It's (Nearly) Unanimous: MSPs Say This A Good Time To Be In Business

The annual State of the MSP Report from Datto points to growing opportunities for channel partners to engage with clients.

It’s a good time to be a managed services provider, and it's likely to get better.

That’s according to MSPs surveyed by Datto in its 2019 State of the MSP Report, said Michael DePalma, channel development manager at the Norwalk, Conn.-based company.

Of the 1,600 MSPs Datto surveyed around the globe earlier this year, 98 percent said now is as good a time as ever to be in their industry, DePalma told attendees Sunday at the 2019 XChange conference held by CRN parent The Channel Company.

"Nearly 100 percent of the MSPs in the survey said this is a good industry to be in. … I don't think there's any other industry where so many people say that," DePalma said.

[Related: MSP Touts IoT Opportunities To MSPs]

Just under one-half of MSPs surveyed said they generate $1 million or more in annual revenue, while over 80 percent report getting at least a portion of their revenue from recurring services, he said.

MSPs are growing in terms of customer base as well, with the sweet spot being between 100 and 200 clients, but over 10 percent reporting they have over 500 clients, DePalma said. Nearly 80 percent of surveyed MSPs expect to add one to 10 new clients in the next 12 months, he said.

In the survey, marketing and sales was the most commonly cited challenge facing MSPs, followed by work-life balance, revenue growth, and a tie between cybersecurity and finding the right people, DePalma said. Marketing and sales was also the top challenge in 2018's version of the report, although it fell in importance in 2019. "Vendors are providing better tools," he said. "[And] I think there are better processes."

MSPs are growing in size, with 71 percent expecting to hire from one to five new employees this year and only 16 percent saying they do not expect to bring in new hires, he said. While 58 percent of MSPs say recruiting is no more or less challenging in 2019 than in 2018, 37 percent say it is more challenging, he said.

Recruiting is definitely a major difficulty for Accent Consulting, said Phil Wright, CEO and founder of the Lafayette, Ind.-based MSP.

"As the economy is getting better, a lot of talent gets snagged," Wright told CRN. "It takes longer to fill the top positions."

Here are a few other tidbits from Datto's State of the MSP Report:

- 82 percent of MSP representatives responding to the survey ranged in age from 30 years to 59 years old, with the youngest only 16 and the oldest over 70, DePalma said. "We do see this industry span many generations," he said.

- While 26 percent of respondents said they filled technical roles within their organizations and 23 percent said they were on the business side, 51 percent worked on both sides, DePalma said. "As the industry has grown, we all wear many hats," he said.

- About 47 percent of MSPs have been in business over 16 years or more, while only 10 percent have been in business for three years or less, DePalma said.

- About 54 percent of MSPs have specialized their services for a particular industry, with health care, finance, legal, non-profit, and manufacturing cited as the industries most commonly targeted by MSPs, DePalma said. "This just shows you [this industry] gives you the flexibility to run the business like you want to run it," he said.

The SMB Opportunity

DePalma also shared the results of a separate survey Datto fielded to SMBs.

The results, he said, point to a lot of opportunities for MSPs.

Only 29 percent of SMBs now work with MSPs, meaning the door is open for MSPs to grow their businesses in that market, DePalma said. "There is still a lot of room [for MSPs' share of that spend] to grow," he said.

Of the 29 percent of SMBs who work with MSPs, 90 percent agree that MSPs have a positive impact on their businesses.

End users cited security and technical support and maintenance as their top challenge, with 79 percent of SMBs citing both as very important or extremely important issues, followed by 72 percent who cited the increasing cost of IT and the increasing complexity of IT, 66 percent who cited compliance issues, 62 percent multiple clouds or technology stacks, and to percent internal skills gaps, DePalma said.

Just over half of SMBs cited the increasing complexity of IT and the cost effectiveness of outsourcing as primary reasons for outsourcing their IT needs, he said.

About 37 percent said recommendations from colleagues led them to work with their particular MSPs, followed by 31 percent who said customer references and 27 percent who said either an internet search or calling a vendor directly, DePalma said.

Communicating The Value MSPs Provide

While SMBs find working with MSPs a positive experience, the MSP business as a whole ranks dead-last as an industry in terms of its Net Promoter Score, which DePalma said shows the need for MSPs to do more to build on positive feelings to get their clients to help them increase their market.

The key to changing this, he said, is a four-part series of activities all MSPs should follow.

The first is deliver and communicate the value of MSPs and of their own practice, DePalma said. "We have to promote ourselves," he said. "The small businesses don't know what you do."

The second is to get references and referrals, which can be a daunting task for some, DePalma said. "You've got to ask for it," he said.

The third is to attract and on-board new clients, DePalma said. "You've got to be ready to pounce. … And once you get them onboard, you have to make the process repeatable," he said.

The fourth is to invest in people and capabilities, particularly in areas where the MSP might want to develop specializations, he said.

Keeping clients satisfied should be a top activity for MSPs, Accent Consulting's Wright said.

"We do regular [quarterly business reviews]," he said. "Good relationships are important drivers for SMBs. We are constantly meeting with them and making sure their IT is in alignment. We especially look at what they need to help keep their businesses secure. Cybersecurity is the most important issue today."