Nicholas Negroponte, Founder and Chairman Emeritus of the Massachusetts Institute of Technology's Media Lab, is one of the visionaries renowned for predictions regarding the influence of technology. In his book “Being Digital” (1995), he forecasted that digital technology would revolutionize many aspects of our lives, and that we could eventually conduct most of our activities digitally — including work, communication, entertainment, and education. He envisioned a world where digital technology would pervade every aspect of our lives, becoming increasingly ubiquitous.
Today, this is coming to fruition at lightning speed. And because the real technology that powers businesses is complex, those organizations that can't afford to manage it inhouse due to limited resources, especially in the small to medium range, are increasingly turning to Managed IT Service Providers for their tech needs. It's likely that this trend will continue as more tech use is expected in the future – so much so that almost every business will need some sort of assistance. This explains why the MSP market is projected to exceed USD 500 billion by 2028, even after taking a hit during the COVID-19 pandemic peak.
In this guide, we'll cover the essential steps and considerations for starting an MSP, including market research and marketing strategies. Whether you are simply an MSP enthusiast or an IT professional looking to branch out on your own, this guide will help you to successfully launch and grow your MSP.
What does an MSP do?
An MSP, or Managed Service Provider, is a company that provides a variety of IT services and support to organizations on a contract. The services that an MSP offers can vary depending on the company, but they typically include some combination of the following:
- Network management: This includes monitoring and maintaining the client's network infrastructure, such as routers, switches, and servers. The MSP may also handle network security, such as firewalls, intrusion detection and prevention, and VPNs.
- Cloud services: This includes managing cloud-based services such as Microsoft Office 365, Google G Suite, and Amazon Web Services.
- Data backup and recovery: Creating and maintaining regular backups of the client's data, as well as planning for and responding to data loss scenarios.
- Helpdesk support: Providing technical support to the client's employees for issues related to hardware, software, and network connectivity.
- Compliance: Ensuring the client's compliance with regulations such as HIPAA and PCI-DSS.
- Software management: Managing the client's software infrastructure, such as operating systems, databases, and applications.
- Strategic planning: Working with the client to develop a long-term IT strategy that aligns with their business goals.
Also Read: Top MSP Industry Trends
The overall responsibility of an MSP is to provide a comprehensive and cost-effective solution for the client's technology needs, allowing them to focus on their core business operations rather than dealing with IT issues.
How to start an MSP business: steps to success
These steps are based on our experience working with multiple MSPs, which has given us a unique view into the workings of the MSP space with lots of useful lessons. We also take cognizance of the fact that different markets have different dynamics, and this is something we have taken into account as we prepared this guide.
So, regardless of the market you are aiming for, this guide should be beneficial to you. That being said, North America is the most profitable market for MSPs right now, followed by Europe and Asia. However, don't let that discourage you if your goal is to expand beyond those regions — cast a wide net if you wish and remember to look ahead at what the future holds.
Step 1: Decide the target area
Which area do you want your MSP to cover? These are the options you have from large scale to small scale:
- World — Your MSP will target businesses from all over the world
- Continent: The MSP will serve businesses in your continent e.g. North America
- Country: You will serve businesses in your country
- Your local area: The MSP will serve businesses in your local area, which could be a city, town or municipality.
As you decide on these options, it's important to have a logical rationale. It's ambitious to target the world, yet it may pay off if we hone in on the right niche. The aim is to select a location that you can deliver to comfortably. There needs to be a quantifiable market size; and this leads us into our next step: market research.
Step 2: Market research
This step focuses on identifying the opportunity and assessing how big it is at the moment or how big it's likely to get in the near future. If your goal is to start making a lot of money right away, determine if there's an opportunity for that. However, if you're in it for the long haul, identify the kind of demand that will steadily increase and eventually reach its peak, generating great rewards.
There are a couple of mini steps into this second step:
i). Get the data
Since an MSP is all about providing IT services to businesses, the best way to determine the potential market size is by checking out the data on businesses operating within the area that you want to serve.
Finding data for this exercise should be relatively easy these days, considering that we are now in an age where data is widely accessible. Opencorporates, for example, is a great resource if you plan to target the global market; they have a database of over 200,000 companies! On the other hand, if you're mainly focusing on the US market, the census website has tons of information about businesses in the US. This data is broken down into different sectors and you'll find information for all states. Here is an example of the 2019 update. You can analyze the businesses by industry, state and size.
ii). Analyze the data by business size
The size of a business is important. A very small company of say 10 or less employees may not need an MSP due to limited resources. A reasonably large company of say more than 300 employees may also not require an MSP, because they probably have all the resources they need to hire an in-house team.
