How the pandemic has impacted MSPs

IT Glue™, a Kaseya company and industry standard for IT documentation, has released its third annual Global MSP Benchmark Report which showed a dramatic shift in the managed services provider (MSP) space following the coronavirus pandemic.

IT Glue initially surveyed more than 1,500 MSP professionals in February 2020 about their technology stacks, headcounts, operations and more. However, after the global COVID-19 pandemic hit in mid-March, IT Glue followed up with a survey to MSP professionals in May 2020 to identify trends that emerged as a result, receiving over 500 responses. Though the May 2020 data found that a majority (74%) of MSPs are concerned about the impact of potentially a second quarantine in Fall 2020, both surveys revealed several existing opportunities for MSPs to drive value for customers as businesses reopen in the second half of the year.

"The pandemic has created an unprecedented landscape for all businesses,” said Nadir Merchant, general manager of IT Glue. “Our initial Global MSP Benchmark survey in February provided an overview of sentiment among MSP professionals, but once the world changed almost overnight, MSPs needed data-driven guidance on how to adapt. We’re proud to release our 2020 Global MSP Benchmark Report today to highlight both pre-coronavirus trends that continue to persist today and opportunities for MSPs to grow during and after this pandemic.”

The Coronavirus Impact on MSP Priorities

Coronavirus has impacted every organisation worldwide, including MSPs. According to the IT Glue Global MSP Benchmark follow-up survey in May 2020, around half (51%) of MSPs saw monthly revenue decreases as a result of the coronavirus shutdown. Additionally, more than a quarter (29%) saw their accounts receivable increase, indicating more clients could not meet contractual deadlines to pay for services.

Because of this drastic shift, many MSP priorities changed during the first two months of shutdown. In the initial February survey prior to the pandemic, the top concerns of MSPs were a lack of adequate time to complete work (54%) and an inability to find good technical employees (53%), followed closely by changing technologies (32%) and a lack of information sharing (27%).

However, less than 20% of respondents to the May follow-up survey marked these as top concerns following the start of the pandemic, replacing them instead with concerns for cybersecurity threats, customer churn, price pressure and a second lockdown. Concern for cybersecurity saw the greatest change, jumping from 27% in the February survey to more than 50% in May, likely fuelled by an unparalleled increase in cyberattacks during the pandemic.

Finally, although MSP interest in mergers and acquisitions had already been declining before 2020, the pandemic marked the most profound shift in M&A sentiment in recent years. In the February survey prior to the pandemic, more than half (52%) of MSPs indicated they were at least somewhat interested in acquiring or merging with another MSP, down from 62% in IT Glue’s 2018 survey. Fast forward to IT Glue’s May follow-up survey, and only 37% said they were considering M&A activity following the move to remote work under quarantine. Though M&As are likely to slow down as a result of the pandemic, market consolidation will continue – however, the pace of which remains to be seen.

“While no business is fully recession-proof, MSPs are uniquely positioned to drive value to customers and thrive during economic downturns,” said Merchant. “This year’s survey shows that the shift in priorities to a now greater concern for cybersecurity, compliance and customer retention means MSPs have an opportunity to serve as a guide to their small business customers. They are the epicenter for delivering critical IT services that not only help to maintain the viability of many companies during times of uncertainty and volatility, but will enable businesses to emerge stronger from these trying times.”

Key Takeaways for MSPs

Although COVID-19 has changed business and IT irrevocably, IT Glue’s February survey results highlight three key takeaways for MSPs as they continue to navigate through unpredictable times:

1. A resilient workforce. While the economy is far more uncertain now than before the pandemic, MSPs’ turnover has historically been much less than the national average for IT. According to the Bureau of Labor Statistics, the pre-COVID turnover rate for IT was 43.2%. Respondents to IT Glue’s February 2020 survey, however, saw an average turnover of 14%. This is a good omen for MSPs as talent acquisition, which came up in our survey as the second most prominent pre-COVID priority, is always a struggle. As our sister survey, the Kaseya MSP Benchmark Survey, showed, nearly 70% of respondents said that integration between their core IT applications (RMM, PSA and IT documentation) is critical, which makes the case for investing in a unified solution set a key component to technician user satisfaction, and ultimately technician retention. 
2. Strategic customer retention. Although a similar percentage of MSPs reported a high rate of churn this year as in IT Glue’s 2019 survey (~10%), fewer of those respondents suffered revenue declines as a result. This indicates a number of possible scenarios: 1 – these MSPs immediately onboarded new customers when others ended their contracts, 2 – the cost of acquisition for new clients decreased, or 3 –MSPs strategically removed customers that weren’t as valuable to begin with.

Regardless, 36% of respondents to IT Glue’s May 2020 survey indicated that customer churn is a high concern both during and after the coronavirus pandemic. This data reinforces the continual imperative for MSPs to demonstrate the value and credibility of the managed services model through expanded service offerings that deliver tangible results for their customers.

1. Diversified verticals. In 2020, MSPs that focused on a specific industry experienced slightly higher revenue than more general MSPs (79% vs. 75%). MSPs that targeted the following four industries in particular were more likely to report profits of 20% or more: legal (43%), government (40%), finance (39%) and professional services (38%). While specialisation can be a boon for MSPs, be weary of placing all your eggs into one basket. MSPs that specialised in retail and hospitality were especially hard hit during the pandemic.