer base grows and they become more valuable to their provider, MSPs should also expect more attractive and competitive pricing.
3. Increasing monthly minimums
Growth means more customers, more sales and more profit. MSPs can hire additional staff and expand their solution portfolio. Some providers have introduced increasing monthly minimum fees, arguing that they would promote growth. In other words: If the monthly or annual bill increases, a new, higher minimum amount is due. As long as an MSP is growing, this is fine, but continued growth is an illusion. If a high-sales customer is lost or if the overall economic situation is poor, sales will decrease. A monthly minimum amount that has increased in times of growth does not take this into account. It forces companies to grow even when the situation is difficult.
MSPs should look for a partner with a flexible billing model. A minimum monthly amount is reasonable, but a partner should be reliable and trustworthy even in times of crisis.
4. Dead leads instead of marketing support
New customers are the most important thing for solution providers. They generate leads for MSPs using Google AdWords, email address lists and direct mailing campaigns. In doing so, they overlook the fact that not all leads are the same. Many MSPs don’t consider lead quality when vendors provide “free leads” — precisely because they’re free! Some leads are inferior, or already dead. The company no longer exists or the contact has left the company. Processing these leads blocks the sales funnel and is a complete waste of time. A request from someone with budget and authority, who already has a clear need and schedule, is worth far more than a customer with no specific intention to buy. Convincing marketing programs are necessary to qualify leads and acquire new customers.
If a vendor advertises that it will provide free leads, MSPs should investigate the type and quality of those leads. Better yet, look for vendors that offer free information and advice on how to sell and grow an MSP. These include, for example, master classes, webinars and materials that can be easily rebranded.
5. Solicitation of Customers
Unfortunately, there are also vendors that bypass their MSP partners and compete for customers. This is particularly frustrating for MSPs who have been granted exclusivity by the vendor to distribute their products.
The relationship between provider and MSP is based on trust and collaboration. Such a breach of trust is inexcusable. If the vendor deliberately stabs the MSP in the back, it’s difficult to rebuild the relationship.
MSPs should look for vendors with a channel-first strategy that agree on clear competitive and collaborative policies, such as renewal protection. Also important is the demand for how the provider deals with overlapping markets.
6. Multi-Year Commitments
Social distancing, working from home: The world of work has changed a lot in the last 18 months. The COVID-19 pandemic has shown us how quickly the world can change and how quickly companies must react. For companies tied to two- or three-year contracts, that’s a problem.
To be fair, it costs vendors a significant amount of money to hire a new MSP and train them on their products. When a vendor engages an MSP for 12 months, they can be reasonably confident that their investment will be recouped and that they will benefit from the business relationship. However, there are rarely comprehensible reasons for longer contractual commitments.
An MSP should look for providers with a variety of contract commitment options. If a provider proposes a two- or three-year contract, the reason should be questioned. If the answer is unsatisfactory, it is better to look for another partner. Multi-year contracts should only be concluded after the provider has proven to be trustworthy.
Stay alert and protect the company
The above points are six useful criteria and tips when choosing a provider. Ultimately, the decision rests with the MSP. By screening a vendor beforehand – asking for references, checking online reviews and vendor documents – MSPs can weed out bad guys and spot a good vendor.
For MSPs, a vendor is the foundation of their business. The right solution partner is therefore crucial for success. An MSP can struggle with the consequences of a wrong decision for years.
Author: Sven Rous, Senior Channel Account Manager DACH region, Zix.de