But you will still need to analyze the space represented by the very small and large businesses separately. An industry with very many large businesses could mean there is a huge opportunity in there, whereas an industry where the majority of the companies are small but growing fast could mean an emerging lucrative space. Try as much as possible to interpret the data and study it deeper to draw witty insights. This is better than blindly segmenting the data into blocks and making a quick decision.
iii). Narrow down to sub-niches
To make the best decisions, eliminate any industries or sub-sectors that don't hold potential — current or future. Consider where businesses may be in dire need of managed services. Analyze the niches in each sector; a healthcare consultancy, for example, may not have an immediate need for an MSP but a hospital specializing in maternity/delivery will be in urgent demand of these services..
At the end of this, you should have a list of high potential industries, down to the sub- niches with the most promising potential.
If you want to focus on a state, city or general local area, take the high potential sub-niches within the industries that you have selected above and find out the number of businesses that are currently operating in those niches, within your area. Once you have all the businesses, separate the MSPs from this number to get the total number of businesses that you could target. Now, it's a bit difficult to establish which among these businesses are currently being served by an MSP and which are not. However, by dividing the total number of the MSPs by the total number of businesses, you can get a good mental map. The lower the number, the more the opportunity could be.
For example, let's say that the total number of businesses is 200 and you realize there are 20 MSPs. 10/200 = 0.05, meaning every MSP is serving 0.05 businesses. Well this is not practical, but it gives a useful mental picture. It means there are fewer MSPs compared to the number of businesses, and it's therefore possible that some businesses may not be getting MSP services. But what if we had 200 MSPs vs 200 businesses? It means there is a high likelihood that almost every business here has an MSP serving them (200/200 = 1). And what if we had more MSPs, say 250? Well, disaster!
So this is how you generally use data to look at the market potential. If you discover that the potential is negligible, based on the data, you might want to try another area.
Step 3: Cost — profit analysis
You now want to analyze the typical costs in the chosen target niche or sub-niche as well as the estimated profit you are likely to earn either monthly, quarterly or annually. You see, professional businesses are not like an innovation which tends to be unpredictable. While something like an app can blow up and surprise us, a professional business like an MSP is more predictable — it's possible to approximate how much costs you'll be incurring and the profit thereof.
This analysis will help you for example set the right pricing that also reflects the average rates in your chosen area of focus. To do this we need to investigate distinct types of costs. The common ones include tech stack, employees, office, marketing, regulation and compliance.
i). MSP tech stack costs
This refers to the set of tools you'll need to deliver services to your clients. It's perhaps the most fundamental part of this business. An MSP's effectiveness is defined by people and tools. If you have the right people but terrible tools, then your services will not be at par with the competition. The most important tech stack for MSPs include:
- PSA — Professional Services Automation software
- RMM — Remote Monitoring and Management software
- Remote Desktop software
- Help Desk and Service Desk software
- Backup and Disaster Recovery software
- CRM — Customer Relations Management software
- Security software
- Network equipment (servers, routers, etc.)
- Workstations (computers, mobile devices, telephones, printers etc.)
- Backup and storage equipment (such as external hard drives, SAN, etc.)
You don't have to start with everything from the lists above. The choice is determined by the kind of services you'll be offering and how many clients you are starting with.
Next, check out the best options under each category. For example if its PSA tools, search the market for the best. Then get the average pricing and assign it to PSA (Check out this guide on the best PSA tools ). Do this for each category. The cost for any tool can be broken into acquisition (the initial upfront cost, especially for hardware), monthly subscription (especially for software) and maintenance (mostly hardware).
Finally, calculate the average monthly cost for subscriptions and maintenance for all the tools you had identified as critical for your MSP. Now you have the total upfront cost and monthly recurring cost for your MSP tech stack. Keep it aside.
ii). Personnel costs
The number of employees you need depends on the kind of services you intend to start offering. If you're looking to kick off your services with a small team, you can start with just 2 or 3 people.
For example, if you want to start with help desk services, one employee can handle many customers with the right tools. On the other hand, some services could be more complex and require that one employee only takes care of a fewer number of seats (customers).
One way to estimate the average salary is by looking at the market rates in your target market. This can be done by researching similar MSPs to see what they pay their employees. Additionally, you can use online resources such as salary comparison websites, job posting sites, and industry-specific publications to get a better understanding of the average salaries for different positions. It's also important to note that the average salary can vary depending on factors such as experience, qualifications, location, and the size of the business.You can also consult with staffing agencies or recruitment firms for more accurate information.
