Why isn’t every VAR a successful managed service provider (MSP)? There are many paths to success, but aspiring MSPs also make many common mistakes that hinder their ability to become profitable. Interested in becoming a successful provider of managed services? Then read, learn, and avoid these common blunders.
Error 1: Sell the latest hot technology – even if it’s unfamiliar: You need to sell managed services that center around the technologies you’re already familiar with and where you already have technical expertise. If your organization is strong in networking, sell a managed network service, or provide a managed firewall or router offering. Don’t try to cover a customer’s entire environment unless you can back it up with in-house expertise.
Error 2: Vertical shmertical – you errantly insist one size fits all: Similar customer organizations often need similar products, so you may be selling with a vertical industry focus already. This becomes even truer with managed services, because you’re more tightly integrated with the customer’s business. Business integration, regulatory issues, and the long-term commitment that a customer makes when purchasing managed services mean you need to market yourself based on relationships.
Error 3: You stick with your existing sales strategies: Typical product sales are well defined and happen over a short period of time. There’s little commitment by the customer to the reseller. In contrast, a managed services sale is a solution sale. There’s a substantial commitment on the part of the customer, over a lengthy period of time. Accordingly, your sales team needs to be able to operate in this different environment to be successful at managed services.
Here are some questions you should ask yourself about your existing sales team:
- Are they familiar with the basics of solution selling?
- Can they sell to non-technical people at the customer, e.g. an executive?
- Can they build a long-term trusting relationship, not just a transactional one?
- Do they understand the value proposition – the business value of managed services?
- Can they be trained on all the above?
Error 4: You keep your sales compensation plan as is: Selling a managed services contract is harder than selling most products, and it takes more time. On the other hand, there’s a reliable recurring revenue stream with higher margins. A product-oriented compensation plan won’t work, but here are some techniques that will:
- Pay higher commission rates – pay based on margins.
- Pay commission on the basis of the contract term – typically one year – up front.
- Pay when customers renew.
- Supplement with bonuses, at least initially.
Next time, we’ll discuss several more mistakes companies need to avoid in order to become successful MSPs.
Peter Klanian is a senior channel sales manager in the Dell Global Services organization at Dell Inc. Guest blog entries such as this one are contributed on a monthly basis as part of MSPmentor.net’s 2009 Platinum sponsorship.
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Tags: Dell Global Services | Dell managed services | Managed Services Compensation Plans | Managed services sales strategies | Peter Klanian | Silverback Technologies | vertical market managed services
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Peter,
Thanks for the article. Error #4 sparked me to address the situation of sales folks who sell longer than a 1 year term and how to address that compensation accordingly to encourage terms longer than 1 year if viable.
John: Do you mind me asking how you resolved that challenge?
Common Mistakes for MSPs to Avoid…
Dell’s Peter Klanian, Senior Channel Manager, guest posts on MSP Mentor about common mistakes MSPs…
Without divulging too much about our internal sales process & management, it’s an X factor based on the normal compensation package tied around margins. I’d be happy to discuss offline.
John, Thanks for the “hints.” I’m sure some of our readers will try to plug in hypothetical numbers to assist their own efforts.
What a great, thought provoking article. I must say, we see the same issues daily, and try to help MSPs avoid those very same pitfalls, as well as others.
On the topic that John Kilgore mentions, one long-term sales compensation method that we have seen MSPs succeed with is to attach a trailer to any contracts that the salesperson brings in. You can have a mixed plan that consists of commission up front at the time they sign the deal (as a percentage of revenue or margin) as well as a small monthly bonus for every month the client stays with your company. The allure for the salesperson to stay longer is that they are building a book of business that grows in perpetuity if they keep those customers happy.
My team actually have developed a detailed sales compensation planner that allows you to mix and match with up-front commissions, trailers, up-front spiffs, and have compensation plans that cross multiple roles or teams in your company too.
Interesting piece I just wanted to share my experience in sales comp with some suggestions to #4:
You want to make sure that your sales plans match the strategic goals of the company. What is more important, revenue or margins, one year contracts or multi-year contracts, renewals or new business? Then you must clearly define the job roles: who is responsible for what, do you want to involve more than just the sales teams, possibly customer support or project managers? Now you can begin to develop your compensation strategy.
Paying higher commission rates by changing the measurement from revenue to margin does not impact the earning capability or the reps. In order for margins to be used effectively, the sales rep must have some control over the margins.
I have seen when the company waited months after the deal closed to pay the rep based on margins. They were calculating actual margins and it took time to complete the project and figure out the actual margins. In this case margins were not effective. Just be careful you are still motivating when paying on commissions.
Paying commissions based on the contract terms may be effective; after all, longer contracts are worth more to the company. You need to balance the payment with the risk of the additional years being canceled and reward the rep appropriately. Paying closest to the event the rep has control over, like signing the deal, is clearly best practice.
When considering paying on the renewal, define the job role; match the effort to the payment. Does it make sense for a rep to take time away from hunting for new business to renew existing customers or should you involve another support person and put them on a comp plan as well?
Bonuses when used appropriately are a great way to cause focus. Make sure they are large enough and announced with enough time to drive the reps behavior.
Here is where we keep all of our best practice information to help better your sales comp plan: http://www.makanasolutions.com/bestpractice
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