Habits Of A Profitable MSP
By Rayanne M. Buchianico, EA, ABC Solutions, LLC and ASCII Group Member Since 2016
It is safe to say that most people start businesses with profits in mind. I have never met a business owner who said, “I started this business with the hopes of losing all my money.” Businesses, large and small, often have problems reaching or maintaining an acceptable level of profit.
As your business grows, you expect the profits will grow along with it. However, as your business develops, you realize you need expensive tools to maintain a level of service to your growing customer base and you also need to hire competent people. Business tools and payroll are the two largest expenses a Managed Service Provider will face. How can you increase profits, maintain the necessary tools to run and grow your business, and keep your employees happy?
There are a few simple steps you can take that will help improve your profits without costing you money. The answers are already in your possession.
1.Understand Your Financials
This is by far the most important part of owning a business. Most business owners do not enjoy bookkeeping because it is tedious and time consuming. You do not need to be the person handling the bookkeeping, but you do need to review the figures on a regular basis. You will need information from those reports to make management decisions. Important figures to know are: Cost of Goods Sold, Fixed Expenses, Gross Profit Margin, and Net Profit Margin. It is imperative that these figures are accurate before you can calculate billing rates, and when to hire a technician.
2.Recurring SWOT Review
When you wrote your initial business plan, chances are you made a SWOT analysis. As your business changes, so does your SWOT. A written analysis should be made no less than every five years. A business owner needs to be well versed in his or her Strengths, Weaknesses, Opportunities, and Threats (SWOT). The business I started in 2005 looks nothing like the business I have today. As an owner, I need to stay on top of opportunities so my business can grow, scale, and change with the market. Threats probably change the most. As we identify threats to our business and our livelihood, we conquer them. Consequently, the threat analysis remains a moving target.
3.Scalability
When you learn of a new, very profitable service you can offer to customers, don’t you want to sell it to everyone? The best services available are the inexpensive ones customers need and take little effort to install and maintain. Focus your business on these services so you can grow effortlessly. If it takes just as much effort to manage 100 instances of a service as it does to manage 10, it is a scalable service. You can sell it all day long without overloading your service desk. Find your scalable services.
4.Service Agreements
Profitable MSPs understand the value customers place on the service agreement. They will pay more to have you respond to a distress call in a certain amount of time. However, make life easy on yourself. If the machine needs to be replaced, insist that it gets done or you will have to stop supporting it (or significantly increase your rates.) You cannot build a profitable business if you are chasing after a tired old machine. Build it into your price schedule. Servers aged one to five years are charged $X per month. For servers aged six years and older, the price must double. Double the work, double the price.
Many IT firms are still using a break/fix business model. The break/fix model encourages tired, old machines to stay in service. However, your managed services customers must come first. If a break/fix customer does not want a contract, they need to pay extra to have you drop everything and come running when they call. If your hourly rate is $125, increase it to $175 or even $200 for break/fix customers. If they want the lower rate, they need to sign a contract or prepay hours so you can build that time into your schedule.
5.Efficiency And Procedures
The most profitable MSPs have standard procedures throughout the company. All tools are used to their fullest extent to maximize the benefit from the prices paid. If you need the tool, you are going to pay for it. Get your tools in place, document your procedures, and train your staff. When everyone works together in uniformity, the business can run more efficiently.
If profits are your target this year, make an effort to review your business from head to toe. We all have our favorite clients who get discounts, but you are in business to make a decent living so your clients can operate their businesses. When you put your business first, your customers will respect that and will be happy to pay what you are worth. Be sure to invoice them accordingly.
About The ASCII Group, Inc.
The ASCII Group is a vibrant reseller community of independent MSPs, VARs, and other solution providers. Formed in 1984, ASCII has more than 70 programs that provide turnkey cost-cutting strategies, innovative business building programs, and extensive peer interaction. ASCII members enjoy benefits such as marketing support; educational information; group purchasing power; increased leverage in the marketplace; and multiple networking opportunities. These programs enable ASCII members to increase revenue, lower operating costs, and grow service opportunities. ASCII is the oldest and largest group of independent information technology (IT) solution providers, integrators and value added resellers (VARs) in the world. Learn more at www.ascii.com.