Stop lost sales, underpriced deals, and billing errors from draining your profits. For managed services providers (MSPs), keeping a handle on revenue can be a big challenge. While many have shifted at least some of their business to contract or service-based work that provides monthly recurring revenue, project-based work still accounts for a healthy proportion of much of the revenue, making it challenging to meet plan and track revenue targets.
The term “revenue leakage” comes to mind and can drag down your profitability. Revenue leakage, in this instance, does not mean that money you already have somehow leaked out of your bank account. Leakage refers to potential revenue lost or not fully realized because expected deals are not closed on time or new deals are underpriced or too steeply discounted.
Identifying the sources of these leaks and finding ways to better track and manage sales activities can help shore up finances and ensure you meet quarterly targets.
Common culprits to watch for
Several factors can cause revenue leakage. Client budget cuts or complex approval processes may delay larger deals. Your sales team may be discounting products for existing clients too frequently. Customers unexpectedly reduce their services or jump to another provider without sharing feedback.
A common culprit is a disjointed, siloed sales pipeline management approach. MSPs frequently encourage their clients to take a more centralized approach to application management or cybersecurity, and they should take their own advice when it comes to wrangling the mix of customer relationship management (CRM) solutions, emails, and spreadsheets used to track sales.
Having a structured process to help manage client and lead contacts, updates, deal health, and forecasting can help MSPs identify potential problems and adjust. This can also help streamline demand forecasting so MSPs can ensure they have the right staff and resources for each project. In many cases, winning a project you cannot execute is just as bad as never having won the business.
Survey your sales team and identify bottlenecks and wasted time – streamlined reporting, visibility, and accountability can solve many problems. Look at your historical forecasts and actual performance and see where the disparities are between those numbers. Ensure salespeople chase qualified leads in a priority order that makes sense for your business.
Other strategies can help as well including:
Rationalize and streamline your service offerings
Over time, MSPs may deliver a hodgepodge of unrelated or difficult-to-integrate products and services. Evaluate your portfolio with an eye toward unbilled labor costs and profitability, and then see how you can better align those offerings with your client needs, core competencies, staffing capabilities, and pricing.
Review staffing and resource allocation
You can waste money or decrease productivity if you are under or over-staffed for specific contracts or services. Meet with your team regularly to identify areas to optimize resource allocation. Implement automation wherever possible to help team members centrally manage network monitoring and incident response activities.
Optimize client onboarding
Poor onboarding processes can lead to confusion, delays, and dissatisfied clients. This can slow down implementation and create billing issues. A structured and straightforward onboarding process helps prevent revenue leakage and scope creep.
Stay on top of contract management
Regularly review contracts to ensure the service level agreements (SLA) are clear. Ensure all services are accounted for and properly billed, and any ambiguous terms have been clarified. Having regular meetings with clients can help uncover new potential business and address any outdated elements of the agreement. It also provide opportunities to revisit items such as pricing and terms that may have changed due to new customer requirements. These meetings can also help you get ahead of any changes happening with the client (like budget cuts or internal digital transformation initiatives) that may affect future business.
Implement proactive project management
While you may be unable to control factors that lead to implementation delays, MSPs can better monitor project status and rapidly address internal issues or third-party vendor deliverables that could derail a project. Implement regular reviews to track project milestones so you can address these delays before they snowball.
Monitor monthly recurring revenue and billing accuracy
With the shift from project-based to recurring revenue models, MSPs may cause revenue leakage. This is a result of not billing for services or events outside the scope of the monthly contract. Ensure you have robust reporting to track billable activities to overcome the potential leakage.
By implementing these strategies, MSPs can transform revenue leakage from a silent drain into a powerful opportunity for growth. Focus on streamlining sales processes, optimizing service offerings, and proactively managing client relationships can improve profitability and lead to higher client satisfaction and long-term business success.
Taking control of your revenue stream empowers you to invest in the resources and personnel needed to deliver exceptional services, further solidifying your position as a trusted technology partner.
Photo: Monster Ztudio / Shutterstock
