03 Oct What Creates Sticky Customers & Why you Need Them
Smaller IT Service Providers are Being Scooped Up by Larger Ones
As large IT service providers build out their software and business models, it becomes easier to consume smaller managed service providers and strengthen their customer base. While consolidating markets is inevitable in mature categories, it is not always beneficial to the industry. Companies rarely have a choice when their IT MSP is being subsumed into a larger organization; either the business continues to utilize the new and often larger MSP, or they must find a new service provider. Rarely will a company that has been using external IT resources to support its growth be able to find the talent and internal resources to support its full range of technology needs internally. This is a major catalyst to the higher valuations we are seeing. IT Services is a sticky industry with very impressive post-combination customer retention rates.
There is a significant benefit to customers in this wave of consolidation, however. Larger IT service providers have even greater offerings to permeate throughout their legacy base, including specialized software and different divisions that can specialize in solving even the toughest business technology problems. Retaining Clients Is a Vital Component of Growth.
Client Retention is Critical in Driving Recurring Revenue Growth
While the IT managed services industry continues to grow dramatically in revenue year over year, it’s becoming increasingly difficult for these MSPs to attract net-new clients. New companies are being started all the time, but the growth and revenue opportunities are often greater with companies that already have an established technology base. This means that retaining current clients becomes a key target metric for IT service providers, especially post-transaction.
Maintaining a recurring revenue stream requires ongoing offerings that continue to add value for clients. Supporting growth and digital evolution strategies means an emphasis on consulting time and diving deep into the business model for your clients. When IT services companies take the time to form this type of trusted relationship with their clients, both companies are more successful. Service providers are able to add more value to their clients, and client organizations see more significant gains in productivity and reduced overall technology costs.
Digital Complexity Means a More Consultative Offering is Needed
Company leaders intrinsically understand the need for digital transformation within their organizations. However, the gap between vision and execution continues to be a challenge. In the end, IT professionals are left with too much information and resource limitations. This often causes companies to lose focus on doing more than maintaining services, leaving little time for creating innovation and scale that will/should come with a true digital transformation.
Stepping into this gap are IT services organizations with the deeper bench strength, market experience and strong industry ties that can help support a client’s current and future needs. With IT service companies supporting everything from data storage and infrastructure to negotiating more attractive contracts with software suppliers, companies that take advantage of these extended resources will have a better long-term chance at success and will in turn be less likely to look at competition when there is a shift in the market (price or product).
Are you Capitalizing on These Trends?
Revenue Rocket helps IT service companies grow through strategic combinations that provide an organization the opportunity to realize some of the above benefits. Furthermore, we are helping customers both in our M&A practice and those not looking for the niche opportunities for organic growth. Our SVP program has helped dozens of firms obtain the required stickiness while maintaining growth performance. To learn more about how Revenue Rocket can help you size up organic and strategic growth; contact one of our partners at firstname.lastname@example.org.