What does it take for your Managed Service Provider (MSP) to be successful? Great question. I’m glad you asked. This week’s video will talk about my top three items that you need to consider for your MSP to grow and thrive.
The idea came from Peter Kujawa who was on the Business of Tech podcast a few weeks ago. He was sharing his takeaways Service Leadership’s excellent annual report, and it triggered several thoughts in my mind. This is the output.
In order for your MSP to be successful I believe you must be at least good, if not great, at these three things:
You MUST be profitable at every stage of business
You MUST be profitable at every stage of business. If you’re not profitable when you’re small, simply getting bigger isn’t going to solve that. Similarly, if you aren’t profitable and are a decent sized MSP just growing, acquiring, or expanding into a new market isn’t going to solve that problem for you. In fact, growing while unprofitable just makes it harder to become profitable in most cases. So, get (and stay) profitable as early as possible.
Profitability comes from several sources. It comes from your processes, it comes from having a good technology stack, and it comes from pricing your agreements the right way. It also comes from having clients that you can support efficiently as well.
When you do those things well, profit will follow.
You MUST generate gross margin on every line of business
You MUST generate solid gross margin across each of your lines of business. It’s easy to take your eye off the ball and lose margin because you over hired, or didn’t pay attention to your COGS in some way. Our industry is hard enough to grow a business to be giving money away, so stop doing that if this is you.
Making sure that you generate appropriate gross margin has several components. The first is making sure that you’re marking up your products and services properly. The second is efficiently running each of the different areas of your business. Two common areas where I hear Managed Service Providers struggling with margin is hardware / product sales and projects.
Hardware/products are easy to generate appropriate margin. Simply markup the product an appropriate amount and you should be all set.
Projects (or Professional Services) is a bit trickier as there are several things that can go sideways there. Check out the Projects Lead to Profitability post for more information there.
I recommend that you aim at the following margins (or better if you can manage it):
- 20% or better for Hardware / Product
- 35% or better for all cloud items
- 50% or better for your service related
Happy clients are profitable clients
Happy clients are PROFITABLE clients. Keep track of client happiness, and it’s not just a CSAT for each ticket. Tools like more general surveys or an NPS make sense.
You also must manage your client’s relationship with you at multiple levels. Keep relationships with the owners / c-suite of your clients along with whomever manages the day-to-day aspects of their technology.
On the flip side, it’s possible to “over serve” them with simply hiring expensive engineers to do the easy stuff. Your clients would LOVE to only talk to level 3 engineers every time they called your MSP, but that’s terrible for your profit. It’s vital to ensure that your support process has the right level engineers working the right tickets. This is where your Triage and Dispatch process helps you. Make sure that you’re providing good client service without going too far with your staffing.
It’s a bit of a dual edged sword, but ultimately a happy client is a profitable client.
If you are able to manage each of these three pieces you should sleep easily at night knowing that your company is setup for success.
Thanks for coming on this ramble with me. I hope to see you on the next one.