What makes some integrators successful in their shift to recurring revenue? A joint NSCA/PSA research piece provides a glimpse.
Even before I worked for NSCA, integrators were tired of me writing and talking about the importance of shifting from project- and product-based revenue to recurring revenue, like a service-oriented business model.
Integration company leaders would shout at me jokingly (I think?!): “Enough already! We get it!” But, still, many integrators weren’t implementing it.
When NSCA and PSA decided to work together on a research project tackling recurring revenue, we sought to evolve the conversation.
Instead of making a case for why integrators should shift to recurring revenue, we focused on how. We identified integration companies that have demonstrated success in selling service and conducted a small, targeted survey among them to uncover commonalities. The results were revealed in an exclusive research report: Anatomy of a Successful MSP.
Here’s a small sample of the findings …
It’s important to understand the focus group.
About two-thirds are under $50 million in revenue while the remaining one-third of respondents are larger. Some offer as-a-service, some offer managed services, and some offer service contracts; the group includes AV, life safety, IT, and security companies.
Recurring revenue takes time.
These companies didn’t necessarily become successful right away. The largest percentage of respondents say they’ve been offering managed services or as-a-service for more than five years. Very few are demonstrating success in the first few years. “In order to really get started with hosted access control and video managed services, we had to make at least a two-year commitment to change the path of what we were going to do,” says Trevor Stewart, president of Security Control Integrators.
Recurring revenue takes research.
Virtually every company in our focus group—96%—dedicated a significant amount of time to research pricing, structure, and offerings.
Training is necessary.
A critical building block in a successful service integration company seems to be training. Much of the training these companies implemented focused on sales (how to sell managed services or as-a-service vs. traditional projects). More than half of respondents trained their accounting departments on how to handle financing and billing.
It doesn’t necessarily require lots of new talent.
Perhaps the aforementioned training has something to do with the fact that the majority of respondents didn’t hire new employees to implement a service program.
Recurring revenue requires a nimble sales approach.
It goes without saying that, if your sales team can’t sell your service offerings, then you’re not going to be successful. “There’s risk of reluctance on the part of sales teams to embrace the service-based program,” says Jim DeStefano, senior VP at Unlimited Technology. Respondents indicate that structuring incentive programs is necessary. About two-thirds created different sales incentive programs for service-based sales; however, it doesn’t appear that a separate sales team is necessary. Only 25% split up their project- and service-based sales personnel. “We’ve been fortunate that most of our employees and most of our salespeople have embraced managed services,” DeStefano says.
It really does take a village.
Most integration companies can’t make the transition from project- to service-based offerings without third-party help. About two-thirds work with a company to create or deliver monthly financing. Companies also tend to lean on their ERP or CRM providers or turned to new ones to create customized solutions.
The final takeaway we’ll share is that “set it and forget it” doesn’t seem to work. For one thing, the ongoing needs of customers evolve; therefore, an integrator’s service offerings need to adapt. M3T Corporation is in “version two of its managed services offerings,” says President John Maffey. That’s a result of the company listening to customers, recognizing areas in which its program can improve, and pivoting.
The focus group reflected in Anatomy of a Successful MSP might not provide a step-by-step blueprint toward building a recurring revenue program—but the information presented here is a big step in the right direction. Download the report here.
Tom LeBlanc is the executive director at NSCA.