Quantifying the Value of Managed Services

In recent conversations with a managed services prospect, the term “quantify” kept coming up in conversation – they wanted me to quantify the value of our proposed agreement. What I quickly realized is that the perception of the value of IT managed services not only varies drastically from person to person, but that I wasn’t well prepared to clearly explain such value from the standpoint of the sum of its parts – or its quantification, if you will.

The inherent challenge is that many prospects are generally still trying to measure the cost of an agreement in number of service hours, e.g. “How many hours do we get per month for that amount?”. The answer is “as many as needed”, of course – but therein lies the rub, in that those as-needed hours are typically what the customer views as reactive. There is still a big disconnect in how not getting something tangible in return (service hours) can be worth so much.

So, I embarked on a mission to break down where some of the hard costs actually come from. Using the prospect’s specific example, I was proposing a $1,250/month managed services agreement for a team of 17 people.

Customer’s yearly cost: $15,000

What we bring to the table:
Note: I assume a rate of $150/hr for any hourly calculations

$8,000 – my business partner and I attend at least one training conference each per year at $4,000 each on average
$500 – at least one IT certification renewed on a yearly basis, each
$6,000 – cost to renew our monitoring and reporting software platforms every year
$3,600 – time required to do scheduled firmware and software updates just once a month
$3,000 – up-front time invested to document customer’s environment
$1,800 – time invested per year in quarterly meetings to discuss IT strategy
$3,000 – average cost per year to keep our laptops current (we cycle every 2 years)
$1,500 – cost to maintain our partnerships with primary vendors (Apple and Microsoft)
$2,200 – business insurance
$$$$$ – we are on call 24x7x365

I think you get the picture…we’re already at $30,000, and we’ve yet to answer a phone call or handle a technical issue. Allow me to make some additional assumptions:

$7,650 – 51 hours dealing with just one 15-minute issue per staff member per month
$1,200 – 8 hours dealing with just one medium-level technical issue per year

Then there’s goodwill — how does one put a price on goodwill? What are our honesty, accountability, knowledge, experience, drive, determination, and responsibility all worth? To some, it’s worth something, to others not worth much at all. That’s one switch that I truly believe cannot be flipped. One either gets the value, or one does not get the value. Part of our sales process relies heavily on identifying prospects that get the value.

Benefits of Managed Services

Let’s consider what some of the actual benefits of a fixed-price managed services agreement might be for a customer:

Less risk. Because there is proactive IT planning, lifecycle management, and updates, the environment will inherently have less downtime. This equals less risk to the business.
Controlled cost. This only means something to fiscally responsible businesses – those who budget. For those who do, fixed costs are a big deal, and awesome for planning and cash flow projections.
Lower cost to operate. A junior entry-level systems administrator will want to earn at least $50,000/year in Vancouver, plus a bunch of the extras I noted above. And then what should a business do when he or she goes on vacation? In their first year of employment that’s two weeks. Year five? Three weeks.
Positive impact on user productivity. Thanks to lifecycle planning and budgeting, user productivity will rise as a result of removing old equipment from the environment.
Focus. Having a contracted provider allows the customer to focus on their business, rather than the execution of IT strategy.
Expertise. Managed services providers (MSPs) have access to large pools of experts if issues arise that are outside the scope of knowledge of the primary technicians.
Documentation. This here is a biggie. Small businesses are notorious for their lack of documentation in their environment. We are extremely proactive with documentation, which gives us and our customers access to this critical technology documentation at all times.

It can be somewhat difficult to put an actual price on these benefits, but I think it behooves businesses to analyse the above to understand where and how the lack of these benefits currently affects them, and ultimately, their bottom line. Only then can they truly understand the value of managed services. The sales process really does need to be collaborative and educational though, and I’ve made a real effort to point out opportunities for savings when I’m going through the sales cycle with a prospect.

Like most of my rants, none of this means anything without trust. Without trust, we just don’t get the sale, or even the opportunity to pitch. Sometimes building trust is easy (referrals and introductions), and other times we need to prove ourselves (a small project or task). In either case, it’s our job to educate the customer whenever possible, and to try to identify as quickly as possible whether they are a good fit. For us, “good fit” means a customer who:

is respectful of their own time
values expertise and professionalism
is focussed on succeeding with their business
is not interested in cheap “D.I.Y.” solutions to their problems
wants to become more efficient

In conclusion, I’ll simply reiterate that, in my honest opinion, trust, respect, and education are all pillars of the managed services model. Working from these pillars should make the rest of the process and experience very easy, and perhaps even enjoyable to both parties. Thanks for reading!