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In a recent survey conducted by CoreConnex, three distinct stages of IT Service Companies (ITSCs) evolution emerged with a clear pattern of tools being deployed, client contracting practices and the expectation level of their clients.

Here is a breakdown of those phases and trends.

1. Emerging ITSCs are primarily using spreadsheets, access databases and an accounting software solution like QuickBooks at this stage. These companies have discovered that IT service is a viable business and have a small group of clients (10-25) they manage.Most companies at this stage are also hearing a lot about ‘managed services’, but have not made the leap to deploy service monitoring and asset management systems (like HyBlue or Level Platforms or Kaseya). Although, a lot of companies we surveyed said they spend some time on remote management of their client network systems, it is done mostly with manual processes.

Keys to Advancing:

• Become more than a technical problem solver
• learn the basics of fixed-fee contracting
• have a precise business plan for growth and profitability
• upgrade systems to support increase in capacity and automated services
• develop basic compensation and reward models for key employees and owners

2. Experienced ITSCs are leveraging accounting packages, CRM systems (like Microsoft CRM, TigerPaw or Salesforce.Com), along with MSP systems for monitoring but still are not satisfied with the ability of those systems to improve client interactions and help scale the business. At this level, companies have created a large enough client base to employ several full-time engineers, but are reaching a plateau in growth because referral business is not generated the needed business volume as it did in earlier stages of their businesses.Even though a majority of ITSCs at this level have deployed some kind of managed services offering, they are encountering many barriers to building a business based on full-service fixed-fee arrangement with clients.

Keys to Advancing:

• Balance your client portfolio
• practice value-based pricing
• continue to grow overall fixed-fee contracting effectiveness
• add service capabilities to take on a variety of clients
• begin expanding proactive marketing and sales efforts
• understand the fully burdened costs to deliver your services and acquire new clients.
• Most importantly, move away from “commodity pricing” where fees are based on number of hours worked or number of machines supported

3. Progressive ITSCs leverage a blend of CRM, Accounting and a Service Management system (like ConnexIT). Companies who have made a serious commitment to growth find they need something more than a CRM system to manage the workload, engineers’ utilization, service capacity, client business priorities and keep clients informed on work in progress.ITSCs at this stage have a well established list of active clients (30-150) they provide services to on a regular basis. Fixed-fee arrangements make up 20-40% of the contracts in their portfolio. However, many of these companies continue to struggle with wide swings in monthly revenue, employee utilization and employee turnover.

Keys to Advancing:

• Implement proven marketing and sales techniques to constantly take on new business
• keep pricing flexible to fit client needs and budgets, avoid “commoditized” pricing
• implement business best practices
• make improvements on internal operations when falling below industry benchmarks
• continue to improve incentive compensation based on business performance, personal performance (think “balanced scorecard”) and the achievement of business milestones

Regardless of where most companies are on this scale, the top performers are continually improving internal work processes, fixed-fee contracting practices and leveraging crucial systems and vendor expertise. Please contact us today if you would like to learn more about how to implement best practices and out perform benchmarks as you grow your IT service company.

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CoreConnex specializes in professional services automation (PSA) software for VARs, MSPs, channel distribution partners, IT service providers and other professional service companies. We encourage you to share experiences and perspectives as players in this professional community. This blog is moderated. Comments that are unprofessional or derogatory will not be posted.