Why Sustainable Profitability Matters to MSPs and How to Achieve It

Profitability is the lifeblood of businesses and managed service providers (MSPs) are no exception.

The global managed services market is anticipated to go beyond $500 billion in 2028 from $279 billion in 2022, according to Statista.

But organizations that seek technological support are becoming more selective about the MSPs they choose to work with. Capterra’s survey found that mid-sized businesses also consider flexibility, brand, location, and ease of integration when choosing an MSP. As companies become more critical of their partnerships, MSPs must focus on strategies that can attract new and existing customers to seek their services — and in effect, boost profits.

Sustainable profitability is crucial for MSPs as it ensures long-term business success. It is not just about generating profits in the short term, but also about maintaining a consistent growth trajectory over time.

MSPs’ profitability enables reinvestment and growth, giving them a competitive advantage. It also demonstrates their reliability and success, fostering client trust, loyalty, partnership opportunities, and potential access to capital.

In this blog, we’ll discuss 3 surefire strategies for MSPs to ensure sustainable profitability.

Begin with Foundational Products and Services

MSPs play a crucial role in the digital transformation journey of businesses, which involves utilizing new technologies to modernize and optimize their operations; they may look into moving from on-premise infrastructure to cloud to help automate manual processes or introduce collaboration applications into their operations.

For businesses migrating to the cloud, MSPs can offer foundational products, like migration services to significantly boost their profitability while providing essential business support. This is because more businesses are anticipated to move data and collaboration to the cloud.

According to Markets and Markets, the cloud migration services market is expected to reach $29.2 billion by 2028 at a compound annual growth rate (CAGR) of 23.3% from $10.2 billion in 2023.

With businesses expected to increasingly recognize the need to modernize their IT infrastructure, they often require expert assistance to ensure a seamless transition.

Migration involves a complex set of tasks that require a deep understanding of both the existing IT infrastructure and the new cloud environment. This is where the need for expert assistance in cloud migrations becomes crucial.

MSPs have a tremendous opportunity to help the growing number of businesses at the beginning of their cloud journey by designing a migration strategy that minimizes downtime and ensures a smooth transition. Cloud migration services and tools, such as AvePoint Fly, can assist with a simplified transition from on-premises or cloud-hosted mail, content, and collaboration to Microsoft 365.

Expand Services to Enable Recurring Revenue Streams

AvePoint’s research found that the majority of MSPs (63%) make less than half of their revenue from recurring services, which shows that only a minority of MSPs are able to successfully secure added or continuous services per client. But MSPs should grab opportunities to take recurring services because they can gain more consistent earnings from these — versus a one-time service per client.

MSPs have a vast opportunity to grow their recurring revenue: by understanding business needs and offering services and solutions that align with their operations.

In fact, according to Microsoft’s study on the voice and attitudes of small and medium businesses to technology, 51% expect technology partners to proactively suggest new technologies and help shape their technology strategy.

One thing is certain: servicing clients does not end with offering one initial service. The first crucial step in achieving this is understanding how businesses operate today.

Eighty-six percent of professional services companies have adopted a flexible working setup, according to a report from Flex Index. This rise of remote and hybrid work models prompted the increased demand for secure cloud collaborations, signaling the need for additional security measures as they run cloud-based workspaces.

True enough, the recent Global Data Protection Index revealed that 42% of companies deal with data security challenges in multi-cloud environments. In effect, 98% seek third-party support for backup capabilities and data protection, an opportunity for MSPs to offer security services, such as risk analysis and compliance support, to help businesses curb risks within their cloud infrastructure and ensure adherence to compliance regulations.

AI: Unlocking New Profit Potential

According to LinkedIn’s Future of Work Report, 47% of US executives believe that using generative AI will increase productivity, 44% plan to increase their use of AI at their organization in the next year, and 40% think that using generative AI will help unlock more growth and revenue opportunities next year.

As AI revolutionizes various industries, businesses seek expert guidance to navigate this complex landscape, and MSPs are well-positioned to fill this gap.

MSPs can offer consultation and strategic planning services to businesses considering AI adoption. This involves assessing and preparing the company’s current infrastructure, identifying potential areas where AI can add value, and developing a comprehensive implementation plan.

Preparation for AI implementation is crucial. AI systems rely heavily on data. Businesses need a robust data management system to collect, store, and process data. This includes ensuring data privacy and security.

However, the Computing Technology Industry Association’s (CompTIA) IT Industry Outlook 2024 revealed that only 44% of companies surveyed have well-defined governance processes for cybersecurity and data.

MSPs can offer services and solutions that help detect and identify the oversharing of files and improper workspace use. This can be an opportunity for MSPs to continue to manage clients’ infrastructure to ensure a governance strategy is in place and utilize an effective solution to control workspace access and sharing.

Such measures help businesses avoid data breaches when AI is implemented in the organization and ensure compliance with data protection regulations.

Implementing AI often requires a significant shift in a company’s operations and workforce skills; thus, additionally, they can provide round-the-clock support to address any issues, ensuring that the AI systems function smoothly.

Such additional services can be lucrative for MSPs that smartly position their secure collaboration expertise and leverage the right solutions to power their services.

Unlocking Profit Potential for MSPs

MSPs have a huge opportunity to boost profitability by first responding to the foundational needs of businesses and then identifying opportunities to offer additional value to meet the evolving digital workplace needs of their clients, such as risk analysis, compliance, data governance, secure data protection, and AI readiness services.

By capitalizing on these strategies, MSPs can unlock their profit potential and establish themselves as reliable and successful businesses.

Want to learn how you can improve profitability in your MSP practice? Contact us today to get started.