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How MSPs Can Find Profit Selling Third Party Products

Tim May on 12/04/2017

MSPs profit by selling third party productsManaged Service Providers can’t do it all, which is why over 90% say they rely on partners to help augment services to their clients. The problem – profitability on third-party products. Many of the MSPs with whom we speak rave about their partners, but when the questions about client satisfaction, support, and value subside, we all too often hear frustration with the fact that they’re simply not making any money for their company in many of their partner arrangements.

In any service-based business, we always place the lion’s share of effort on ensuring our customers are deeply satisfied with the services we’re providing. It’s why we do what we do – to help other people solve problems in their businesses they can’t solve on their own. But all too often we as the business owners place more weight on client satisfaction than we do on profitability. Is it better to be the greatest MSP with the happiest clients, yet you’re broke, or can a balance be found where everyone wins?

The Struggle is Real

An MSP we recently spoke with shared that they make 80% of all their profit offering their core LAN management services, but because of evolving client needs and demands, have found themselves forced to find partners who can augment services clients want which they don’t offer. Whether it’s cloud-based email archiving, or printer and copier management, MSPs are too often seen as the “IT fix-it guys,” and are expected to be able to fix any technology-related problem.

MSPs are frustrated because partner relationships are actually eating into profits from their core business.

The Solution

There are a few easy solutions MSPs can deploy which will allow them to continue servicing their clients while at the same time increasing profitability for their company.

  1. Negotiate better agreements with master agents and resale partners. It seems simple, right? Not so. An MSP is typically presented with an agent or reseller contract which outlines performance quotas and commissions. The MSP who cares only for their client’s well-being at the cost of their own businesses’ health signs on the dotted line believing they’ll sleep better at night knowing their clients are being well cared for by their new partner. STOP! Stop accepting a third party’s agreement as it’s written.
    • Bet on yourself. Rather than arbitrarily committing to some ambiguous sales quota for “X” commission, ask for a short ramp-up to prove out the solution. Once you’re confident with the product and service, offer a reasonable sales forecast and ask for a bigger cut of the profit. If you’re bringing business to your partner, there’s a huge value to them as their client acquisition cost decreases dramatically.

  2. Ask to handle Tier 1 support calls. While it may not seem like a great return on your time, it will pay off in a big way over time. Rather than solely entrusting your clients to your partner’s support division, tell them you want to field those initial calls and manage ticket submission with your partner on behalf of your client. Why take on the additional support burden for a product you don’t natively offer?
    • You force yourself to get your hands dirty with your partner’s tech. You’ll learn where their products and services shine and where they’re lacking. This gives you, the MSP, greater control in making recommendations to your client because you know exactly how that software works.
    • Adding tier 1 support to your monthly support contract adds dollars directly to your bottom line. You’re making commission from the partner on sales, but now you’re making even more money by taking on tier one support and bundling that cost into your standard monthly contract.
    • You maintain control of the client relationship. Nothing is scarier than telling a client to contact a third-party partner for support and wondering if the support they’re receiving is good. Is your partner outsourcing tier 1 support to India? Looks bad for you if they are.

  3. Don’t be afraid to ask about white labeling a partner’s product and selling it as your own. It’s tantamount to not reinventing the wheel. Your clients receive the benefit of third-party products without even knowing the difference. By white-labeling, you strengthen and add value to your brand and suite of offerings while still receiving vendor support on the product or service being white-labeled.

In summation, most resale contracts and partner agreements are negotiable. Yes, focus on the best solutions, but if you’re not maximizing your profits on those resold services, everyone else ends up making money except you! 

N2Net knows how to take care of our MSP partners. We offer several options including:

  • Aggressive commission structures
  • The ability to white label services
  • Performance ramp-up time
  • Sales and support directly to your clients OR the option for you to manage tier 1 support as part of your service offerings. 

msp playbook guide 

Topics: MSP

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