The road from VAR to MSP: how to successfully transition from one-off to recurring revenue

Introduction

The demand for managed services continues to rise as more organizations understand the benefits of having external specialists handle IT operations.

This has encouraged Value Added Resellers (VARs) to venture into the territory of Managed Service Providers (MSPs).

In this guide, I cover the key differences between a VAR and an MSP, the steps that should be taken in transitioning into the managed services space, and how a solution and services provider can benefit from adding Parallels® RAS to their arsenal.

The current business landscape for VARs and MSPs

The last few years have brought about marked changes in the business landscape.

The needs of business organizations have expanded to include solutions for data security, disaster recovery, cloud services, mobility, virtualization and more.

The need and desire for remote work capabilities has also grown at a rapid pace; what was once an extra perk has now become business as usual at many organizations.

Remote work technologies that boost productivity and support different operating systems and devices are therefore essential.

SaaS vs. DaaS

Many of the solutions mentioned above are offered as on-demand software services, or Software-as-a-Service (SaaS).

SaaS is a software delivery model where a cloud provider hosts the application and makes it available to the user on a subscription basis.

These applications are designed to reduce upfront IT spending, strengthen cybersecurity, allow easy access to the latest technologies and give businesses the flexibility to adapt to the demands of the market.

While Software-as-a-Service (SaaS) models are the most common, Desktop-as-a-Service (DaaS) has likewise gained significant traction over the past year and continues to do so as more organizations maintain a remote working approach.

Like SaaS, these service-based solutions are offered via a monthly or yearly subscription instead of a one-time purchase.

The main difference between the two is that, while SaaS offerings are usually born-in-the-cloud applications, DaaS offerings normally involve commonly used operating systems (a.k.a. “desktops”) and applications.

For example, Canva and HubSpot are both DaaS applications.

The growing complexity of application and desktop management (which now involves SaaS apps and DaaS applications/desktops hosted in a data center or public cloud) as well as the shift to cloud-based subscription services have given rise to businesses’ need for continuous support in managing their IT solutions.

It’s therefore no surprise that the managed services market is expected to grow to $411 billion by 2027, up from $174 billion in 2019.

Add the dearth in skilled IT professionals and a notable decline in IT spending due to the pandemic, and you’ve got a market that’s simply teeming with opportunities for MSPs.

VAR vs. MSP: What’s the difference?

Value Added Resellers and Managed Services Providers are two major classes of resellers in the IT channel. Let’s take a closer look at each.

Value added reseller (VAR)

A VAR is the more traditional sales entity, which normally resells third-party software or hardware to the end user at a markup. VARs work closely with Original Equipment Manufacturers (OEMs) such as IBM, HP, etc., essentially serving as part of the OEM’s sales force.

The value they add is in customizing the existing product, integrating additional features into it so that it fits with the buyer’s requirements.

The end product presented to the client company is often a complete “turnkey” solution.

Even with the installation, configuration and customization that VARs perform, their services are largely transactional, and the engagement is finite.

Revenue comes from a flat-rate license fee and billable hours for the added services.

In addition to selling turnkey solutions, VARs may also provide break/fix IT services, where they can be called to fix problems as they arise.

Managed service provider (MSP)

An MSP on the other hand, is a third-party service provider that focuses on monitoring and supporting specific aspects of the client organization’s IT infrastructure.

Software procurement may be part of the contract but is not a requirement.

MSPs offer services including network maintenance, hardware repair, security administration, helpdesk, mobile device management, email management and a host of other tasks that otherwise would typically require a dedicated IT administrator.

MSP companies generally market themselves to small and medium sized businesses (SMBs), (although some of them also cater to large enterprises) as a completely outsourced IT support team.

Managed IT is different from the traditional break/fix model for IT services, where the IT service provider only steps in when a problem arises.

In a managed IT service, the MSP actively monitors the IT infrastructure and acts proactively to prevent problems from occurring.

MSP services are usually carried out remotely. MSPs may operate their own data center, customer-owned data centers or a third-party data center they’ve partnered with. MSPs manage processes and data on customers’ data centers, and it’s the MSP’s job to ensure that these processes always run smoothly.

Recurring revenue is generated from a monthly service fee on long term contracts.

What’s next for VARs and MSPs?

The line between VARs and MSPs is starting to blur as the roles they play and the services they provide to business organizations have begun to overlap in the recent years.

With the advent of cloud technology and the growth of subscription services, VARs are exploring avenues and ways to get a slice of the recurring revenue pie by adding services beyond deployment and implementation.

Meanwhile, more than just being satisfied as a one-stop shop for all IT maintenance needs, MSPs are now leveraging third-party technology solutions to offer most advantageous options that best fit their client organization’s needs and resources.

