So, How Do You Make Money?

Michael Anderson IT Managed Services

I’ve loved business for as long as I can remember. Sure, I went through the Police Man / Fire Fighter / Astronaut phase in my early years, but ever since the ‘what are you going to be when you grow up?’ question started getting serious, I’ve wanted to work in business.

It’s exciting to me that someone can take an idea, apply expertise and resources, and build a company which has the potential to create jobs, generate a return for shareholders, and contribute to the economy.

I often find myself trying to understand other businesses, and business models. One way I do this is by asking the question ‘So, how do you make money?’ The answer can reveal a lot about the value proposition to the customer.

For this month’s blog, I want to compare two models of technology support businesses: Traditional (Break/Fix) and Managed Services, look at how each model generates profits for the service provider, and the implications for you, the client.

A traditional support provider charges for support on an hourly basis. Sometimes, there is the option to pre-purchase blocks of hours at a reduced rate, but the underlying logic is the same. A Managed Services provider (like 365) charges a fixed rate per month based on the size of a client’s network (workstations and servers), then includes all support, proactive management, Anti-Virus, Anti-Spam, Backup, and technology consulting.

At a very basic profit & loss level, the models look like this:

table1

There is one key difference I want to focus on: support hours. Under the traditional approach, support hours are a revenue driver. For a traditional service provider to grow their business and be more profitable, they need to increase a) the number of issues their client base is having; and b) the amount of technician time those issues take to fix.

Under managed services, support hours are a variable expense. For a managed services provider to grow their business and be more profitable, they need to decrease the number of support hours required by their client base. How? By ensuring that client networks are stable, well-maintained, and reliable.
We’re admittedly biased, but we think a model that rewards network stability rather than network problems is a model that is better for our clients.

So, how does your technology support provider make money? Are they profiting from your problems? Does their business model align with your technology goals?