Maximizing profitability is something every business wants to do. In her recent webinar for the MSP Institute Business Training program, Tammy Allen, snr channel sales executive for SolarWinds MSP, identifies the areas of your business you can affect in order to help increase your profitability.
Building on our last webinar, Today’s Successful MSP Market Programs, Allen turns her attention to the managed services market as a whole to uncover what makes a managed service provider (MSP) an attractive target for acquisition.
“At the very least, even if you are not looking for an exit strategy or to prepare yourself to purchase another company, taking control of these things (along with your growth) will help you make your business run smoother and put more money in your pocket,” she explains.
Allen also guides us towards taking a cost-up approach to pricing programs and taking control of the levers within your organization to positively impact your margins. She also makes a couple of recommendations on what you should think about doing immediately to increase your profitability.
At the highest level, there are two areas you can focus on: increasing your price and reducing your costs.
“MSPs tend to immediately think that increasing price is a bad idea,” says Allen. “They say things like ‘My customers are too price sensitive to increase my price,’ or ‘That won’t work in my area’. But did you know the MSPs being acquired in today’s market typically have the most expensive managed services programs in the industry?”
They are almost always in the top third in terms of pricing, and yet they continue to sell… even in remote areas. The reason for this, Allen explains, is that they sell on the end result of their service and on the value they bring to their customers. “If you position your services correctly and provide a high value to your customers… they WILL pay your asking price,” she says.
With that point made, Allen goes on to look at the ways you can reduce your costs and identify the most impactful method to increasing your margins.
There are two main areas of your offering you can look at to reduce costs:
“When looking at reducing your HR costs in program delivery, what we are really looking to do is reduce the manual time spent on delivery of the promised line items,” says Allen. “This can be accomplished by either getting more efficient (or faster) at the task you are doing manually or by finding a way to automate the task entirely.”
Reducing software costs is fairly obvious, but one key point Allen makes is that it’s important to start with the most expensive components as they will have the biggest overall effect on your margins.
Reducing your HR costs, however, is more complex. There are two main ways to accomplish this:
In both cases, the goal is simple: minimize the amount of time your most expensive resource (your technicians) take to support your programs. By reducing tech time, you can greatly impact your margins. This means becoming more efficient at delivering your programs and having a well-defined and repeatable process. Whatever your checklist looks like, you need to document a process all your technicians can follow so you can measure how quickly the work gets done—properly.
However, by far the biggest cost saver for MSPs comes in the form of automation. Getting your software (that you have already paid for and accounted for in your costs) to do the work your technicians are doing manually yields one of the biggest swings in margin.
Do yourself a favor and start automating whatever you can today. You are not replacing your techs by doing so, you are simply making sure the work they are doing is billable. And let’s be honest, technicians don’t really look forward to maintenance work anyway; they like figuring out the real issues.
So take the maintenance work out of their hands and automate it—your techs will thank you, your margins will thank you, and your pocket will thank you!
Watch the full webinar here and discover how to take your profitability to the next level.
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