When I talk to MSPs, I hear a couple of things when it comes to selling hardware: Some prefer to stay away from selling hardware altogether. Some sell it for minimal margin (even cost). Some mark it up for real.
Should you sell hardware or should you just have your clients buy it on their own? Also, what should you do if your client price shops your hardware quotes? If those are questions you have, this post is for you.
My name is Adam Hannemann and welcome to Ramblings of a Geek. I’ve spent the better part of the past couple decades in and around the MSP space and selling hardware is a topic that comes up all the time.
I have a lot of hardware ordering related stories in my time working in MSPs. My favorite story is that one of the MSPs I worked for ordered a lot of hardware on a regular basis for clients. We would occasionally have a client that would try and price match with their other vendors. Generally speaking, we allowed it but would only provide limited hardware support and would charge them to onboard each of the machines. Anyway, the client wanted to order a bunch of small form factor desktops and found a “deal” online that was WAY better than our price. They ordered the machines without asking us to confirm that they were the appropriate machines, and when they arrived found that they all had spinning drives.
We asked the client what they wanted to do and they insisted that spinning drives were good enough and to deliver them after they were onboarded. Queue ticket after ticket for slowness because the users had been using older machines, but they all had SSDs. It was a mess. We ended up replacing all of the spinning drives with SSDs and charging for the labor. Great deal indeed.
Let’s talk about how you can prevent this mess in your business.
Should I sell hardware?
Hardware can be a big profit center for your business, but if you don’t sell all that much hardware it can be a bit of a pain to deal with.
Here’s the deal, in looking at scores of MSP’s financial books, hardware profit generally flows right through to the bottom line.
If your clients are buying hardware from someone, it might as well be you. The math is more challenging for MSPs that sell just a little bit of hardware. If you don’t sell much hardware you may put more time into this than you’d prefer. That said, get good at this when you’re small and you can scale it as you grow.
Obviously, you need to make your own decision here. You may want to keep a mental tab of how much hardware you’re configuring. At some point, I expect that the dollars will add up to enough where you change your mind.
Whether you order the hardware or not, make sure that you’re billing the time to research and deploy the hardware. Depending on your agreement it may be included in their contract, but still track the time.
Also, note that I’m only talking about ordering hardware when requested here, not necessarily keeping your own inventory of things for clients. This can be a huge benefit to you and your clients, but is out of scope for today’s video.
What should I charge?
If you’re selling hardware, how much should you charge? How much should I mark-up the hardware, what are my target margins?
The short version is that you should set a minimum margin for all hardware to be 20% or better. If you remember my margin and markup video, this means that you need to mark-up hardware at least 25% to get to 20% margin. I’m starting to see this creep up a bit, so know that you can grab a little better than 20% margin.
If you are charging “cost” or some minimal mark up you are doing this wrong. You are running a for profit business. Treat it that way.
Also, when you order hardware for your clients within your MSP agreement model you should charge for adding the new hardware to their environment. MSP contracts should be for supporting the existing infrastructure. Adding a new laptop, even if it’s replacing an existing laptop should be out of scope. If it’s a break-fix client you should be charging by the hour to help them out so you’re fine there.
The next logical question is what’s the best way to generate this margin without gouging your clients?
The best way to do this is to build a relationship with one of the hardware distributors and buy the hardware at the wholesale price. Depending on the order you may be able to register the deal with the distributor, and there will be opportunities for discounts from time-to-time as well. This allows you to mark things up without going over retail pricing, or at least get close.
Depending on the vendor you may be able to leverage some of their training and certification programs to get discounts or level up your account faster. Work the programs available to you.
Don’t be your client’s bank
One VERY important thing to keep in mind is that you MUST NOT become your client’s bank. You don’t float your clients hardware. Invoice them before you order it, and if it hits a threshold, say $5000, require them to pay the invoice before you order.
Do NOT order and deliver hardware without taking payment. They can’t go down to the local big box store and walk out without paying. Don’t let them do that to you. They need to pay you for the hardware before you bring it to them.
You are responsible for running your business and managing your cash flow. Don’t hamstring yourself because you’re too nice.
What if my client buys hardware on their own?
Generally speaking, clients that want to order themselves think they’re going to get a better deal going the DIY route.
Your clients should understand that when they order hardware from you, you will stand behind the purchase. When they order on their own, they are taking on some of the risk of ordering the wrong thing, dealing with warranty issues, and just overall having to own part of the responsibility matrix as it relates to that hardware purchase. Whatever they order needs to fit within your technology stack, and should not be a device that generates all sorts of reactive work for you.
When they order on their own, and they order the wrong thing they need to manage and deal with any issues with the purchase. Think back to my story about the spinning hard drives. Had we accidentally ordered the wrong thing, we would have replaced the spitting drives with solid state drives at our own cost.
Let’s say, you’ve had conversations and they are still adamant about ordering their own stuff. What do you do?
- Give them the SKU and let them order the equipment and charge for an onboarding fee.
- Let them order the equipment themselves and charge by the hour or out of scope fee.
- Don’t give them the SKU and order it on their behalf.
I think a lot of this stems from how you set the tone with the client early in the relationship. If you operate and just expect that they order hardware from you, and that’s what everyone expects it’s likely they will just follow the path that you set.
Wrapping up
Ordering hardware can be a little bit like a choose your own adventure book. Ideally, you set some solid standards, work with your client to enforce those standards, provide better service along the way, and make some money while doing it. I will likely revisit this conversation in the future because I have a couple more things to say.
Thank you for coming on this ramble with me. I hope to see you on the next one.