The science of growing services revenues

Hardware and software resellers are on a hiding to nothing. The products are commodities. It’s hard to differentiate. It’s expensive to keep stock, margins are non-existent and vendors want to go direct. With the move to the cloud-based, anything-as-a-service model, these trends are accelerating.

Everyone has the same answer: sell more services. This is easier said than done. It’s harder for a reseller’s sales team to get their heads around what they’re selling because services are intangible.  

It is worth it for a reseller to figure out how to best represent their services to customers? I recently spoke with a mid-sized Sydney-based MSP – a member of the CRN Fast50 – and they said that their average margin on hardware is 17 percent, average margin on software is 23 percent and average margin on services is 53 percent! A typical project for this organisation sees 60 percent of the project comprising hardware and software and 40 percent of the project comprising services. So if the reseller locks in a $100,000 deal, they will make roughly $12,000 on hardware and software – and $21,000 on services. Better yet, because they offer ongoing managed services, this services margin rolls in year after year.

The key problem for someone trying to market and sell services is how do they make the intangible tangible? The more tangible the service, the more the customer can understand it and the greater the perceived value.

Think about managed services. If nothing goes wrong, the customer won’t hear from the MSP. But if they don’t hear from the service provider, they won’t appreciate the value they’re getting. The MSP needs to make their value more tangible. They could provide monthly status reports that show how the MSP is ensuring the customer has 100 percent uptime. 

After one MSP I worked with started sending their customers simple monthly reports on uptime and other good news statistics, customer drop-off decreased and the number of seats managed went up. The MSP’s IT contacts showed the good news stories to management and were able to get more budget.

What we are talking about here is how to “productise” your services. It might sound complex, but help is at hand and there are well-established processes to follow.

1. Define the service

Agree on exactly what this new service entails. 

What work and processes go into delivering the service? What customer problems does it solve? What do you do, and what does the customer do, for the service to be delivered? Why is the customer best served to get you to do this work rather than do it themselves?

2. Make the service tangible

You need to construct things that customers can see and touch that show them what the service entails, and what the service will do for them. Research says that if you make it tangible, you will be able to charge more.

How? Give the service a name, maybe its own logo. Produce brochures. Design web pages. Produce flowcharts that show the customer how the service is performed. Every time you are out in the field delivering a service, capture information to use as evidence of the value that you are offering to that customer. I’ve seen MSPs create videos featuring technicians wearing white lab coats to showcase their services. The idea is that the client will think, “Gee, if these guys have gone to this much trouble, this service must be really good.”

3. Prepare the sales team

The team needs to be trained and supported so that they have the right conversations with the right prospects at the right time.

A plan must show that customers are likely to have pain points that the service line will address. The sales team mustn’t “show up and throw up” and start mindlessly talking about service features or focusing on their own organisation. 

Many organisations create “battle cards”. These explain the benefits of the service to specific customers on a case-by-case basis.

Bruce Rasmussen is managing director of Carpe Diem Consulting Services