Last time we discussed the 4 models of service delivery, along with the three modes:
Service Delivery Models:
- Resellers/System Builders
- Break-Fix Services Providers
- Professional Services Providers
- Managed Services Providers
Business Operational Modes:
- Maintain
- Maximize
- Migrate
Now, let's discuss the characteristics of each model.
Resellers/System Builders:
Characteristics of a reseller/system builder services delivery model include delivering a commodity service with the lowest profit margins of the four service delivery models in our discussion. This requires the "pure" reseller/system builder to make up for these low margins by selling in high volume and keeping their overhead, parts and labor costs as low as possible, in addition to developing a standardized problem management and resolution process to deliver RMA and warranty services for their equipment in the most efficient manner.
Break-Fix Service Providers
Although break-fix services providers experience higher profit margins than reseller/system builders, characteristics of a break-fix services delivery model include delivering a commodity service – and as such, it may be difficult to grow revenues during periods of economic uncertainty, when prospects and clients are trying to cut costs.
And since break-fix services are based on a time and materials billing model, there exists a finite amount of service that the provider's individual staff can deliver, making it difficult to scale without hiring, training and managing additional resources.
As break-fix services are generally reactive in nature (as the name denotes), the provider is challenged to break free from firefighter mode, and since reactive, emergency services are always the most costly for clients, the break-fix services provider may be perceived as enjoying increased profits when their clients are experiencing the most pain. Thus it is difficult for the provider in the break-fix services delivery model to demonstrate close alignment with their prospects' and clients' business goals and needs.
Professional Services Providers
Professional services providers are among the most profitable of the four service provider categories in our discussion, and this level of profitability can be directly attributed to the provider's strict, process-oriented approach to conducting the preparatory work required in the business needs analysis and technology assessment phases of projects, as well as through the precise scoping, planning, delivery and assessment phases of their services to insure the client's expected outcomes are achieved.
As a result of their experience and service planning and delivery process, the professional services provider is able to quote services to successfully come in on time and budget while meeting their profitability goals.
Since professional services are really based on a time and materials quoting model, akin to the break-fix services delivery model, there exists a finite amount of service that the provider's individual staff can deliver, making it difficult to scale without hiring, training and managing additional resources.
As professional services are generally competitive in nature, the provider faces challenges such as having their proposals "shopped", and since these services are transaction-based deliverables, the provider must continually market for and win new business each month in order to meet their revenue goals.
To make things more challenging for the provider, professional services I.T. projects are among the first to be put on hold during times of economic uncertainty.
Managed Services Providers
Managed services providers are the most profitable of the four service provider categories in our discussion, and this level of profitability can be attributed to many factors, including the provider's strict, process-oriented approach to conducting the preparatory work required in the business needs analysis and technology assessment phases of the discovery process prior to on-boarding new clients, as well as their requirement for minimum baseline environmental standards for service delivery (the client is billed to bring their environment up to these minimum standards for service). This eliminates the "gotcha" factor, and allows the provider to price and deliver their services for maximum profitability. In addition, managed services providers receive annuity-based revenues that compound month after month as new clients are acquired, eliminating the peaks and valleys of reactive break-fix or transaction-based professional services revenue over time. Furthermore, invoicing for managed services occurs in advance of service delivery, positively impacting cash flow for the provider.
Over time, the managed services provider's evolution to the role of trusted advisor allows them to increase the trust and loyalty of their clients and sell additional services and solutions to them more easily, further increasing their revenues.
The managed services delivery model is extremely attractive to prospects and clients due to the fact that the client's and provider's business goals are in perfect alignment, unlike the break-fix services delivery model, where the provider may be perceived to profit from the client's pain – the more pain, the more profit.
With the managed services delivery model, the provider is most profitable when their clients experience the least pain, and are productive and efficient, experiencing maximum uptime; for if their client is down, the provider must become reactive, and since their services are billed as a flat fee, the longer the downtime, the more it hurts the client as well as the provider. Thus, the managed services provider is most profitable when their clients are most profitable, meaning that they are both working towards the same goal – a true business partnership instead of a vendor relationship.
These are just a few reasons that the managed services delivery model is the most profitable of those in our discussion, and whose services are the most attractive to clients due to their flat-fee pricing model – especially during times of economic uncertainty.
Next time: Deliverables of the 4 business models
Erick Simpson
Visit MSP University FREE for all things Managed Services
www.mspu.us
Our good friend Stuart Crawford was kind enough to invite me again as a guest on his Small Business IT Radio program yesterday. I don't know who's keeping count, but I'm wondering how many times a single guest has been on Stuart's program – this could be a Steve Martin/Saturday Night Live opportunity..lol. )
Joe Panetierri, Editorial Director of 
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