Making sure you cover your costs of doing business is critically important. There are many costs that remain consistent from client to client, but one that does not is travel.
Travel costs can be substantial and inconsistent. Your employees are your most valuable assets, but they can also be your most costly expense when not utilized efficiently. It is not uncommon for techs to spend up to half of their day driving. This means that if all of their time is not covered in your billing, you have a serious problem. Fortunately, travel time is easily attributed to a specific customer and therefore can be accurately billed to that client.
It’s important that MSPs find a method of capturing these costs they are comfortable with—and that will not hurt their profit. However, that decision is not always straightforward. Here are some of the factors you need to consider when making this decision:
The first issue to consider is clients are all varying distances from your office, so creating a blanket fee is difficult and feels unfair to customers that are closer. This is further complicated by the fact that techs do not always start their journey from your office. In fact, most times, techs will travel from client to client. This leaves you with two main options:
A standard trip charge is easier to manage on a day-to-day basis, but it can be highly inaccurate. If it’s set too low, you can miss your profit targets; if it’s set too high, you can upset customers. If you decide to go this way, you should draw a circle of X miles around your office and make sure that clients outside that radius understand they will pay extra.
Billing based on travel time or mileage is the most accurate method. If you choose to go this way, my preference is to charge for time, because traffic can be a big factor, and your largest expense is your employee’s time. Tracking travel time is not as difficult as it used to be. With the advent of smartphones, most PSA apps have time tracking that can be used to easily capture travel.
However, this does depend on your techs actively tracking their time, so you do lose a little control/accuracy. On a side note, this is where your admin person who handles your billing is worth their salary. They should be auditing all of your invoices to make sure all onsite visits include either your trip charge or appropriate travel time charges.
If you’re reimbursing employees for using their own vehicles, they have to track their mileage anyway, so this is the one case where I would consider billing the customer according to mileage. This is simply because the employee is incentivized to track their mileage and therefore it should be accurate. Personally, I do not recommend allowing employees to use their own private vehicles because of liability issues. I have business-owner friends who have had big problems because of accidents, where the business was not properly insured for employees using their own vehicles for work.
There are two more options that are easy for the customer to understand and therefore may be easier for you.
This is what I used when I ran my MSP. Every client within 10 miles of my office was billed a minimum of an hour. This had three key benefits: it was easy for the customer to understand, they feel like they are getting full value even if the tech is only onsite for 30 minutes, and it was easy for me to bill and encouraged more remote work—so less truck rolls. Clients outside of the radius were billed travel time.
Raise your rates to cover travel
The other option is to simply raise your rates to cover travel. This is basically taking a trip charge and rolling it into your hourly rate. It has some of the advantages of the previous method, but one major drawback; it may inflate your prices above your competition. You should never be the lowest price in your market, but you cannot price yourself too far above either.
Which method you use is ultimately determined by what works best for your business and your clients. My advice would be to make sure it is easy to do. Most of all though, make sure it not only covers your costs, but also meets your profit margin targets. If you are only breaking even on your employee’s travel time, they are not making you money.
Eric Anthony is director of customer experience at SolarWinds MSP. Before joining SolarWinds, Eric ran his own managed service provider business for over six years.
You can follow Eric on Twitter® at @EricAnthonyMSP
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