Because the term “Managed Services” means different things to different people, let’s start by explaining what we mean by it before we get ahead of ourselves. Traditionally, Managed Services refers to the outsourcing of technical duties to support the use of software and/or hardware. Instead of using a “break-fix” or on-demand approach, these services are delivered through a subscription or retainer model, often times outlined through a Statement of Work (SOW) that describes the goals, delivery timeframe, allocated resources, and retained/subscribed number of hours per contract period. To sustain their business model, Managed Services Providers (MSPs) capitalize on the customer’s need to outsource skills that it doesn’t have in-house in order to effectively use a technology.
Even with this baseline understanding about Managed Services, there’s still often a disconnect between what the customer perceives are his/her expectations, and what the MSP plans to deliver. The understanding of Managed Services gets a little more complicated when you ask customers and providers about their expectations from the relationship. Often times, the assumptions of the customer and the provider will be in conflict. This inherent tension can be rooted in disconnects between initial expectations, service delivery approach, or perceived value realization–which can all result in dissatisfaction and, even, churn.
The bottom line … as software has moved to the cloud and customer expectations for quick and agile value realization has become the norm, MSPs are evolving to meet the changing needs of customers. During this evolution, MSPs face the challenge of retaining more customers, just as all recurring revenue businesses do.
Here are five things that MSPs can do to retain more customers:
- Build a capacity model around a 70 percent utilization rate, and consider giving customers a little leeway. You are not a consulting business. You don’t need to have a 100 percent utilization rate. By using a subscription or retainer model, you have more flexibility and are perceived as more accessible to your customers. Not all customers will use all their hours each month. Your margins will be fine with a 70 percent utilization rate. Consider giving your customers a little leeway. Perhaps, you even let them roll over a portion of the hours to the next month. It’s all about your customers’ perception and realization of value. If they have great accessibility to their required resources and are gleaning value from them, they are more likely to become loyal.
- Separate onboarding from ongoing managed services. Onboarding can be time and resource intensive. You’re best to incorporate it into the sale as a separate line item. Onboarding resources (ideally, CSMs or a specified role within the CS organization) should have strong customer-relationship skills, as well as product expertise. Use them to set the future relationship up for success. They can also be responsible for re-framing expectations about the ongoing delivery of services from the rest of the MS team moving forward. If you use a Customer Success Manager to conduct onboarding, he/she becomes the natural point person for the account moving forward.
- Incorporate a Customer Success Manager as your “quarterback”. TSIA has conducted research into the role that Customer Success plays for MSPs, and it determined that those businesses with dedicated CSMs have, on average, 6 percent higher retention rates. CSMs differ from traditional Account Managers in their deep technical expertise (as well as strong communication skills). They aren’t simply sales execs in disguise. Use them as your team leads to manage and deliver the right services to your customers so that they get what they need from you, and you get a happy, loyal customer. Excellent internal and customer communication is vital to the health and well-being of the account. Your CSM quarterback must be a strong communicator with both. To do this, he/she needs full visibility into the account, including all related services and customer experiences.
- Staff and tier your bench around the complexity of your offerings. You know best what your customers need (and will need) to fully adopt and utilize your technology. Anticipate those needs and staff your bench accordingly with deep, diverse and targeted subject matter experts (SMEs). Tier your offerings around the actual value of those SMEs and then seek to sell (upsell) around them as you grow the account. This will allow you to meet the specific needs of your customers, while you realize the maximum value of the account.
- Be agile. SOWs are dinosaurs. They take too long to develop and push through procurement, and by the time your customer gets to it for signature, they may be frustrated that their needs aren’t being met, and you’ll already have new issues to address. Rather than rely upon new SOWs for every project, use an agile approach to delivery built upon sprints of value attainment. This is best done with a subscription or retainer model (X hours per time period or X hours @ a certain rate for each required resource). Being agile allows you (and your customers) to have a regular cadence of small wins that all contribute to their prioritized desired outcomes. Little wins steadily seed loyalty, and that’s what retention is built on.
Just like all businesses that rely upon recurring revenue, MSPs are challenged to retain loyal customers. With increasingly complex solutions, MSPs aren’t going anywhere and are vital to customer satisfaction and loyalty. Whether or not they call a team member a Customer Success Manager, MSPs with a CSM-type role are definitely seeing better retention rates. Is it time to revisit your resourcing strategy and delivery model?