Managed Service Providers (MSPs) are always looking for new business opportunities while keeping their current customers happy. As more organizations today rely on MSPs for fulfilling their IT needs, they can capitalize on the growing market. However, just increasing revenue is not enough for a healthy business. MSPs need to manage their costs and internal processes to increase profitability. And when it comes to dynamic service areas like the cloud, it can be harder than winning business in the first place.
There are three main challenges MSPs face with the cloud when it comes to generating and optimizing profits. In this article, we’ll take a closer look at each of these challenges and offer some tips on how to overcome them.
Challenges faced by cloud-based MSPs
Challenge 1: Inability to improve cloud unit economics
To increase profit margins, MSPs must reduce operating costs. This implies getting the lowest possible price on cloud services to achieve the maximum possible margins. Below are three suggested solutions MSPs can use to overcome the challenge of improving their cloud unit economics.
- Aggregate customer cloud costs: A higher level of discount over the list price can help MSPs save more on cloud costs. Aggregating commitment discounts, like Reserved Instances (RIs) and Savings Plans across an entire portfolio and distributing them across the customer base can give even higher margins.
- Apply the right cloud purchase commitment model to your portfolio: MSPs need to have a good understanding of their customers’ cloud spending, trends, and future projects to choose the right commitment purchasing strategy. Appropriate cloud management solutions can give MSPs insights into their cloud spending and help them identify the best plans to maximize volume purchasing opportunities.
- Avoid absorbing unnecessary cloud provider costs: Cloud cost amortization approaches will enable MSPs to avoid absorbing valuable discounts and service charges. They should consider upfront costs and ensure they account for those costs while delivering the associated value to the customer.
Challenge 2: Inability to price and bill effectively
To be profitable, MSPs must price their services and bill customers effectively. The following solutions can address key challenges around MSP billing and pricing strategies.
- Determine pricing packages: MSPs can package their services into coherent offerings, which justify the added service charges. Bundling cloud resources will be more profitable for an MSP if paired with offerings like reporting and analysis or other expertise they have. Avoid a one-size-fits-all approach to bundling services. MSPs can also charge a percentage on top of the infrastructure costs for ongoing environment management and cloud optimization services.
- Account for the correct rates: MSPs must display the list cost of the services to the customer. A cloud management platform can translate the usage charges within the cloud into a price. List cost allows an MSP to create invoices correctly representing the cost if the payee account has not been in the MSP’s consolidated billing family. This is a more accurate cost to report to a payee.
- Build a strategy for premiums and discounts: A cloud management platform enables MSPs to set custom billing charges, including additional fees for services like support, or other surcharges. MSPs can also charge the customer a price between their discounted pricing and the typical on-demand rate. This allows them to get their business without sacrificing all of the potential margins.
- Automate cost allocation: MSPs can easily track a customer’s exact usage and resource costs with tagging. A tag is a label that is assigned to a cloud resource. It enables MSPs and their customers to have clarity around their cloud costs, usage, and resource management.
- Define Workflows: A management platform will enable MSPs create commission and discount slabs, define threshold period and lock-in period, assign special discounts and privileges, and more.
Challenge 3: Inability to optimize internal operations
Not just effective billing and invoicing, MSPs must be strategic about how their teams approach everyday problems. The following solution can help create an operating model that enables efficiency.
- Onboard data into a single platform: It can be challenging for MSPs to accurately capture historical and ongoing cloud cost data for the customers. MSPs must onboard billing data into a single platform that can manage and surface all cost data.
- Automate manual tasks: MSPs should automate time-consuming manual tasks based on the policies, including customer-specific requirements for billing, invoicing, and other tasks.
- Standardize service delivery: Standardizing operations reduces human error and eliminates the knowledge gap due to typical business turnover. Cloud management tools give everyone the same platform to work from. This way, if someone leaves, we won’t lose any information. These platforms also help automate tasks. This way, employees can use their time effectively and avoid unnecessarily duplicating work.
- Have a plan for profit reporting and analysis: MSPs must collect the right data, standardize it, analyze it and share it with the right stakeholders for determining appropriate steps to be taken. Shareable, easy-to-understand dashboards and customizable reports demonstrate what is impacting profitability.
- Complete visibility: A cloud management platform gives complete visibility into resources, performance metrics, and spend, in a uniform manner. This allows IT decision makers to get a complete picture of cloud investments across the organization, track key metrics, and make necessary interventions where needed.
With so many challenges in the field, MSPs need a strong cloud management platform to stay competitive. A robust offering will provide them with multi-cloud billing and cost optimization capabilities that can go a long way towards helping them automate their business while also optimizing its profitability!
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