When figures like a 12.6% compound annual growth rate (CAGR) and a projected market nearing $600 billion by 2028 are thrown around, it might inspire confidence that running an MSP will be smooth sailing from here on out. But the truth is – it won’t be. Things are only going to become more challenging as the competition grows, customer demands increase, and the technology landscape continues to evolve. Overcoming these challenges will require diligent efforts that are informed not by growth statistics but by customer satisfaction and operational efficiency. Let's take a look at the five big challenges MSPs face today and offer some advice on how to tackle them.
The Competition Problem
In a recent study that surveyed more than 1,800 MSPs around the world, nearly a third of respondents listed competition as the greatest challenge moving forward. That's not just because of more MSPs entering the market. It's also because as more users become reliant on managed services (especially large, international operations), investment in the space will increase.
The small, laser-focused MSP that was once able to meet the needs of a local small-to-medium business (SMB) will now have to compete with global giants that offer much more and have the economics of scale on their side.
But what can these smaller MSPs do in this current more challenging market atmosphere?
• First, build relationships with your customers and establish yourself as an authority in their industry.
• Then, specialize in certain areas where you can provide better services than larger competitors. That might mean focusing on specific verticals or providing unique solutions for compliance issues related to GDPR or HIPAA regulations.
By doing this – by leveraging your expertise and intimate knowledge of your customer’s business – you'll be able to stand out from the competition even as more MSPs enter the market.
A la Carte Appetites
Specialization comes hand in hand with customization, which is becoming increasingly important for MSP customers. An MSP that can offer a wide range of services – from helpdesk automation to cloud hosting and cybersecurity solutions – is great, but if these services aren't tailored to the individual customer's needs then it won't be enough to keep them around.
Not everyone needs a wide suite of services that are bundled together, and customers may be more likely to switch providers if they can't get exactly what they need. To combat this, MSPs should look to provide a la carte options for their services. This could mean offering different packages based on the customer's needs or allowing them to pick and choose from available specific services. Doing so will give customers greater control over the service offerings they receive and ensure that you're giving them exactly what they want – no more, no less. Even break/fix services – meaning on-demand solutions for specific problems, which used to be the antithesis of managed services – should be offered as an option. By providing the right combination of pre-defined and custom services, MSPs can better meet customer needs while still maximizing profitability.
Racing to the Cloud
If you're not offering full cloud migration and management services today, you're already behind the curve.
In 2023, end-user spending on public cloud services is expected to grow by more than 20%, but the budgets that IT departments have to spend on it actually may shrink overall.
The key to success here is not just having the right skills and services, but also being able to offer those services quickly and efficiently. That means staying on top of emerging cloud technologies – such as hybrid clouds, software-as-a-service (SaaS), infrastructure-as-a-service (IaaS), and platform-as-a-service (PaaS) solutions – so that you can provide customers with the best options available.
Additionally, creating a streamlined onboarding process for migrating customers to the cloud will be essential in ensuring successful transitions.
Customer Retention
Because of that increase in competition, customer retention is becoming a major challenge for MSPs. The longer you retain a customer the more profitable they become, and the cost of acquiring new customers increases every year. But keeping customers can often feel like trying to plug the holes of a sinking ship. You need to constantly be on the lookout for warning signs and address any customer dissatisfaction quickly.
The key to customer retention is establishing good communication channels with your existing customers. Make sure to establish regular contact points with your customers (monthly check-ins, quarterly business reviews), and let them know that you're always available if they have questions or concerns. Look at ways to incentivize loyalty and reward long-term clients with discounts or special offers.
The Security Ramp
Cybersecurity in itself is a concern, but more specifically the speed at which technologies and threats evolve will continue to present a challenge 
for MSPs.
For example, the widespread adoption of cloud computing has made it easier than ever to launch new services or expand existing ones. However, in many cases, this also means that there are more entry points and potential vulnerabilities for hackers to exploit. MSPs need to stay ahead of security trends by investing in automated tools such as machine learning-driven malware detection platforms and endpoint threat protection systems. Regular training should be provided to employees on how to spot suspicious activity, and processes must be established for handling any incidents that do occur. More than ever, MSPs will need to build relationships with vendors and partners that can provide them with the best security solutions – solutions that are up-to-date, comprehensive, and cost-effective.
Before any client entrusts their data to an MSP, they need to be supremely confident in their ability to protect it. Data breaches, on average, can cost a company $9.44 million in the United States, and even a hint of insecurity could be devastating to an MSP's reputation.
Final Thoughts
The challenges faced by MSPs today are, let's say, quite challenging. But with the right strategies and partnerships in place, these challenges don't have to be insurmountable. By taking steps to ensure operational efficiency and enhance security measures while also building relationships with customers at a local level, MSPs can continue to grow their businesses even amidst increasing competition.
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