At the moment, the average annual salary of an MSP help desk technician in the US is about $50,000.
If you are starting the MSP as a partnership of two or three people, all experienced in different aspects of the MSP industry, then you might consider starting without hiring any employee.
iii). Office costs
As remote working has become more common, many are beginning to lose touch with the traditional office concept, especially among new-generation businesses which prioritize quality and trust over physical presence. This is to say investing in an office may be debatable, but if you're setting up an MSP to serve your local area, clients may want to come down for a meeting. This tends to be more psychological; people who know you are nearby might feel like visiting in person. If you're targeting a wider market or the global space, potential clients will be more focused on your qualifications, experience, and track record of delivering.
Some believe that it's always beneficial to have an office as a reference point and for corporate formalities. If you want to find that middle ground, try investing in a cost-effective space as your main contact point. Alternatively, if you have enough room in your home, dedicate some of the space to serve as an office. Whichever approach you take shouldn't be too expensive.
iv). Marketing costs
Figuring out your marketing costs can be challenging, since there are so many different avenues to consider. To keep things simple, create a basic strategy to get going. You can always add new elements when your business starts to make a profit.
Initially, you might want to start with options such as search engine advertising and social media influencers. But for the long term, you'll need to invest in organic SEO. There is a lot we can talk about here, but the point is to estimate and assign a figure to the initial and recurring marketing budget.
We'll look at marketing in detail when we get to the marketing step.
v). Compliance costs
As you are going to deal with businesses across multiple industries doing different things and handling sensitive data, you'll need to understand your regulatory and compliance obligations. Where costs are involved, calculate the average monthly figure.
This can include costs such as hiring a compliance officer, training employees, and purchasing compliance software.
Calculating the initial cost and profit:
Once you have all the expenses together, sort them into one-time expenses and ongoing costs. To do this, calculate your total monthly recurring costs (e.g salaries, subscription tools, etc.) and add a month's worth of this to the one-time upfront costs (e.g the cost of purchasing hardware, business registration, etc). The resulting amount (monthly recurring for one month + the one-off costs) is the initial cost it will take to get your MSP up and running through the first month — essentially your initial capital if you like.
To calculate the profitable point, consider how much revenue you need to generate in order to pay back the initial investment, cover all your monthly costs month to month including maintenance, and still have a surplus of between 20-30% or more per month. Next, figure out how many clients this number represents on a monthly basis. Your most important task is to make sure you always have this number of clients every month, at minimum — which requires a mixture of powerful marketing strategies, lead generation and successful conversions.
Step 4: Fundraising & piloting
Now that you're aware of the amount needed to begin your MSP, raising the money should be enjoyable. This can be done through your savings, other revenue sources, family and friends, grants, or equity investors.
If you wish to apply to grants or investors, you must create a stellar proposal and a pitch deck to show the potential of your business. Equity funding requires you to surrender some ownership. You could also decide to raise just a bit of the money to pilot the idea and check if it's needed by your target market. It's easier to convince people to fund a small amount for testing out your idea than asking them for the entire amount at once!
As discussed above, piloting is important when starting a new business because it allows you to test your assumptions and gather feedback before proceeding to full commitment. This will help you identify and address any potential issues early on, as well as make adjustments to improve the overall concept. It will also provide valuable data that can be used to attract even more investors or partners.
Begin with a small group of test clients and provide them with a sample of the services you plan to offer to see how they respond. Gather feedback on what they like and dislike. Use metrics to track the results and use these results to make data-driven decisions about how to improve your service offering once you go full scale. Be prepared to adapt: Be open to making changes based on the feedback you receive, even if it means pivoting your model.
Update the funders about the pilot. If successful, ask for more money for execution. If the pilot was not successful, you can pivot the concept or kill it if you are convinced it'll never work. Bear in mind that no idea is ever a bad idea. Some few reflections and iterations can yield success.
Step 5: Business registration
If your MSP pilot has gone well and you strongly feel that you are on the right track based on the feedback, then it's time to get formal. Register the company with the relevant government agencies. For example these are the general steps to consider when registering your company in the United States:
- Choose a business structure: Decide whether you want to register your business as a sole proprietorship, partnership, LLC, or corporation. Each structure has its own legal and tax implications, so it's important to consult with an attorney or accountant to determine which one is best for your business.
- Register your business name: Check to make sure the business name you've chosen is available and register it.
