Posted by Larry Cobrin on Nov 2, 2017 7:00:00 AM
3 Tips to Avoid Leaving Money on the Table
Managed service providers – or MSPs – often start from humble beginnings. Early on, the focus is on attracting new clients and ensuring that everything is running smoothly. The addition of new clients and employees adds a layer of complexity. For example, clients with older systems configurations may become overly expensive to service, legacy pricing may leave money on the table, and employees may become disengaged over time.
The good news is that there are several business intelligence strategies that can be put in place to mitigate these problems – and using the right software can make it a breeze.
#1: Identify Costly Clients
Most MSPs have transitioned their clients to monthly service contracts, but they may still have legacy break-fix customers on fee-for-service contracts. While these customers may generate a lot of revenue, they are often the most difficult and costly (and frustrating) to your business.
Break-fix customers often come with big problems that are difficult to diagnose and fix, since you don’t control what tools they are, or are not, using. Many of these clients develop a tolerance for problems that they perceive as “minor”, which create frustration over time and tend to escalate into major issues. By the time you’re called in for help, the client’s productivity is already suffering and there’s a negative association created in their minds.
You can address these problems by either convincing these customers to move to monthly service contracts or letting them go as a client. The key to convincing customers to transition is to shift their perception – monthly service contracts enable you to be proactive in identifying problems instead of reactive in putting out fires.
This makes life easier for everyone by enabling you to better manage your operations and customers to prevent emergencies. It also benefits the clients since proactive resolution of potential issues results in less down time for them and more productivity for their employees. This helps create a positive association between the MSP and systems running smoothly.
In addition to transitioning break-fix customers, you may have some monthly service contracts that consume more resources than others. Tracking the time and resources spent on each client can help provide insights into whether any single client is costing more than they’re paying for a monthly service contract. These may be great opportunities to renegotiate a contract using a different pricing model, such as fewer included work types, or a higher monthly price.
Our software enables you to quickly identify this information by tracking revenue and expenses on a per-client basis. You can instantly generate reports showing your least-profitable clients – or even unprofitable clients – and use these reports as a starting point for renegotiation.
#2: Properly Price Contracts
MSPs use many different pricing models, including monitoring-only, tiered pricing, flat-fee value-based pricing, per-device or per-user pricing, and a la carte pricing. While it’s easy to default to the same pricing model across the board, you shouldn’t be afraid to experiment with different pricing models to find what works best. Different customers operating in different industries may also respond better to different pricing models.
It’s easy to default to the same pricing model across the board, but MSPs shouldn’t be afraid to experiment to find what works best.
When exploring pricing models, it’s important to keep these tips in mind:
- Know Your Costs: Quantify the total cost of delivery to clients and your business’ break-even point. These costs include both infrastructure costs and engineer hours, as well as any ancillary costs that may be associated with deliverables.
- Know Your Benefit: Determine how much an in-house staff would cost relative to your service offering. This involves estimating how many employees would be needed, their annual total compensation, and the cost of infrastructure.
- Know Your Competition: Research what your competition is charging to understand where you fit. This doesn’t necessarily mean undercutting competitors, but rather, positioning yourself as the best overall value in the market.
It helps to understand the usage levels and pricing across different industries. Using this data, you can deliver agreements that are both profitable for you and acceptable to the client.
#3: Keep Employees Productive
Did you know that unmotivated workers cost companies about $300 billion per year in lost productivity? And, it’s a widespread problem with less than 15% of employees describing themselves as engaged with their job, according to Gallup.
Employee productivity could be the single largest hidden cost for your business unless you’re actively measuring and addressing it. This means setting the right expectations, putting systems in place to measure employee performance, using incentives to boost employee performance, and addressing underperforming employees early on. This may seem like a lot of work to set up, but the return on investment can be substantial over time.
There are many different strategies that can be used to help keep employees more productive, including non-financial rewards that won’t impact your bottom line. Here are three examples of common strategies that can be used to keep employees happy:
- Incentive: Ensure that engineers are well-compensated relative to market rates for their jobs and consider productivity based bonus plans as a way to achieve greater buy-in.
- Mastery: Ensure that engineers are challenged enough in their work without being over their head to eliminate boredom and burnout.
- Autonomy: Consider offering engineers a higher level of autonomy in their job, such as flexible work hours and the ability to choose projects.
The Bottom Line
MSPs tend to become increasingly complex over time as new clients and employees are added to the organization. With the right business intelligence systems in place, this growth doesn’t have to lead to costly inefficiencies. We have looked at three strategies to avoid leaving money on the table, but the right business intelligence systems can close countless other loopholes that can lead to lower revenue and margins.
Sign up for a free demo to learn how MSPCFO can help your MSP realize all of the benefits discussed in this article along with countless others.