How to market and sell managed services as a VAR
Product-centric IT service providers like Value-Added Resellers (VARs) tend to have a strong sales culture and are relatively well evolved in their sales disciplines and expertise. But when it comes to how to sell managed services, they may need more guidance. It starts with knowing how to market managed services. In this blog, we’ll discuss what might be missing in the context of being successful with managed services, including:
- Having a good grip on which accounts to target
- Finding a talk track that positions the company around its service strengths
- Developing a sales compensation model that works for a revenue stream that’s generated over time as opposed to in one lump chunk
- Defining a qualification process that’s in sync with the needs of the business as it relates to its service delivery capability
Tapping into the managed services market can help VARs unlock new revenue streams—all you have to do is find the confidence to get started.
Account targeting and marketing
We believe it’s essential that you focus your managed services offering on the market and the accounts with whom you do your product business. This tactic will help with cross-selling and provide the highest chance that your salespeople will care about your managed services offering. You’ll also have the greatest leverage on success based on your corporate knowledge of the account or market segment. So, if you have a strong installed base of customers for your product practice, your marketing plan for your managed services business should really start here.
It actually makes sense to start by researching your account base to find out what managed services they are buying today or what unfilled needs may exist that you could supply. Note that as the need for cybersecurity across all sizes and stripes of business grows, there may be a golden opportunity for you to partner with an organization like ConnectWise to create a managed cybersecurity offering that “hits the mark” with many of your existing customers.
The biggest change in your marketing will be in your messaging. You’ll need to consider that you are moving away from being a “point of supply” for other brands to being an IT advisor. Now, you’re positioning your own brand in the context of the customer’s competitive choices for the type of service you want to offer. What are those choices? How are you differentiated from those choices? What are the positive business outcomes for your customer that you can drive? These are the questions your marketing content should answer; and will be essential enablement preparation for what your sales team will need.
Please note that ConnectWise offers a Partner Program, currently focused on finding cybersecurity opportunities for partners, that provides marketing and sales support, so the ITSP or VAR doesn’t have to go it alone.
New talk track
As suggested above, you’ll need a new story that refines your messaging around the competitive strengths that the service delivery function of your company—your brand—can deliver. It will be critical for you to express how your managed services offerings create a better outcome for your customer. Will it save your customer money? Will it allow the customer to dramatically improve colleague satisfaction with IT at a reasonable cost? Will it reduce business risk from downtime or cyber threats, etc.? Make sure to quantify these outcomes to answer the “why” aspect when it comes to partnering with you.
In the context of this changing narrative, you will likely need to drive the conversation up to a higher level in your customer’s organization, where these kinds of business issues are critical and actively discussed. Your salespeople will need to know how to tell the story and to whom they should be telling it. This will be an enablement initiative and potentially a behavioral change action you will need to take on.
Sales compensation models
Standard sales compensation models for product-centric ITSPs, like VARs, are based on bookings and revenues that tend to be lumpy. That is, a project engagement occurs, the ITSP delivers the solutions and services within a narrow timeframe, and the sales commissioning tends to either follow the booking of the deal, which happens in one shot at the start of the engagement, or follows the solutions and services delivery, but still occurs in a tight window.
Managed services reflect revenues that typically come in monthly or quarterly and continue over an extended time period. What if commissions follow along the same path? Certainly, a salesperson who has the opportunity to get a large commission check from a project-oriented deal will have a greater incentive to pursue those deals than a managed services, recurring-revenue deal, where commissions tend to dribble in. So, while this is great business for the ITSP, it could be misaligned with sales motivation.
To solve this problem, the ITSP could have two separate sales teams, which is often not practical, especially when the managed services practice is just getting started. Otherwise, the ITSP could commission based on “contract value,” which would aggregate the recurring revenue over the course of the entire contract (usually 1 to 3 years in duration). This latter approach could stress the ITSPs cash flow since cash on commissions is going out in advance of receiving revenue. On the other hand, this may be one way to level the playing field from a sales commission value standpoint with your traditional project business.
In any event, these are the primary models that can be considered, and blended models can also be configured. Further, if your managed services offering is new, the Service Leadership™ group has a recommended commissioning model for you that assures your new offering gets attention.
Being able to serve your customers profitably is a key consideration in qualifying accounts for business. This is a little different than your product or project business, where your gross margins tend to be a bit more transparent. Your gross service margins will likely require a deeper understanding of your delivery costs in the context of expected time on a per-node supported basis. You might have machine patching operations, troubleshooting functions, alert management and response, customer reporting requirements, QBR activities, software license management responsibilities, and more. Getting your pricing right at the beginning is essential to ensuring a profitable contract with the customer. It is not something that you can easily adjust once the contract begins. Conversely, getting it right locks in profitability that you can count on for the life of the contract.
So, the qualification of the account is key. You’ll want to pick an account in your wheelhouse from a size and vertical market point of view, enabling you to confidently project what your service delivery costs are likely to be because it replicates what you are already doing with other accounts.
Further, before you put a detailed proposal together, you will want to have the account react to an informal quote on “ballpark pricing.” A “keep going” response from the prospect is an important qualification step that will help you be efficient with your time and reduce the need for extraneous due diligence around managed services proposals.