TLDR Preview:
Some services MSPs sell actually stunt, or even harm their business. Instead of selling these services, MSPs should sell recurring services that do not directly make a time for money exchange. We list the services you should not sell, and the ones you should, in some detail.

The MSP Hierarchy Of Revenue
In terms of what MSPs typically sell, some offerings drain the company and the bottom line over time, but others create value and set the owner on the path to freedom.

The Bad: Dirty Money
Here are some services MSPs should really avoid selling and/or grow out of.

The first three are just different ways of saying “directly trading time for money.” At least block time can be billed in advance. But time still needs to be accounted for, and MSPs will still get arguments over Joe taking 45 minutes to do something that should have taken a half hour. And the effective hourly rate (monthly revenue for a given client divided by the hours spent on that client that month) is still capped at whatever the MSP is charging per hour.

Some people like billing projects hourly, so they will “get paid for all their time.” But the fact is, if the project takes twice as many hours as what was specified in the budget, chances are the MSP is not going to get paid for all that extra time.

By billing hours, the MSP is establishing with the client that they are not being paid for their expertise; they are being paid for their time.

MSPs should sometimes do what we call “introducing a little voodoo” to their billing. Everyone knows about how long it takes to set up a computer. Relatively few people know what goes into a firewall configuration or setting up perimeter security. So MSPs can bill more for those things. They should get paid for all the training and research and development they had to do to settle on the right products and become experts in them.

Billing flat rates for projects also allows MSPs to bill for some or all of the project in advance, and it puts the onus on the MSP to scope the project correctly and work efficiently. That’s what you should want—the opportunity to bet on your team. It may not work out on every project, but as MSPs mature, it will work out more often than not.

For most MSPs, any kind of one-off web design or application development falls strictly into the AFAB category. They usually don’t have the expertise in-house, and there is nothing repeatable about the work.

The Good: Solid Services
A lot of the bread-and-butter services that mature MSPs offer fall into this category. Most of them still require some regular labor from your team, but you are no longer directly swapping dollars for hours. This allows you to profit from efficiencies gained through technology standardization, automation, procedure tightening, and solid service management.

Good Old All-In Managed Support
The most obvious service in this category is all-in managed support, billed per client user. Charging for support this way enables, and behooves, MSPs to do all kinds of proactive things to minimize downtime and user issues.

We like to say you want to be tending a garden, not driving an ambulance. If an MSP’s support services consist primarily of coming to the rescue when someone calls with a problem, they will be dealing with a lot more problems.

The MSP’s job should be first and foremost to make sure their clients’ technology is healthy enough that they rarely have issues. This kind of work is much less stressful to their team and sets them up for much less conflict with their clients. It also sets them up for greater profitability. Clients are often willing to pay more if they know they can set their IT budget number each month and there will be few surprises. The MSP gets paid for things running well instead of for trying to keep an old clunker on the road, and everyone is happier.

Co-Managed IT
Co-managed IT services can also fall into this category, if they are packaged right. Clients utilizing co-managed IT usually have some in-house tech staff with MSP services supplementing that staff.

In some cases, the MSP takes on the more complex work and the client employs day-to-day support resources. In other cases, the client controls the high-level tech and outsources the help desk and/or onsite desktop support.

But beware: co-managed IT is tricky. Often there are political challenges to navigate on the client side. A lot of the time there is this ongoing real frustration of being held responsible for things that are not fully within your control. Some clients want to give you half-control (which isn’t control) but will give you all the blame when there are problems, so vet these opportunities carefully!

If MSPs are going to wade into co-managed IT, it can’t just be another form of directly trading time for money. Services should be billed on a monthly flat fee, sometimes with a cap on the hours spent. We recommend staying away from “Call us when you need us, and we’ll just bill the hours.”

Expiring Block Time
Block time is getting rarer and rarer as an offering, and in most cases, we say good riddance. When the hours carry over from month to month, it’s basically just “dollars for hours,” with the advantage of being able to bill it in advance.

But there are times when block time can make sense. For instance, when a large company based out-of-town calls and says, “We just need someone to support our local office in your area.” In that scenario, sometimes the MSP can get them to bite on a per-user all-in support contract, but sometimes they can’t. Sometimes the MSP won’t even want that to happen because the client is not using their preferred technology stack, and some faceless corporate office in Luxembourg controls everything.

When it’s just “hands-on support” or “we need someone to go over there and work with us to figure out what’s going on,” expiring block time can be the right prescription. For example, the MSP can say, “We’ll provide up to 20 hours a month of support for $2,500 [a modest rate of $125/hour]. No carryover of hours permitted. Hours over 20 in a given month will be billed at $175/hour.”

The rate seems reasonable to the prospect, but most months they won’t hit 20 hours, shooting the effective rate through the roof. In the months they require a lot of support, that effective rate starts to climb above $125, because a percentage of the hours will be billed at $175. Any way you slice it, unless they use exactly 20 hours, the effective rate will be always be higher than the low rate of $125/hour that was dangled in front of them to close the deal.

