How to Maintain Profitability in Your MSP Contracts
While the focus of most Managed Service Providers (MSP’s) is understandably providing help and support to their clients, doing so without being aware of the levels of profitability within these contracts can ultimately lead towards an unsustainable business.
Providing a Managed Services “Flat Fee” or “All You Can Eat” support contract to clients relies on you keeping an eye on how much support time your clients are actually using.
The bottom line is, a business that goes bust is unable to help any of their clients - so profitability is important.
But how can you measure which of your MSP contracts are profitable, and manage those which are unprofitable to make them worthwhile again?
What can be Measured, can be Managed
The first step towards maintaining profitability is to ensure that your engineers log *all* time spent working for clients within your Professional Services Automation (PSA) or Customer Relationship Management (CRM) system (And if you don’t have a PSA system - why not? Read our article “Does my MSP need a PSA tool?")
Once you are recording the actual spent time helping clients, you can start to make calculations on whether those clients are profitable or not.
But getting engineers to log all their time effectively can be a challenge. Engineers are often focused on helping clients, and see logging tickets and recording time as a hindrance to helping clients. Of course, nothing could be further from the truth. By effectively logging notes about support tickets, engineers are able to build up a history of the clients issues that will help them resolve tickets faster and more effectively in the future.
If you still struggle to get your engineers to log their time, then explain the cold hard facts of profit and loss. Let your engineers know that each of them has a cost to the business, and if this cost isn’t covered by profit from client work - then the business is unsustainable.
Finally, consider implementing a statistic Dashboard within your Service Delivery team highlighting the number of hours each engineer has logged to tickets, updated in real-time. This creates a competitive atmosphere within the Service Delivery team with no engineer wanting to be the one who is shown (rightly or wrongly) to have done the least work.
Ensuring your Clients are Profitable
Once you are recording the time spent with each client, it’s a simple step to calculate whether those client contracts are profitable - or not.
If contracts are unprofitable, or aren’t as profitable as you’d like, then it’s time to drill down into the support ticket history for the client to seek out trends that might be eating up your engineers time and eliminating profit.
Old Equipment, Lack of Training
The most obvious underlying cause for unprofitability is aging client equipment. A very old server or aging workstations may be causing recurring issues that eat up a lot of your support time. With the best will in the world, these problems aren’t going to “go away” until new equipment is sourced. Your priority then becomes working with your client to put in place plans to upgrade this equipment to something more modern and reliable. It’s amazing how many MSP contracts can go from being unprofitable to being profitable when expensive old hardware is replaced.
The second most common underlying cause for unprofitability is repeat offenders - those of your client employees who are very needy and eat up a lot of your time. More often than not, you’ll be able to spot a trend wherein these individuals are raising support tickets around the same issues - “how to?” questions in Office or Line of Business Applications.
In these cases, it is advisable to approach your client and suggest some additional training for their staff in these products to help improve their knowledge, and decrease their reliance on you for answers. You might offer to deliver this training for free (with the goal of reducing your on-going cost of support) or better still this might be chargeable work you undertake - earning you additional profit while simultaneously reducing your on-going cost of support.
Another underlying cause for unprofitable MSP contracts is what I refer to as “Bulldog Engineers”. Those Technicians within your business who pride themselves on resolving problems without asking for help, and almost literally at any cost.
Such Engineers will work on niggling issues for hours and hours, costing your business time and reducing, or in many cases eliminating any profit within the contract.
The best course of action here may be to put in place policies wherein an engineer must ask for help (from his colleagues or from Vendor Technical Support) after a certain period of time (30 minutes is a good starting place) or escalate the ticket if no forward progress has been made after a 2nd period of time (say, 1 hour).
These policies ensure that engineers don’t blindly work on support tickets when those support tickets may be more quickly solved simply by asking for help.
Reducing the time spent fixing support tickets reduces the cost of support and will improve MSP contract profitability
Ensuring that the time your engineers spend supporting clients under their “Flat Fee” Managed Service contracts is hugely important.
Once you start measuring the time your engineers spend supporting your clients, you can calculate whether those client contracts are profitable or not.
And if the contracts aren’t profitable - you’re given the opportunity to investigate why, and make the appropriate changes to bring you back to profitability and sustainability.
Looking for more Contract Tips?
Listen to our May webinar, "Managing Your Managed Services Business" to learn how you can get your SLAs working for you!
As the former owner of an award winning IT Managed Service Provider, Richard Tubb works with MSPs to help them increase sales, take on employees and build up relationships with key industry contacts. You don't have to do it alone any more - contact Richard and have a chat about your needs and how he can help you.