Setting Clients in Motion—But Not in Flight

Posted by Larry Cobrin on Sep 11, 2018 8:13:00 AM

Any MSP has good clients and not-so-good clients. The former have strong efficiency ratios and stable relationships with your MSP. But not-so-good clients can have various problems, from efficiency outside the healthy range to instability, reduced profitability, and even the potential for the dissolution of the MSP-client relationship.

This blog article is about setting those not-so-good clients in motion. First, you need to determine who they are, which you can do through reporting assessment. Once you know the problem areas, you can move forward with improving efficiency and the health of the relationship.

Use Reporting to Identify the Problem

To find out where the problem areas lie, look at a client’s efficiency ratio, target hours, and profitability per hour.

Example: Your engineer puts in 6 hours at $150/hour for a client, for a shadow billable of $900. The invoiced labor—the labor portion of your monthly recurring revenue—is $1,600. The efficiency ratio is 1.77; many experts suggest  it should be between 0.8 and 1.5. The client is paying more than they should.. And if the client is also purchasing thousands of dollars worth of products, the MSP profitability per hour will be even higher.

That may all sound good, but it’s not: You are compromising your relationship with the client, and creating a flight risk. You’re providing less service than what the client is paying for. Nobody wants to feel as though they’re overpaying; if a client starts to feel that way, they might start looking at other MSP options. More globally, beyond one individual client, your reputation for providing MSP services at a fair rate could be hurt.

MSPCFO provides efficiency ratios, target hours, and profitability per hour in reports, so you can immediately see which clients need to be set in motion. Because profitability per hour factors in components other than labor, it is important to look beyond profitability. You can have a bad agreement with a good client—one who brings you profits, but whose efficiency ratio is poor.

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Follow Through with a Fix

Once you have determined the issues, develop an action plan for underperforming and underserved agreements and clients. Consider making changes in the following areas.

Pricing

In another blog article, we discussed ways to adjust pricing for clients at the too many / too few hours ends of the spectrum. We recommend reading through the article, but in short, consider reducing the price for exceptionally high-efficiency clients, and raising your rate for very low-efficiency clients.

The last call you ever want to get is one from a client asking, “What am I paying for?” The last call you ever want to have to make is one telling a client that your business is in trouble because of underpricing. Avoid both by assessing your pricing early and regularly.

Systems and Operations

One source of over-utilization of an MSP may be the systems and operations in place. Study your MSP reports on tickets per node, reactive minutes per ticket, reactive minutes per node, and cost per node. Which clients have problems with frequency, tickets, or using more expensive resources?

Something as simple as implementing a password management system can reduce ticket counts for password reset tickets significantly. Using reporting to determine problem areas allows you to review the technology and processes in place. Then you can ask a critical question: Are they as efficient as they could be?

Personnel on the Job

Inefficiency may be traceable to a personnel issue. Maybe the engineer requires further training, or maybe the assignment hasn’t been given to the appropriate team. Reviewing your reporting will let you determine whether to consider an engineer reassignment, or whether training needs are not being met.

Personnel issues can run the gamut from underperformance to over-performance. At the latter end of the spectrum, an engineer may be so good at his or her job that the client gets anxious. Reduce churn with a bit of proactivity, for instance by placing a check-in call to remind the client that they’re a priority. Another option for flight risks is to consider not paying the engineer a bonus for work not being done. You could also send the client to a lower-producing engineer, to help the engineer meet his or her numbers.

For underperforming clients, review the agreement productivity to see how much is going toward work overages. We at MSPCFO have seen tens of thousands of dollars being spent on overages. It’s frustrating for the MSP, but when they discover the issue through their reporting, they know to fix it.

Don’t Try to Change All Clients at Once

You won’t be able to increase profitability for all clients at once. Approach each “bad” client as an individual fixable issue. Nor will you be able to save money across all metrics. Use your reporting data as actionable information that allows you to tackle problem areas and improve your business progressively.

 

Topics: Fixed Fee Agreements, Agreement Pricing