- Obtain any necessary licenses and permits: Depending on the type of MSP business you're starting and the state in which you're located, you may need to obtain licenses and permits before you can begin operating.
- Register for taxes: Register your business with the IRS and your state's tax department to obtain an EIN (Employer Identification Number) and to find out what taxes you need to pay.
- Set up a business bank account: Once you've registered your business and obtained any necessary licenses and permits, you can set up a bank account for your business finances.
- Get insurance: Invest in insurance to protect your business from potential risks.
- Get Legal and compliance advice: Make sure you are aware of the legal and compliance requirements for your MSP business.
Keep in mind that the registration process can vary depending on the state, and these requirements may not be exhaustive. So it's important to consult with a lawyer or accountant to ensure you're following all the necessary steps.
If you're based outside the US but still want to register your MSP as an American company, you can look into platforms such as
- Stripe Atlas
Step 6: Develop your MSP contract
An MSP contract is essential for your business, since the days of 'gentlemen's agreements' are long gone. It puts everything in writing so you can avoid any potential disputes in the future.
At this stage, you should create a general agreement template that can be customized for each client. Although specific terms may vary from client to client, the core elements should remain consistent.
The contract will typically include details such as the scope of services to be provided, the duration of the contract, the cost of the services, and the terms of payment. It may also include details on service level agreements, which outline the availability and performance of the services provided.
An MSP contract also serves as a record of the agreement between the two parties, so it can be referred to in case of any disputes or misunderstandings. It also helps to protect you from any potential legal issues that may arise, especially during disasters.
If you're not familiar with MSP contracts, our comprehensive MSP contract guide is a great starting point.
Step 7: Hiring
As previously mentioned, you don't need to hire right away if you are starting out with two or three MSP professionals who are working full-time. However, if you're only one person, it might be necessary to hire one or two employees.
What factors should you consider when hiring the first employees for your MSP?
- Technical skill and experience: The first employees you hire should have a strong technical background and experience in the specific areas of IT services that your MSP will be offering. Do they have any MSP certifications to prove their skills?
- Customer service skills: MSPs rely heavily on customer satisfaction, so it's important to hire employees who have strong communication and customer service skills.
- Cultural fit: The first employees will set the tone for the company culture, so it's important to hire people who align with your values and vision.
- Flexibility: In a small startup, it is important that the first employees have a flexible attitude and are willing to wear multiple hats.
- Strong work ethic: As a startup, there will be a lot of hard work and long hours, so it's important to hire employees who are willing to put in the effort to make your MSP a success.
- Problem-solving skills: MSPs are constantly solving problems for clients, so it's important to hire employees who are able to think critically and come up with creative solutions.
- Willingness to learn: The technology landscape is constantly changing, so it's important to hire employees who are willing to continuously learn and adapt.
Step 8: Build your offers/packages
Which services do you want to start offering? It would help to start by looking at what most MSPs offer, as it means this is what most businesses are in need of. If we follow this approach, then the most popular MSP services at the moment include IT support, cloud services, network support, applications management, device management, data security, and on-premises server management.
If you don't want to take this approach, the alternative is to approach a couple of the businesses you narrowed down to earlier on and try to talk to them to see if there are certain services that they feel their current MSPs should offer. You may have done this already from the pilot stage, so simply apply the feedback.
There is one more approach, and that is to jump into emerging services. The one that stands out right now is Managed Security Services. As cyber attacks become overwhelming, organizations are finding it necessary to separate the security function from the typical IT services. This means that you will only be providing security services, so just take note of this.
Once you settle on the service (s) that you would like to start with, create a package for the service (s). By package, we mean a description of the services and pricing tiers. This information will eventually end up on your website in the services/solutions section.
A quick note on MSP pricing: Price your services in a way that will attract the right kind of clients (high quality clients). If you decide to go the AYCE (All-you-can-eat) route, it means going with too low of a price which will attract quantity over quality, and you'll end up taking on more customers than you can handle, which means your service quality will suffer. Strike a balance between the number of customers you're willing to take and quality; even budget-conscious consumers won't accept bad service. Please refer to this guide for MSP pricing.
Step 9: Establish your brand Identity
Before you can start marketing and selling your MSP services, you need to establish your brand identity — basically the visual and emotional representation of your MSP. It includes elements such as the company's name, logo, color scheme, typography, imagery and messaging. These elements are used consistently across all communication channels and materials to create a recognizable and memorable image in the minds of customers. A strong brand identity can help to differentiate your MSP from others and build trust and loyalty with customers.This will be the foundation of all your marketing and sales efforts, so it's important to get it right.
