You run your customer’s whole technology stack. The hardware, the patching, the network, the security, the support. Every layer but one.
Inside that missing layer is the stickiest revenue of all, because nobody re-migrates a data center on a whim. And most of us hand it to a referral and walk away. This is the managed colocation play almost nobody runs. Five minutes, and you’ll see why leaving it on the table makes no sense.
The short version:
- You already are the “managed” in managed services. Managed colocation just puts a floor under it, and it’s the hardest revenue for a competitor to ever pull away from you.
- Most colocation providers stopped selling small footprints. That orphaned demand is a gap you’re built to fill.
- Lease one rack wholesale, subdivide it, resell it as MSP revenue. Or start with a fractional cabinet to test the waters. The math is below.
- AI isn’t a threat here. The next wave, enterprise GPU colocation, is more demand headed straight for the layer you already own.
Start here: you’re in good company
There are roughly 40,000 to 50,000 MSPs in the US, from solo shops to national providers, and the field is healthy. That number that surprised me when I looked it up, and I’ve been at this a while. The managed services market is north of $400 billion, recurring revenue is about 74 percent of the average book, and 88 percent of small businesses use a provider.
But growth is getting harder. MSP business growth data shows 71 percent of providers say new customer acquisition is their biggest challenge, and deal sizes are shrinking. The easy money is gone. The winners add differentiated recurring lines. So where does the next one come from?
What is managed colocation?
Plain definition. Colocation is renting space, power, cooling, and connectivity for servers the customer owns. Managed colocation adds the part you already do for a living: monitoring, patching, security, and support on top of the space. It’s an IT department living inside the data center.
Read that again, because it’s the whole point. The “managed” layer is your layer. You already deliver it everywhere else. You’re just not selling the data center floor underneath it.
First principles: where does the stack live?
If you manage the customer’s hardware, network, and support, you’re responsible for that gear no matter where it sits. So where does it sit? Some in an office closet that was never built for it. Some belongs in a real facility, on redundant power and cooling, behind real security.
That second bucket is the one you keep handing away. You quote the servers, rack them, manage them for years, then refer the hosting out and collect nothing on the stickiest layer of all. You don’t need to build a data center- have a presence in one, and manage it the way you manage everything else.
The gap nobody’s serving
Most colocation providers walked away from small footprints. They want full cabinets and cages. Ask for a single 1U colocation or 2U colocation slot, a quarter rack, or a half rack, and most decline or price it so high it’s pointless.
But plenty of real customers need just that. A couple of firewalls. A backup target. A few app servers. The demand didn’t disappear- It got orphaned. And you already know exactly which customers have it.
The math (run your own, but here’s the shape)
Where to start? Get a few quotes on a full rack at wholesale colocation pricing. Figure $1,300 to $1,400 a month, which is pretty much the going rate right now and could climb from here. Though if you’re bringing volume or committing to more than one rack, there’s usually room to negotiate a better deal. Say 30 amps, about 24 usable under the 80 percent rule, 42U of space.
Now build a product on it. Your real constraint is power, not space, since 24 amps runs out before 42U does. So sell a blend. Say a dozen 1U slots at 1 amp for $79 a month, and a half-dozen 2U slots at 2 amps for $99. That’s your 24 amps spoken for, and it’s about $1,540 a month in slot revenue alone.
Then connectivity, where the margin gets even better. Build a blended internet product from two carriers with failover. Sell a shared 1G at $49 and a dedicated internet 1G at $99. You can oversubscribe the shared product safely, because almost nobody pulls a sustained gig. Call it another $1,180 a month across your tenants, against maybe $350 for the wholesale transit. You already own the gear and the skill. Package it, name it, sell it.
Here’s where it nets out. A full rack throws off around $2,700 in monthly recurring revenue. Your costs, the rack and the transit, run about $1,750. That’s roughly $950 a month in profit, nearly $12,000 a year, from a single rack, at close to 40 percent margin. Fill a second and a third rack as you grow, and the model just repeats.
And here’s the part that makes it a no-brainer. That $950 is just the colocation and connectivity. It doesn’t count a dime of the managed services you stack on top: the monitoring, the patching, the managed cybersecurity, the managed network, the backup and DR. That’s your real business, and it rides on top of a rack that’s already turning a profit on its own. The colocation doesn’t just pay for itself. It becomes the anchor that makes everything else stickier.
And the breakeven is honest. You need to fill a little past half the rack to cover your costs. After that, every slot you sell is mostly profit, and it’s MSP revenue that renews month after month with almost no churn.
Tell me where that breaks. For most partners, it doesn’t. It just sits unbuilt.
