Engineer Salaries and Their Effect on Profitability

Posted by Larry Cobrin on Aug 15, 2017 11:29:24 AM

The success of your MSP depends on you balancing three vital areas — the quality of service you provide, the rates you charge your customers, and the salary you pay your engineers. It’s only when those three areas combine perfectly that you can sustain and grow a thriving MSP. In this blog post, we’re going to look specifically at one of these key area: Engineer Salaries and how they relate to MSP Customer Rates. Read more…

Three Critical Areas for a Thriving MSP

As a Managed Service Provider, it’s vital your engineers provide cost-effective installation, maintenance, upgrade, break/fix, consulting, decommissioning, and other services. The success of your MSP depends on you balancing three vital areas — the quality of service you provide, the rates you charge your customers, and the salary you pay your engineers.

It’s only when those three areas combine perfectly that you can sustain and grow a thriving MSP business. These three core factors hold true no matter what type of MSP you are running — infrastructure, application development, project management, outsourcing, hosted services, cloud and hybrid, or something else.

Two Key Profitability Levers

In this blog post, we’re going to look specifically at one of these key area: Engineer Salaries and how they relate to MSP Customer Rates. 

When it comes to setting a salary for your engineers, what you offer will be determined by current market rates, supply and demand, experience, and several other factors. This means that when it comes to setting rates with your clients, you must find that sweet spot between profitability and perception — they see they are getting excellent value for money, and your MSP business still turns a good profit.

Setting Engineer Salaries and MSP Customer Rates

So, what exactly is that sweet spot of profitability? According to Rex Frank of Sea-Level Operations, a leading MSP coaching firm, it is this:

“An engineer should bill three times their basic salary.”

Let’s break this down. Here are some important details to remember about setting engineer salary:

  • This is a general rule of thumb.
  • It will apply in most, but not all, MSPs.
  • You need to take into account how many hours you actually charge for — they may be employed for 120 - 130 hours a month, but only bill for 100.
  • The basic salary includes their standard pay and any incentive payments.
  • It does not include benefits of any kind or other employment costs.

You can also calculate a fully-blended cost for each engineer — salary, incentives, benefits, retirement plan payments, equipment, expenses, and other FTE costs. This rate should be equal to between 46% to 48% of what you charge to customers. 

Converting Engineer Time into Billable Dollars

Ultimately, every engineer must efficiently convert their chargeable time into billable dollars. This means:

  • Accounting and billing for all the time charged to a customer.
  • Ensuring schedules are optimized to maximize billable time.
  • Reviewing “flat rate” customer agreements to ensure you’re adhering to these billing principles.

Optimizing Customers Contracts

These are critical insights on the profitability of your MSP that are necessary tothat will help your business grow and thrive. Left unchecked, they can lead to less-than-optimal profits, and lack-luster performance relative to your peers.

If you want to truly optimize your billable rates, you need deep insight into what you are paying engineers and what you are billing. That’s where we can help you. We provide detailed analytics on everything you need to run your MSP more effectively and increase your bottom line. We’ll give you the critical insights into engineer profitability and how that relates to contract pricing. We not only show you how profitable your engineers are, but how profitable each of your clients are. Give us a call today to see how we can help your MSP thrive. Or click below to see your own ConnectWise data in action. You can see today how your own engineers are performing.