A managed service provider is a company that remotely manages a customer’s IT infrastructure and\/or end user systems, typically on a proactive basis and under a subscription model. The MSP business model differs from other types of channel companies, like value added resellers, in various ways described below.
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This approach provides the MSP with a monthly recurring revenue stream, in contrast to IT projects that have a tendency to be one time transactions. MRR is one facet of managed services work that differs from other business models in the IT solution provider and channel partner space. Solutions providers pursuing the break\/fix model, for example, usually price their services in one hour and materials basis, billing a hourly rate for repairing a customer’s IT equipment and charging for parts or replacement gear. Companies performing IT project work, like computer systems installation and integration, might charge a fixed price for services and products.
In either case, those solutions providers generate revenue on an one time basis from each project. An exception will be large projects with multiple milestones and associated payments. But, generally, the conventional solutions provider business is mainly transactional. A MSP’s repeating revenue stream, and on the other hand, potentially provides a more stable and predictable base of business. A MSP frequently provides its service offerings under a service level agreement, a contractual agreement between the MSP and its client that spells out the performance and quality metrics which will govern the relationship. A SLA can be linked to a MSP’s pricing formula. For instance, a MSP might offer a wide range of SLAs to clients, with the consumer paying a higher fee for higher levels of service in a tiered pricing structure. Challenges of managed service providers – Irrespective of pricing model, a key challenge for MSP business management is to set pricing low enough to entice clients to purchase their services, but high enough to maintain an adequate profit margin. Additionally to pricing, MSPs pay special attention to operating costs and maintenance costs of maintaining skilled employees.