3 Ways a Managed Service Provider Can Sustain Profitable Contracts

Managed Service Providers (MSPs), internal or external, exist so companies can focus on developing their businesses and benefit from economies of scale. Over the next few years, the managed services market is forecast to grow by 11%, reaching global sales of around $282 billion by 2023. 

In short, it’s a great time to be an MSP – but it’s not without challenges.

1. EMBED FINANCE SKILLS IN YOUR BID TEAM

Having a few savvy management accountants on your bid team will help alleviate major headaches. They'll be on hand to help your team better understand the financial implications of the decisions they make in preparing bids and quotations.

They can help develop detailed cost models against a proposed service level agreement (SLA) and adjust to keep pace with negotiations and changes to existing contracts . Failure to re-model change requests quickly can cause the MSP’s to commit to SLA's without a clear view of the cost implications and this can have a very negative impact on profitability and set unrealistic expectations.

Different levels of service can be proposed throughout negotiations as well as the life of a contract. It can assist in returning accurate prices quickly, it gives negotiators depth of information needed to explain to customers the cost impact of their requests. It enables both parties to reach an agreement that is mutually beneficial and the quality of this discussion can become a unique selling point, building confidence and high quality relationships.

With the right finance skills and tools in place it is possible to run scenarios quickly and close and maintain profitable business. 

The growing market presents economies of scale and the resulting cost savings that can be either used to create a competitive advantage or banked to the bottom-line. 

Because of this, the performance measures and financial accounting needed in a managed service provider’s business are far more complex than in either a typical technology business or a professional services provider.

Naturally, many organisations from different industry verticals fear outsourcing the control of their data and IT infrastructure. So, having a strong finance team on the frontline puts you in a good place professionally and sends a good message to potential clients.

2. MOVE AWAY FROM SPREADSHEETS – THROUGHOUT THE COMPANY

Technology is constantly evolving, margins are always moving and keeping customers happy is a perennial challenge. Enterprises across the globe rely heavily on their IT infrastructure to perform their business operations.

These operations carry massive crucial information and any security compromise on this information will lead to heavy losses. 

Spreadsheets are no longer a suitable solution to support business-critical processes, such as revenue recognition, that external auditors will want to scrutinise. But neither are they appropriate tools for managing contract negotiation, where service levels and quotations are set in stone or contain sensitive data.

They aren’t fit for purpose when it comes to re-modelling changes during new bid negotiations, or changes to existing service level agreements as circumstances changes. 

This is because the planning assumptions built into bids are based on specific service level agreements, project scope and cost estimates that are constantly in flux. While they are undoubtedly good personal productivity tools, there are well documented risks in using spreadsheets for enterprise-level processes.

For example, critical assumptions, such as future service costs, need to be centrally controlled and data needs to be shared between users.

In addition, spreadsheets lack enterprise-level security. They are also difficult to audit and frequently contain hidden errors. But there is an alternative.

The Anaplan Planning platform provides users with secure access to a single source of data. Collaborative and easy-to-use modelling methodologies, transparent planning assumptions and fast assessment of cost and profitability of alternative bids.

Ultimately, this allows your commercial teams to:

• Quickly and accurately price multiple service level agreements, using centrally controlled assumptions about current and future service costs.
• Respond quickly to change requests to existing contracts.
• Win contracts and manage them profitably throughout their lifetime.

3. ENSURE EVERYONE KNOWS HOW REVENUE IS RECOGNISED

Since January 2018, any company that files under Generally Accepted Accounting Principles must recognise the revenue of managed services over the duration of the contract. Even if the contract is paid in full, up front, at the time the deal is closed.

As a result, in any period, the commercial activity, profit and loss account and balance sheet can look distinctly out of step. This can give a false picture of the real health of the company.

Building awareness of this external reporting requirement is essential. It helps those involved in customer-facing roles better appreciate why other performance measures, such as revenue growth, customer churn and gross margin contribution, are much better indicators of financial performance in the short-term.

Focus on these and profitability will follow.

Now that you know how to get a better insight into your business as an MSP, here’s how demand planning can help your business even further.

SEE HOW EASY IT CAN BE TO COLLABORATE ACROSS YOUR ENTIRE ORGANISATION AND GAIN BETTER VISIBILITY

Businesses like yours can encounter issues when it comes to cooperating across the entire organisation. Whether you’re an MSP or not, similar problems can arise.

To help, we’ve used our insight to make a cheat sheet that explains everything you need to know about why demand planning can be beneficial for you and how easy it can be to coordinate across your business. From developing forecasts to revenue planning, we have the essentials covered.

Get your free copy by clicking on the link below.