For instance, with remote work becoming a must-have, MSPs may recommend solutions (e.g., virtual desktop infrastructure (VDI), remote monitoring and management (RMM) tools, etc.) that make it possible for businesses to maximize productivity and ensure data security even while staff members are working from home (or from anywhere).

Developing the MSP business model

Lower revenues from one-time IT sales are currently making the VAR-type model less appealing compared to the guaranteed and stable revenue stream in the managed services industry.

VARs looking to find better income stability and long-term sustainability should consider exploring a transition to the MSP space.

Now more than ever, opportunities for business growth abound for MSPs.

Not only do they get to reap the benefits of predicable income from ongoing multi-year contracts, but they can also take advantage of a rapidly growing market as more SMBs understand the dearth in skilled IT professionals and a notable practical and financial value of outsourcing critical IT administration tasks to specialized third-party teams.

In addition, there are numerous organizations in need of professional services to help them maximize the use of newly acquired applications or find the right technologies for their needs.

As VARs make their transition to the MSP arena, they first need to start with a shift in mindset—one that’s focused on helping customers rather than simply closing a sale.

Yes, having a keen knowledge of the relevant technologies and the skills to manage them form a major part in the services of the MSP.

But equally important is the capability to be proactive in overseeing the client’s IT environment, recognizing how organizations can further optimize their infrastructure and offering impartial advice about how to do so.

The customer-centric approach is a policy that MSPs live by, but one that may take time for VARs to integrate into their processes and instill into their mindset—and understandably so. With the VAR business model, the emphasis is on selling and implementing the technology.

Once that’s done, it’s on to finding the next client or the next sale. But that doesn’t cut it in the managed services space.

The managed services provider realm requires patience in dealing with customer requirements, consistency in delivering services, and the commitment to meet or exceed expectations.

That is how you can build trust and pave the way for a long-term partnership with clients.

From VAR to MSP: key steps in transitioning

Any VAR who hopes to succeed in managed services has their work cut out for them. And while not all can successfully transition, some are thriving in their new roles.

It’s a huge challenge for aspiring service providers, but not insurmountable for those who know what to expect and are prepared for it.

Here are some important steps that you can take for a smoother journey to MSP success.

1. Communicate key benefits to customers

Extending existing VAR customer offerings to include managed services will likely take some convincing, for a variety of reasons.

First, some of your customers may be totally unaware of the type of services MSPs provide and what an MSP can do for their business.

Second, some of your customers may think that the product and the added services they’re receiving from you as a VAR (i.e., customization, implementation) are sufficient.

Your first hurdle is thus getting customers to understand the concept of managed services and how they stand to gain from a financial and operational standpoint. The key benefits that MSPs can offer include:

• Simplified vendor management and software integration. Relying on an MSP to assist in handling software acquisition and vendor management saves the organization the burden of having to interface with different vendors. A quality MSP will help ensure that any new technology acquired will integrate efficiently with existing infrastructure, allowing organizations to focus on their core business.
• Comprehensive tech resources and assistance. As a company grows, so do their technology needs. For a small or medium-sized enterprise, a sole IT manager could easily get overwhelmed with support requests. MSPs can provide the support and services required to handle technology growth and any associated IT problems.
• Improved cost-efficiency. By using an MSP, businesses can not only close any existing skills gaps in their in-house team, but they can also do so at a fixed monthly cost. This can be lower than hiring additional or dedicated IT staff. MSPs also audit existing infrastructure and recommend ways to streamline operations and save on costs.

2. Choose the right technologies for delivering your MSP services

Choosing the right technologies for your MSP tool kit goes a long way in ensuring that you are well-equipped to deliver IT managed services profitably.

The most basic tools commonly deployed in the MSP field are remote monitoring and management (RMM) and professional services automation (PSA) solutions.

For starters, VARs-turning-MSPs should concentrate on just one or two software solutions from established technology vendors. Learn as much as you can about these technologies, evaluate the products’ reliability and performance, and recognize what business needs are addressed by these solutions.

This way you can easily identify who you sell to, what’s in it for customers when they purchase your services, and how your recommended solutions can improve their IT environment and business in general.

3. Decide on pricing strategy

Developing a pricing strategy can be a tricky process for VARs who are just entering MSP territory because of a lack of experience with long-term operational expenses and expected profit margins.

What you will know, however, are the costs that you can immediately identify and assess.

Most aspiring MSPs will need to invest in new technology and/or infrastructure as well as additional staff to be able to add fully managed services into their portfolio.

Once all those costs have been taken into consideration, you can start thinking about what price ranges will return an acceptable profit.