Don’t want to run a shared rack? Refer it and take a commission. Either way, stop giving the data center layer away.
The AI angle nobody’s positioned for
Everyone’s trying to grab a piece of AI. What’s next on the docket? Nobody knows. But if I had to guess, it’s enterprise AI. Companies running their own narrow, focused models on their own hardware, for privacy, cost control, and IP protection.
Here’s the part that lands in your lap: you can’t run GPUs in an office building. I’ve seen people try. Between the power draw, the heat, and the noise, they almost always end up in a data center. That’s GPU colocation, and it’s the next wave of managed colocation demand walking straight toward you. Same story as the rest of this article: big demand forming, almost nobody positioned to serve it… but you already are.
How to sell colocation services to your customer
Never pitched space and power? Relax. You already sell the hard part, which is trust. And you don’t have to force it. Colocation sells itself the moment one of these questions comes up, and they come up constantly.
The hardware refresh. This is the big one, and it’s usually the precursor to the whole conversation. You’re already doing the refresh. New servers, new gear. So, ask the obvious question: where’s it going to live? You’re standing right there when the answer should be a data center instead of the same office closet.
Security or compliance worries. They mention they’re nervous about protecting sensitive data, or they’ve got a HIPAA or PCI obligation looming. Easy fix. Put it in a data center with physical security and audited compliance baked in. Problem solved, and you’re the one who solved it.
Power and cooling reliability. They’re worried about the AC in the server room or the power at their building. Easy. Colocation is cheap insurance against downtime. Concurrently maintainable power and cooling for a fraction of what a single outage costs them.
Network or carrier trouble. They’re fighting with their carrier or dealing with flaky internet at the office. Easy. A data center gives them access to multiple carriers. You can build them a blended internet solution, or a primary and backup circuit with failover, so a single carrier problem never takes them down again. And since your customers are already in the cloud, a carrier neutral facility with Megaport access gives them up to 100G of cloud connectivity and direct on-ramps to AWS, Azure, and Google Cloud, private and fast instead of riding the public internet.
No disaster recovery site. This one’s the most natural of all, because you already sell backup and DR. Just ask: do you have a DR site today? No? That’s a problem. If they take an outage right now, they could lose data, and that’s the kind of loss a business doesn’t always come back from. An offsite DR play in a real data center is the fix. Backup, storage, and disaster recovery, hosted somewhere hardened and far enough from their primary to actually protect them.
Private cloud on dedicated hardware. If you’re managing a private cloud for them, or they want their own dedicated hardware instead of a shared public tenant, where’s it going to live? Might as well put it in a data center. That’s what the hyperscalers do. AWS, Azure, and Google don’t run their clouds out of an on-prem telco closet, and neither should your customer’s private cloud.
None of these is a cold pitch. Each one is a question your customer is already asking, and colocation is the clean answer sitting right there.
Where ValorC3 Data Centers fits
Here’s the honest truth about fractional space. We have a handful of fractional cabinets left, half cabinets and third cabinets, and once they’re gone, it’s full cabinet only. And it’s not just us. That’s the reality at 99.99999 percent of providers. Fractional colocation is nearly extinct, which is exactly why it’s your in. Want to dip a toe in the water before you commit to a full rack? We’ll sell you one of those remaining fractional cabinets as a beta, so you can test the model, land a couple of customers, and prove it out with almost no risk. Ready to go bigger? We’ll wholesale you the full rack and the connectivity to build the shared-rack product.
And to be clear, this isn’t a referral pitch. We’re not looking for commissions on sending you our way. We want to be a good partner. The small single-unit deals that come to us, the ones that don’t fill a cabinet, we’d rather hand to you than turn away. Our remote hands are an extension of your team, too. Need a server rebooted, a cable reseated, a drive swapped at 2 a.m.? Call it in anytime and skip the drive to the data center entirely. You get the customer, you add the managed layer, and the managed network and managed cybersecurity work rides along. Your people never leave their desks.
Reach out to Nathan Helvey, our Director of Channel and Alliances. He’s run partner economics from the Dell and HPE side and the agency side, and he’s easy to reach. Send him the rough shape of your customer base and he’ll run the numbers with you.
Your customers are already in a data center, or they should be. The only question is whether you’re the one selling it, or the one giving it away. Managed colocation has been sitting in plain sight the whole time. Go build it.
Nathan Helvey, Director of Channel and Alliances
Nathan Helvey is Director of Channel and Alliances at ValorC3 Data Centers. He spent years on the channel side at Dell Technologies and Hewlett Packard Enterprise before leading partnerships at BridgeTek, so the math here comes from someone who has lived the partner economics from both sides.