In the pursuit to build a more competitive professional IT services practice many owners believe their clients are the ones in control of the type of services they offer. There are several reasons IT service companies choose to expand their service offerings, but few think expansion is their ticket to provide higher value to clients while earning higher margins – it is, if they think about the value their services provide their client relationships.

A recent study conducted by the Institute for IT Partner Education & Development, Profitability Benchmark Study showed that more clients are reliant on higher-level technical consulting and those services earn higher margins for service companies who provided them.

Ryan Morris, Director of Channel Intelligence, IPED mentions that, “Best-in-Class solution providers average 65 percent blended gross margins – a combination of hardware, software and services – compared with the industry average of 35 percent. What’s more striking is that those margins weren’t the result of any one-time deal or unusually strong quarter, but came about because of consistent patterns of behavior and business models geared toward maximum profitability.”

A big trap smaller IT service companies fall into is only offering services their clients ask for. Ironically, this is like a construction company only building what the common home buyer knows they want in a new home – imagine everything that would not be built. Business owners are not the experts in identifying IT needs.

As we examine the possible spectrum of IT services needed by businesses, we can start to uncover the types of relationships businesses form with their IT service provider.

• Hardware and software – replacing or purchasing new equipment
• Break-fix – putting out technical fires
• Projects – implementing a one-time business solution
• Managed services – services provided to maintain business stability and continuity
• Consulting – business planning and decision-making for IT – the trusted advisor

As we said, all clients need a blend of these types of services. We also know that providing a blended set of services earns higher margins. The key to offering a blended set of services is to position, package and support a standard set of service options using flexible pricing arrangements to fit the client need.

Here is an example of a set of services that needs to be managed for the client. Note the importance of being clear about what is in the monthly recurring fee and what is not.

Monthly Fixed-Fee

1. Quarterly business priority reviews
2. Remotely managed server or firewall monitoring and patch updates
3. Remotely managed desktops
4. Access to hosted Exchange (email) server
5. On-line backups
6. Access to your support desk during regular business hours 5 days per week
7. T1 connectivity

One-time fees

1. Installation of VoIP hardware and infrastructure
2. Purchase of VoIP hardware and infrastructure
3. Major system implementation projects that are not part of the ongoing systems management

Without the ability to provide these services or support them with flexible fee arrangement some companies are left only being able to put out technical fires and purchasing hardware, reducing their value to the client and their margins.

Those IT service companies who can proactively manage their clients’ understanding around the blend of services, pricing, and value they are capable of providing helps differentiate the value of their relationship to clients.

If you find that clients are not taking full advantage of the services you are capable of providing, it is a clear sign that they don’t understand and/or they don’t see the benefit. It may also be that the combinations of services you offer are not making sense to the business decision maker. In that case you might think about expansion – expanding your service offerings, your ability to support flexible pricing arrangements or expanding your clients understanding of how valuable you can be to their business through a more comprehensive relationship.

—————————————–
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.