You also need to evaluate how you can best bundle your services before you affix a price tag. In the managed services industry, there are several pricing models commonly used:

• Per user: Pricing is based on the client’s number of employees.
• Per device: Pricing is based on the number of devices managed.
• SLA-based: Pricing is based on different levels of service provided (e.g., basic plan, pro, premium, etc.).

Doing a quick search on established MSPs in your area of expertise and in your locality can help you have an idea on the going prices for these services. A word of caution, though: It’s never wise to compete on price alone. Focus on quality service and businesses won’t mind that you’re not the cheapest out there.

One strategy you can use, particularly with customers you’ve previously worked with as a VAR, is to offer them an introductory low price for an initial period (e.g., 30, 60, or 90 days) and deliver customer value within that time, and they’ll gladly pay the higher price tag in the succeeding months.

4. Live up to your Service Level Agreement (SLA)

Once you’ve signed a client, the hard work begins — fulfilling your end of the bargain by delivering on the commitments in your SLA. Done right, an SLA can facilitate a solid and mutually beneficial partnership between the client and the service provider. Failing to honor it, however, could be your downfall.

A best practice is to engage a lawyer when developing your SLA to ensure that everything is legally sound and there are no possible loopholes that can cause unpleasant surprises down the road.

Make sure to use plain, concise language that sets the right expectations. And of course, ensure that all relevant staff are properly onboarded and trained so that they can ensure you’re able to properly deliver on SLAs.

Parallels RAS: Look no further for VDI for your MSP or VAR

Virtual apps and desktops, which is sometimes generically referred to as VDI, is a powerful technology that enables organizations to rapidly scale and boost workload mobility while reducing IT costs. It’s proven to be a vital tool for organizations that rely on remote access to apps and desktops for their teams.

If you’re a VAR or MSP looking to integrate VDI solutions that support long-term remote work strategies in your covered technologies, then Parallels® Remote Application Server (RAS) can address your needs.

Parallels RAS is an all-in-one application delivery and VDI solution that delivers on-premises, hybrid and public cloud solution services. With Parallels RAS, organizations have easy access to:

• Software as a Service (SaaS)
• Azure Virtual Desktop
• Virtual Desktop Infrastructure (VDI)
• Desktop as a Service (DaaS)

For your customers, it provides versatility and high-performance remote work capabilities and is conducive to hosting some or all workloads in the cloud. Parallels RAS also provides you with an opportunity to succeed as a reseller or service provider through the Parallels Partner Program.

Here are four key ways that Parallels RAS can boost your technology offerings:

• It’s easy to deploy, manage and maintain. Managing multiple customers won’t entail costly IT resources and onboarding new ones will only take hours, not days.
• It offers a cost-effective licensing model. Parallels RAS offers a pay-as-you-go billing model, so you only pay for new customers when you need to add them. Plus, the automated and simplified billing system makes it easier for you to calculate and manage costs.
• It’s a comprehensive solution with no barrier to entry. Getting started doesn’t require any fees
• It provides high-value support. You can take advantage of free online training and certification courses. Once certified, you’ll have invaluable resources at your disposal to help you build and deliver highly profitable solutions.

How to become a Parallels RAS partner

The Parallels RAS Partner Program accelerates your business growth by equipping you with the knowledge, skills, and tools necessary to address your customers’ needs quickly and cost-effectively in this competitive VDI market.

If you’re ready to take advantage of the many benefits that becoming a Parallels RAS Partner has to offer, follow these steps:

1. Learn all about the Parallels Partner Program. This page provides a clear overview of the program and the value it offers to companies like yours.

2. Register to become a Parallels MSP reseller. The registration form requires you to provide some basic information about your company and services so we can put you in contact with the right person on our team to get you started.

3. Get certified. The three hour Parallels RAS Technical-Professional (RAS-TP) Training provides you with the fundamental knowledge you will need to leverage the innovative technology of Parallels RAS. Participants will learn:

• How to deploy, configure, and maintain a Parallels farm.
• How to implement Parallels RAS components.
• How to obtain the RAS-TP badge.

Earning the Parallels RAS-TP badge certifies that you have acquired the technical skills for VDI, application delivery and cloud deployment.

As soon as you obtain it, you can immediately share verified proof of your skillset, which matches the standard job requirements for IT managers, architects and system administrators. This helps raise your credibility and improve your professional profile.

Once you’re certified, you can start offering your customers the value of Parallels RAS cloud-ready applications and desktop delivery by providing them with the virtual environment they need.

As a Parallels RAS Partner, you can:

• Make your services easy to deploy and infinitely scalable.
• Create new monthly recurring revenue streams.
• Simplify costs with pay-as-you-go pricing.
• Maximize margins with the lowest value-added per-user cost.
• Help your customers enable BYOD, mobilize their workforce and ensure business continuity.
• Offer end users secure, simplifies access of apps and data across any device, platform or cloud.