This is the second post in this series, if you’ve not read the first post I’d recommend you skim it first for context. As a reminder, here is what I’m covering in this series:

• What is an MSP? – Covered in post 1
• TAM/SAM – Covered in post 1
• Economics of an MSP and their customers – Covered in this post
• Persona types – Covered in this post
• Vertical analysis- Covered in this post
• Share of Wallet – Covered in this post
• The assisted sale Covered in post 3
• Product Penetration Scale Covered in post 3
• Financial Modelling Covered in post 3
• SaaS metrics Covered in post 3
• Commercial agreements/billing – Covered in post 4
• Research, Analysts, consultants and forums – Covered in post 5
• Marketing and Shows – Covered in post 5
• RMM’s, PSA’s and integrations – Covered in post 6
• Product capabilities and principles – Covered in post 7
• ‘MSP team’ investment requirements – Covered in post 8

In the last post, we defined what an MSP is, the TAM breakdown and touched on why vendors look towards the MSP channel as a lucrative endeavour. Today I will cover one of my favourite topics looking into the MSP’s business as well as their customers.

I am a strong believer that to be successful in any Product/Service you must intimately know your customer, this proves especially important with assisted sale approaches like the MSP sector.

Economics of the MSP..and their Clients!

Following this post, I hope you’ll leave with the following:

• Understand the dynamics of the MSP business, their constraints and predominant business models
• Understand the limitations and budgets of the SMB
• Understand what products/services are used by the MSP to serve the SMB , inclusive of Share of Wallet (SOW)

As touched on the last post, MSP’s generally have a set of core services, these services are typically 3 main parts to an MSP’s services

1. Network operations centre (NOC) Services, for example

• • Remote monitoring and management of network, server, desktop, laptops
  • Managed security (AV, Web/Email Filtering, FW, Patch Management)
  • Backup and Disaster Recovery (BDR)
  • Managed email/anti-spam
  • Managed communications – phone, video conf

2. Help Desk/Support

• • Phone/remote and onsite support

3. Professional Services

• • Consulting/other services inc. vCIO, project work

You’ll see I missed out Security operations centre (SOC) – I said up front that I would generalise and given that SOC’s are not what I consider mainstream in MSP I’m going to omit this.

I have gleaned over the years is that MSP’s offer all of the above for anything in the region of $90-$150 per user/per month, this is commonly known as the AISP (All in seat price), with MSP’s targeting a gross margin of ~40 to 60% based on costs. There is a fantastic presentation on this by N-Able and Gary Pica/TruMethods if you want to deep dive on this topic. These slides highlight the key points I’d like to make:

TruMethods/N-Able – MSP costs per seat

TruMethods/N-Able – MSP Margins

Keep these numbers in mind as we progress as it proves important as a vendor when looking at what $’s you can realistically generate with your product/services. It also underpins the Share of Wallet topic.

Diving into the costs, we now can look at the standard software services included, I’m not going to go too deep here, but you can find an MSP calculator freely available on the MSPexchange wiki where you can simulate what your software/service may look like when against all other services MSP’s typically push. Below is another example from a pricing spreadsheet that was shared on Reddit a few years ago although the link is now dead 🙁 (note highlighted):

If you are wondering why I’m detailing all of this it’s because as a vendor of software/services, you need to ensure that the MSP is able to make money from your offering and that there is a ceiling to what they can push to their clients.

Ok, I think we’ve skimmed the key points on how the MSP operates, now let’s look at their customers…

You may have noticed that in my last post I noted that the average size client of the MSP is 20 employees. There is a good reason for this as when you think of businesses that size, they typically don’t have an internal IT department as they leverage the MSP to take care of all things IT. To try and illustrate this, below shows how and when internal IT typically comes in and the MSP ‘augments’ their IT department with their services – diminishing the need for full MSP coverage the larger they get.

This is critical to understand as I remember having the assumption that MSP’s could target the larger businesses and spent time trying to find how to access them. Obviously there are exceptions to this, but this theory holds true with thousands of MSP’s.

If you are trying to access solely large businesses via MSP’s then you will struggle, if as a vendor your service is not suitable for 10 seat businesses you will definitely struggle! More on this when I cover Product Principles in a future post.

Now onto SMB budgets,.. There has been historically good data within Spiceworks State of IT reports, but they’ve not gone into as much detail as before with regards to noting very small businesses. The key point is that MSP’s greatest challenge is trying to squeeze more £$ out of their clients, where the ceiling for managed services is typically the $90-$150 per employee per month, as noted earlier.

Persona Types

I said in the first post that MSP’s if you target the wrong type of MSP, you could see downstream issues that will become evident here when looking at the 3 main persona’s categories. I’m not going too deep here as this is just a snippet, persona’s should have alot more detail of the pain points and other specific attributes.

There is a very close relationship between the size of the MSP and their sophistication when it comes to their ability to sell your service to their clients. Over the years there have been a few behaviours that have stuck out for me, noted below.