What MSPs Need to Know About PSA Systems
PUBLISHED: MARCH 2019
Managed Service Provision: A Competitive Market
Managed services is a growing market. According to ResearchandMarkets, it is in the process of expanding from $152 billion in 2017 to nearly $258 billion by 2022. TSIA research shows that managed service provision is one of the fastest-growing segments of the technology industry, with software, hardware and professional services organizations all increasing the percentage of revenue that comes from managed service provision.
Increasingly, other players are moving into the MSP business, adding managed services to their other offerings. The key driver of competitive differentiation and profits in the new global economy is a pivot from selling products to servitization, where the product forms part of what is essentially a managed or subscription based service. Servitization means product companies are now offering these services, paid for on an annuity basis.
Traditional professional services businesses are also increasingly offering managed services, as they move to outcome-based pricing models and adapt to changing customer demand. Managed service provision is now a global market, in an increasingly competitive field.
How MSPs are Making Use of Business Management Software
MSPs took a break-fix reactive model of IT support and transformed it into one which is more proactive. Instead of being called in when there was a problem and paid for their time to fix the issue, they are now contracted to take care of the client organization’s IT needs, preventing problems occurring, which may include related services such as help desk or cybersecurity, and include managing complex mixtures of on-premise and cloud systems. The advent of cloud-based computing and software-as-a-service means it is becoming easier than ever for businesses to outsource some or all of their IT services to MSPs.
The technological tools and solutions available to support these businesses are constantly evolving. Some, like Remote Monitoring and Management (RMM) software are becoming standard. In order to avoid potential causes of business disruption, most MSPs utilize RMM tools to support early detection and remediation of issues before they lead to problems.
Many of these MSP businesses now also use Professional Services Automation (PSA). As well as automating basic operations like invoicing, time-tracking and expenses, a PSA solution can connect CRM software with resourcing, delivery and billing. This has the potential to improve performance in many ways.
The overarching goal of a PSA system is to provide the operational framework required to run a connected and efficient services business. PSA enables the business to be run more predictably, provides the tools to manage the people engaged in the delivery of those projects, automates invoicing and revenue recognition, and includes the analytics required to match resource planning with future demand.
PSA Helps MSPs Get Closer to Customers
MSPs offer their clients expertise, reliability and the ability to save time and money. To be successful they have to operate as clients’ trusted advisers. As George Humphrey wrote in a TSIA report on Managed Services: “The customer isn’t just buying technology, they’re buying the operation of technology. They’re not just buying a solution, they’re buying ‘peace of mind’.”
The customer needs to trust in the managed services provider’s abilities. They need to know that their MSP understands their business – not just their tech. MSPs are also vulnerable to ‘churn’ – customers leaving – and one of their major sources of growth is expanding what they sell to existing customers.
PSA helps services organizations get closer to their customers in two main ways – it makes it easier to provide customers with real-time project insight; and it provides a 360-degree internal view of that customer, showing all aspects of customer engagement and billing in one place.
Five Key Ways PSA software helps MSPs
Pricing and profitability
A managed service is often sold as a subscription type model – e.g. a fixed amount per month, or alternatively a consumption-based model. But these revenues don’t directly correlate to the cost of providing the service. They relate to the prediction or forecast of what it was going to cost. Therefore estimating margins correctly is important. Making a profit depends on delivering the project at the margin it was sold at, and on not consuming any risk contingencies.
To accurately determine likely profitability, it is critical to have a software solution that understands the costs and revenue profiles in detail. The diagnostic analytics provided by an advanced PSA such as Kimble can show which contracts and customers are profitable while also identifying trends in the business.
Variance from the resourcing plan is a source of unexpected cost for MSPs. If, for instance, the right in-house resources are not available when needed and more expensive contractors have to be hired, the profitability of the contract can be damaged. A PSA which supports managing the resource pool across the whole organization, and which gives the earliest possible visibility of demand can ensure this cost is managed effectively.
It is common for MSPs to find nasty surprises emerging after all of the budget has been consumed, effectively committing them to continue to fix the customer’s problems for free.The best way to get to a consistent and repeatable process for recognition of revenue is to have a system where finance and delivery collaborate, sharing live and accurate information. Where the inputs from both these areas are up to date and accurate, the calculation of revenue becomes straightforward. It can be automated and produced in a systematic way which breaks down each type of contract and recognizes the revenue according to the rules which have been set down. As the inputs are accurate and up to date, this method will always calculate the right answer.
Managing different kinds of contract
Many professional services businesses now have a mix of contracts which include managed services – often that is a challenge as traditional support desk operations using service tickets aren’t designed to support professional services and professional services businesses aren’t always geared towards the granular time-recording that providing managed services can require.
Without a strong PSA, it can be hard to predict which customer or which type of customers are likely to cost the most when taking up a service contract. Effort and cost are not always tracked at the contract level. Kimble PSA supports this, and also allows integration with incident management solutions where time on issues is often sourced. This means the information held in the ticketing system can be shared with the PSA.
Traditional hardware providers, OEMs, are now selling their hardware as a service, or as a managed service. A PSA can manage multiple revenue/billing models (e.g. subscription or consumption based), and manages the cost base separately, so that the likely margin can be modelled. A PSA such as Kimble uses powerful automation to do a lot of this work – which consumes a lot of administrative effort if done manually.
Closer Relationship with Customers
Kimble PSA helps services organizations get closer to their customers by drawing all of the information about them into one unified view. Having a single stream and dashboard showing the progress of all the engagements; having instant access to the account details showing the invoicing, expenses and other data means having better informed interactions with the customer. It also becomes possible to share specific information automatically with customers – Kimble PSA has a customer collaboration module called Kimble Community which supports this closer connection.
Service providers in traditional product companies are also trying to bill for as much of their services as they can. Support people in MSPs, whether stand-alone or within product companies, need to understand the contract well to know what is included in the support retainer and what is outside its scope. Then they can ‘upsell’ consulting time that they may actually do themselves or pass to another member of the team. PSA for MSPs helps scope and manage any work outside of the standard support contract.
How should MSPs evaluate PSA solutions?
The most important thing to understand when evaluating PSA solutions is that an application is only as good as the behavior it drives. Businesses tend to structure their procedures and processes around the technology that is available to them. And when they are considering investing in new technology, they have an opportunity to embrace new ways of working, rather than buying technology to do exactly what your current technology does. A progressive approach is to ask “Is our process around this still the best way of achieving our desired result? Is there a better way of doing this now? How can new technology help us to achieve a more consistent service to our customer”
So MSPs should think about outcomes when evaluating PSAs. What are the main areas in which they want to improve business performance? These may be goals such as increasing billable utilization and the predictability of the business. Delivering effectively on the contract that was sold is also highly likely to improve customer satisfaction.
There are a wide range of PSAs available on the market, from partial solutions generally aimed at smaller firms, such as Solar Winds and Autotask PSA tools, to those that are part of suites, such as NetSuite. Others such as Kimble, which is a specialist PSA, are designed to integrate with other specialist apps. For more information read the comparison table and this buyers’ guide.