Simply adding more customers, seats and endpoints under management does not guarantee MSP growth.

Kaseya Guest Blogger

September 3, 2021

6 Min Read
MSP growth
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With no shortage of demand and a broad array of services to offer, it’s a great time to be an MSP. Small to midsize businesses struggling to manage the complexity and scope of core business functions rely on IT services more than ever before. In such a hot market, there’s no excuse for MSPs to not only survive, but also to thrive and grow. But simply adding more customers, seats and endpoints under management doesn’t guarantee MSP growth. MSPs need realistic, actionable business plans aligned with their capabilities and their owner’s own personal goals.

Working Backward from a Vision

Before beginning any journey, you should have a final destination in mind. MSP leaders need a vision for themselves and their business 10 years out into the future–encompassing both objectives for the business and themselves–since attaining personal financial, lifestyle and retirement goals depends on how the business performs.

Owners should start with why they got into the MSP business to begin with, assessing if those expectations have changed. With this picture in mind, it’s time to put a price tag on it: How much money is needed to turn that vision into a reality?

Visions can be quantified in terms of after-tax dollars in your personal bank account. How much to buy that boat or vacation home, or send the kids to college, or retire at 55? This math first requires calculating current personal net worth and then determining how much more personal income you need to reach that goal.

With that objective in mind, a little more math identifies how much additional monthly recurring revenue the business must generate to have enough in the bank 10 years from now to realize that vision. Essentially, two major levers influence the increased profitability needed for that financial goal: boosting revenue and increasing efficiency.

Adding Top-Line Revenue and Boosting Efficiency

Raising an MSP’s monthly recurring revenue (MRR) ultimately boils down to adding new customers or increasing revenue per seat. MSPs drive this by increasing sales activity and expanding the portfolio of products and service offered.

Landing enough new customers to reach the MRR needed for that vision may seem daunting, but it won’t seem as out of reach when broken down into more immediate actions. Get a good handle on close rate–top performers typically close about 20% of potential deals. That rate can get much higher if they’re only working off referrals, but that also limits the overall funnel of potential business.

As long as you’re consistently calling on new prospects and steadily adding new customers, you can get there in a reasonable amount of time. Viewing it by how many new deals or sales calls must be closed or made each week or month turns it into an actionable reality.

The other side of the coin is increasing efficiency and profitability. Examining seat-to-support staff ratios is an excellent starting point. This should be at a minimum of 400 seats per staff member–ideally reaching 500–which gets things to a monthly support cost of around $10 per seat.

When MSPs aren’t seeing ratios in this range, it’s time to explore opportunities for optimization. The first part is looking at employees themselves. You don’t need all “A” players, but you do need lots of “B” players equipped with the right processes, training and tools to deliver A-level quality.

Automating routine processes, consolidating management into fewer tools with more robust capabilities, and creating consistent offerings can all boost productivity and support more seats with fewer staff.

But the other weapon in an MSP’s arsenal is upping average seat price. Even minor increases create a huge ripple effect as the MSP makes more money with the same number of clients while seeing even bigger returns on newly closed business. Make sure you’re getting paid for the value you deliver, and make it a climb to the top versus a race to the bottom.  Click on Page 2 to continue reading…

Turning Vision into Reality with a Plan

Ten years is a long time. Breaking down a vision for a decade from now into shorter-term actions is critical to actually making real progress toward that objective. Begin narrowing your horizon by determining a three-year target. It’s a long enough stretch that any unexpected bumps can get smoothed out over time, but close enough to envision the steps required to get there.

Then it’s time to get more granular with a one-year plan, followed by quarterly action plans with very specific tasks and deliverables. Carving out time for this planning is a key step–if you’re not willing to set aside an entire day for strategizing, how serious are you about that 10-year vision?

Do some pre-work to make sure you have the necessary data to really analyze and project business performance out into the future. Looking at the previous year’s financials, you should have a solid grasp on revenue and gross margins by category, new MRR sales and churn.  If you don’t have ready access to this data, then it’s time to update your accounting and tracking practices so you can make properly informed decisions.

Now it’s time to calculate and benchmark your key metrics. Average seat price is an indicator of maturity and how much customers value your services, and top performers now average $20 to $25 more than two years ago, thanks to additional security offerings (hitting the $175 per month range).

Average MRR per client should average more than $3,500 per month per client. If you’re coming in below that, then your clients are too small or you’re not getting enough per seat.

Tickets per end user per month is a great indicator of quality and efficiency. MSPs average .5 per month, but top performers see half that amount with .25 per month per user.

Finally, calculate your MSP’s “turning point.” Only once all your operating expenses and overhead are covered by recurring revenue are you truly in a position for growth.

With these numbers in hand, it’s time to figure out what must happen this year to grow at a pace where that three-year target is attainable, whether it’s adding clients, bumping up pricing or increasing efficiency. Then break things down further to determine what specific things must occur this quarter to reach the annual goals.

And remember that plans don’t just sit on a shelf once they’re done. Progress should be tracked weekly, continually making course corrections to keep problems from festering or from shiny objects distracting the team from the primary short-term objectives.

Upping your Game to Make Your Dreams Come True

MSP owners can bring their visions to life if they’re willing to turn their MSP businesses into finely tuned growth engines. Increasing the benefits to customers warranting higher per-seat prices is part of the equation, as their willingness to pay is a better indicator of how they value you than any net promoter score. The more your MSP becomes their Virtual CIO, the more entrenched and treasured your service becomes.

Boosting sales efforts to put more prospects in the funnel inevitably leads to more customers, which is equally essential to boost MRR. But it’s IT efficiency that drives profitability. Seamless workflows, contextual information, IT automation, RMM, PSA and IT documentation are the lifeblood of MSPs maximizing their returns.

For much, much more on creating a plan for MSP growth, watch this free webinar on Strategic Business Planning for 2021 featuring TruMethods’ Gary Pica.

 Dan Tomaszewski is senior vice president, Channel & Community, Kaseya.

 This guest blog is part of a Channel Futures sponsorship.

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