Be sure to base your brand identity on who you are as an MSP, what you stand for, and what makes you unique. And most importantly, it should reflect the values of your target audience.
Once you've nailed down your brand identity, make sure it's front and center in all your marketing materials. From your website to your social media profiles, everything should reflect who you are as a business.
Let's now get to marketing.
Step 10: Marketing
Successful marketing needs a plan around it, and your MSP will be no exception. Yes, you'll have to create an actionable plan that you'll follow point for point and adjust when need be. This is better than an uncoordinated approach.
Meanwhile here is a basic package of approaches you can use to get started with some vigorous marketing:
Buy a domain with your chosen MSP name and create a website. What are the basics that your website should contain?
- Main pages: About, Services, Contacts, etc.).
- Blog section: Publish at least 10 good articles of 2000-3000 words, then a couple of articles per week going forward.
- On-page SEO: Make sure that the content is well-structured and contains semantically related keywords. Eliminate all technical SEO obstacles. Create logical links between pages, as well as interlink all blog posts and other content each time you publish. Also create links between pages and blog posts.
- Backlinks: Continuously add external links from niche relevant high quality websites to the main pages and each article you publish, if possible.
Further Reading: SEO Tactics for IT Companies
iii). Social media channels
Create an account on each popular platform:
Quick note on social media accounts: Even though you may not be actively using all of the platforms, it's essential to have control of your brand on the main ones. Otherwise, if your MSP becomes successful, you may wake up one day to find someone evil has taken control of your brand on social media for their own gain. Picture finding a famous page with your name on Facebook or Twitter. Yes, this can happen. When a brand becomes well-known, it's easy for someone to discover that the company is not on social media, swiftly set up accounts with the same name, and use the accounts however they wish. And since people know who you are, they will likely believe whatever is posted from those accounts without question. By the time you can prove to the social media companies that someone has hijacked your brand, the damage may already be done.
The following tools can turbo charge your MSP marketing activities. Some are free, some have a free version (basic) as well as paid options at different price tiers.
Email campaign automation tools
Social media marketing automation tools
Calendar scheduling tools (for effective lead management)
Landing page tools
Further Reading: Marketing guide for MSPs
Step 11: Convert, review and scale
If you have reached here and you are beginning to see results i.e leads, then all you need to do is convert those leads into paying clients. Lead conversion is another whole topic, but hopefully you can use the above tools to make sure that no lead is lost.
As you begin to work with new clients, set up a system for obtaining ongoing feedback from them. You should focus on getting feedback after each task. Incorporate a straightforward feedback process into your services; it could be as easy as asking customers to complete a Google form detailing their experience and answer some questions.
Utilize the early feedback to optimize your services: Adjust prices, provide more training for employees, improve response time for customer service inquiries, etc. Once you reach a level where the overall client satisfaction is impressive enough, you can scale the business. This entails marketing to a larger audience for increased clients, expanding the workforce to serve growing customers, adding additional services, etc.
As the world continues to innovate, businesses will continue to adopt what helps them stay competitive. The more this occurs, the more opportunities for MSPs. Remember that it's not just about providing technical support, it's about building relationships and understanding the unique needs of your clients. It's about being a trusted advisor and a valuable asset to their business.
Start with a few services, for example 2-3 (e.g. help desk management, network management or cloud management). As you become more experienced and customers get used to your services, you can gradually expand your offerings to include additional service. This allows you to meet the growing needs of your clients and increase your revenue streams.
Reputation is everything. If you do your work well and keep your clients satisfied, you will soon have more clients streaming in, some through referrals.
Pay attention as well to the future, and invest in preparation to take advantage when opportunities mature. To do this, consider what niche is emerging today and its potential two to five years from now. Take a peek, for example, at the innovative frontiers such as AI, IoT, VR and AR. These areas have already demonstrated that they could soon reach revolutionary heights. Similar to how the smartphone era set up the ground for an explosion in apps, there's every indication that we're entering a new era that provides us with its own set of chances!
Interested in learning more about Managed IT Services?
Check out these posts from our MSP Blog:
- Top Benefits of Managed IT Services
- Managed IT Checklist: Is It Time for an IT MSP?
- Managed Services vs. Staff Augmentation
- Managed Services vs. Professional Services
- What is the Difference Between MSP and MSSP?
- Questions to Ask Your MSP
- MSP Contracts Explained
- MSP Pricing Explained
- Top 8 MSP Industry Trends
- Top MSP Certifications
- Best RMM Tools for MSP
- MSP Backup & Disaster Recovery Solutions