Why your MSP needs to stop relying on gut feelings

Have you ever heard the phrase “What gets measured, gets managed?”

This famous quote came from Management Consultant, Peter Drucker, and is something that I’d urge any IT solution provider or managed service provider (MSP) to listen to.

Why do I think MSPs needs to hear this quote? Because, far too many MSPs manage their business based on gut feeling rather than cold, hard metrics.

Gut feeling vs. metrics

For instance, if I asked you who your biggest MSP client was, you could probably tell me straight away. It’s probably the client who you know you bill the most time to. But if I asked you who is your most profitable client, would you be able to tell me? Many MSPs I ask this question of aren’t able to.

That’s because the revenue you generate from a client (or, indeed, the time you spend servicing that client) is not a true indicator of the amount of profit you make from that client. As they say, “Revenue is vanity, profit is sanity.” When it comes to managed services, managing by metrics is the path to success. And that means measuring your activities and their results.

Why you should measure more in your MSP

Going back to Drucker’s quote of “What can be measured, can be managed.” What are you currently measuring in your MSP business?

As we’ve established, you’re almost certainly measuring your revenue. After all, the money you generate from clients is the life-blood of your business! But I’d encourage you to start measuring other activities too.

For instance, do you know:

• • How much time your engineers spend working on client tickets?
  • How often a client’s backup failed last quarter?
  • How many times a specific employee at one of your clients calls your helpdesk?

The most progressive MSPs measure everything – and it’s not just because they love numbers! Managing by metrics means you are making fact-based decisions about your business.

Fact-based decisions make client conversations easier

For instance, if your MSP did manage how much time your engineers spent working on client tickets, then you could quite easily work out how profitable a particular client’s contract is.

• • Client Revenue – Time Engineers Spent on Tickets = Profit

Of course, this is a simplistic calculation, but you get the idea. Metrics such as profitability mean that you no longer have to make decisions based on gut feeling or emotions.

For instance, if your gut is telling you that you’re undercharging a client for their managed services contract, then you may want to speak to that client about a price increase. But if you’re relying on gut feeling alone, that conversation with your client *may* be an awkward one to have. However, if you *know* – based on profitability metrics – that you are undercharging your client, then the conversation with the client about a price increase is much easier.

You state the fact: “Mr. Client, this contract is no longer profitable for us, so we need to increase your prices.” The client understands that you’re not just increasing your prices on a whim, but making a fact-based decision, something that most business owners can typically appreciate and respect.

Now that you have a better understanding of the specific metrics you can use to guide the decisions you make for your MSP business, you can create a more accurate plan of action that will help you learn more from those metrics and improve them as you continue your MSP journey.

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