Sometimes these clients will use five hours in a given month, making the effective rate $500/hour. That’s lawyer money—not bad. And when the fees are recurring and monthly, by definition they count as MRR, and Piggy gets fatter.

Resold SaaS
A lot of people don’t like reselling SaaS (software as a service) like Microsoft 365 or spam filtering because the margins are lousy. We look at it a little differently. It’s not a lot of profit, but MSPs will need to support it whether they sell it or not, so the money they do make reselling it requires very little ongoing effort in most cases.

Always take free money.

Another thing to consider is that if the cost of those products is bundled with a managed services support offering, that revenue turns into MRR the same as any other MRR, which means it’s an easy way to pad the piggy bank. MSPs can increase the value of their business by selling other people’s software.

The Best: Approaching Passive Income
The dream is to collect money that produces a healthy profit but requires very little ongoing work. That means identifying services that require a minimal amount of ongoing labor to deliver.

Security Bundles And Other Resold Bundled SaaS
Security bundles are essential for an MSP on its way to maturity. The only reason an MSP shouldn’t be selling bundled security services is if they are including a robust security bundle as part of their all-in managed support offering—and marketing on that fact, selling on that fact, and putting a premium price on that support offering because of that fact.

Maybe you don’t feel comfortable going to market with a security bundle because you don’t feel like an expert, or you are worried it could create a barrier to sales.

First, there are companies out there like Solutions Granted (now a SonicWall company) who have done all of the research on which suite of security products works best in small-business environments. MSPs can resell one of their bundles at a great markup, and they will even manage it for you if you want.

Secondly, clients who don’t see the value in basic security will never make your A List. Requiring a security bundle helps to identify cheap, self-sabotaging prospects before they become clients, so they don’t have to be weeded out later.

Security bundles don’t just fatten your piggy bank. There’s more magic to them as well. In addition to helping to weed out bad clients, technician time per end point per month will begin to drop as well. Fewer viruses. Less spam. Fewer emergencies.

Hardware As A Service (HaaS)
HaaS, or hardware as a service, is simply renting or leasing equipment to customers. Many MSPs shy away from it because there are components to it that can be messy. The messiest part is fronting money for the equipment, or leasing it yourself and re-leasing it out to a client (MSPs should avoid this if they can).

There are also bookkeeping complexities to HaaS. For starters, the equipment owned by the MSP should appear on their balance sheet as a depreciating asset. These factors are enough to scare most MSPs off.

That’s a shame, because there are a lot of upsides to HaaS.

The biggest upside is big-time revenue and profit. On any item leased to a client, the MSP should charge enough to cover the cost of the purchase within 10 to 14 months. For instance, if the MSP is leasing out a server and it cost them $4,800, they should charge $400 a month for it. After one year, the MSP will have broken even. If that server lasts four years, they will have collected $19,200, giving them a 300% profit. If they had just sold the server instead, chances are the profit would have been between 15% and 20%.

See why we love HaaS? MSPs can make 15X more money with a HaaS model than they would selling the same equipment. Best of all, that money is MRR. Clink-clink goes the piggy bank. In addition, the customer is that much stickier when the MSP owns their equipment.

Hosting
Whether hosting equipment or software applications in the cloud or in a data center, the concept is the same. Client systems run in the MSP’s environment, and as long as their stuff keeps running, they pay the MSP. In this day and age, it takes some engineering sophistication to handle setting up a secure, stable environment, whether that environment is physical or virtual. But once It’s set up, it should just run. It’s as close to money for nothing as you’ll get in this business.

Proprietary Software
Most MSPs will never get to the point where they are releasing their own products, but many of the ones who do will get exponentially rich.

ConnectWise? It grew out of an MSP.

Datto? Grew out of an MSP.

You get the idea. Many MSPs have built software products for themselves or their customers that they own the intellectual property on, and eventually began selling that software to the channel.

In many cases, selling that software product became a much larger and more lucrative business than the MSP it grew out of ever was. Of course, the product needs to be updated and supported, but the economies of scale are off the charts. The same software code is being sold again and again and again.

Here’s what it looks like visually.

A diagram of a good and good Description automatically generated

Many older tech-support companies, and even some newer ones, started out firmly in the bottom tier of the hierarchy.

Some have never left it. They may call themselves MSPs, but in reality, most of their work is reactive and billed hourly. They’ve built very little value in their company. But it’s never too late to change.

The idea is that MSPs should always be looking to push their offerings up the pyramid. They should go to market with solutions that come from the GOOD and BEST categories. Getting healthy always starts with new sales—selling the right things to the right people at the right price. Then you can start to nurture your existing client base. Some you’ll be able to move up the stack over time. Others will need to be removed from the pumpkin patch altogether.

Adapted from Chapter 5 of The Pumpkin Plan for Managed Service Providers by Dave Cava and Shawn P. Walsh. Read a chapter for free here: https://encorestrategic.io/#form