Q: I’m great at the technical side of the MSP business, and people seem to like our work. In fact, we’ve never been busier. But somehow that’s not showing up in my bottom line. I know that as the owner, the buck stops with me, and right now the bucks seem to be passing me. Do you have some tips on how I might find where my MSP’s financial weak spots are?
Look, don’t be too hard on yourself. Your expertise is in malware, firewalls, and systems management, not time and money management. A creative coder is not much different than a painter. Most artists are focused on their painting, not their accounting. But you should be. If an artist undervalues their work, they’ll lose. Same goes for you and your MSP finances.
Managed services revenue surpassed $145 billion in 2016 and will grow to $242.5 billion by 2021, according to Markets and Markets. The IT channel offers plentiful opportunity right now, so if you’re faltering, now is the time to set things right.
For guidance, we turned to Steve Alexander, CEO of MSP-Ignite. Steve ran an MSP before there were MSPs. He started his first IT support company in 1990, before the Internet burst onto the scene, when it was just helping companies with their clunky, old mainframes. He’s learned a thing or two about the MSP business since then and now helps MSPs in their quests for profitability and productivity.
What’s the single largest way MSPs lose money?
It’s not in underbilling your clients or technicians’ salaries, according to Alexander. The answer: time.
What’s the single largest way #MSPs lose money? It’s not underbilling your clients or technicians’ salaries. The answer: time.
Time Truly Is Money
Yes, you’re selling your services, and you have the best techs for 200 miles around, but you’re also selling time. And, that, Alexander says is the biggest source of lost revenue. “Actually, it’s probably the number one, two, and three reasons,” he says.
Benjamin Franklin once said: “Lost time is never found.”
“I always find myself coming back to that quote. In our industry, we struggle to get people to track it. And as soon as we have to have a conversation about tracking time, we’ve lost more time,” Alexander says.
Time, Alexander, says is the only resource we really have control over. Get control of it, and you’ll control your business’ books.
5 Other MSP “Bleeds” and How to Fix Them
More often than not, a business fails not from one large problem but rather a death by a thousand cuts. Here are five more MSP “business bleeds” to watch out for and how to heal them:
1. Too much vendor love
Don’t subscribe to services you don’t need. Vendors are selling you their products, and that is their job. And your job is to make sure you pick the best blend of value and effectiveness for your clients. Nothing more, nothing less.
“I try to tell all the MSPs I work with … you need to understand that no matter what you think of the people that work for the vendors, the vendors are not your friends,” Alexander says. He says it doesn’t mean they aren’t great people, wonderful conversationalists. But they aren’t your friends, so don’t start buying everything they’re selling.
You still need to make smart buying decisions that are right for your MSP and your customers. Unneeded subscriptions, duplicate services, and the like can really add up and hurt the bottom line.
2. Hire fractionally
“My biggest recommendation to smaller companies is to hire people fractionally just like we sell our services fractionally,” Alexander says. You may not need nor be able to afford $120,000 a year engineer, but you might be able to hire a freelance engineer for five hours a week. “An MSP needs to have a broad scope of skills and responsibilities on staff,” Alexander says.
There are also a lot of opportunities for offshoring. Offshoring, Alexander says, has gotten perhaps an unfair bad rap. You can hire a full-time staff member and have them work remotely at a fraction of the cost. Hire them not as a freelancer, but as a full member of your team. Portugal and Serbia are both places where IT talent is plentiful and offshoring is gaining in popularity.
“There are a lot of really positive aspects to it,” Alexander says.
3. Would you like fries with that?
We’ve all ordered a cheeseburger at the drive-thru only to come away with fries, a soda, and a too-hot apple pie. Alexander says upselling is one of the most overlooked sources of new revenue for an MSP.
Upselling is one of the most overlooked sources of new revenue for an #MSP @SmarterMSP
“Improve your offerings so you can upsell to your own customer base,” Alexander says. This can range from add-on security offerings to planned replacement cycles of equipment and more. Keep an open line to your customers and cultivate a rapport that has value for both of you.
4. Go for the flat fee
If the financial side of the business isn’t your strong suit, flat fees help add some predictability. Plus, it’s just good business.
“My belief is we should be able to boil everything down to a flat rate. We need to have enough confidence in what we do to assign a flat fee to almost everything, and you need to develop the skillet set to identify the rates,” Alexander says.
You can charge a different flat rate to different clients based on their needs, but a flat rate makes it easier for everyone, Alexander says, comparing an MSP bill to the health insurance industry. Yes, you get bogged down in a few expensive surgeries, but the rest of your healthy clients should help you get through those.
5. Invest wisely in your technicians
Most MSPs can’t compete on salary. You simply don’t have the money to sink into it. So compete where others can’t: quality of life issues, swing shift, company cars, casual work environment, TV screens, etc. All of these things are minimal cost but maximum value.
And, lastly, it doesn’t hurt to have a good CPA or financial advisor on standby. They can only do much — it is your business after all, not theirs. But you got into this to let your IT talents shine. Let others do the books while you work your IT talents and start making money.