Getting your Managed Services Business to $2 MillionGetting your Managed Services Business to $2 Million
A few months ago, I wrote a blog about the benefits of getting your small MSP business over the $2 million mark. Any number of channel partners approached me and asked the altogether obvious question – how do I do it? While there are a million different ways to go about building your business, here are some helpful starting points
April 30, 2014
A few months ago, I wrote a blog about the benefits of getting your small MSP business over the $2 million mark. Any number of channel partners approached me and asked the altogether obvious question – how do I do it? While there are a million different ways to go about building your business, here are some helpful starting points that I had the opportunity to discuss with one of our partners last week in Chicago (my apologies ahead of time, this is a little bit dense):
Goals – not going to spend much time on this, but it is worthwhile to establish 3 month, 6 month and 1 year goals for growth. Make them reasonable, commit to them, follow the steps below and you have a real chance to grow your business. You might choose to come back to goal setting after you have done the rest of this. That works too.
Burden – Time to determine how many available hours you have given your current staff, and decide how much you can grow before you need to add staff. Here are some simple formulas you can use to determine how much labor inventory you are burning each month, how to optimize, and when to hire.
Let’s figure out how many billable hours you have per month. Assuming 148 hours per month total (168 – 20 for vacation / sick / holiday) per technician at 70% utilization equals 104 hours per tech. Let’s round down to 100 hours per month, and multiply the result with the number of billable resources.
Determine how many average hours were worked in the prior three months and subtract that number from the total available. The result will determine how many man hours you have on the bench each month.
Take the total hours and divide that number by five to come up with a burden point total. (Assuming 3 technicians, you would get 60 points)
Now, look at your MSP customers and rank them by hours worked per month. Rank each customer as a 1 through 10 (1 is small, lower revenue customers, using an average of 5 hours per month, while 10 is for your larger customers, 50 hours per month or more).
Total those customer points up to figure out how many points you have available after your average month for growth. Let’s assume you have 40 total points in your current customer base, and you can take on an additional 20 before you are fully burdened. With this knowledge in hand, let’s focus on growth.
Sales Funnel – this is a simple tool that will virtually guarantee growth, but I only occasionally find an MSP out there who actually builds a funnel. For those who are not doing it and those who have never heard of it, here is a high level overview:
Build an inverted triangle (funnel), and draw four lines vertically across it
Fill the top area of the funnel with “leads” or “suspects”. These are raw opportunities generated by marketing efforts and contact lists. Let’s assume for the sake of demonstration that you can find 100 suspects per month.
Establish a methodology for turning suspects into prospects. A prospect is someone who can use your services, and is like to engage in the use of someone’s services during a specific timeframe (3 months, 6 months, whatever). This can be done via email, call campaigns, surveys, and direct mail. When you are done sifting those 100 suspects / leads, you should end up with roughly 20 prospects.
This is where the sales people get involved. Sales efforts don’t happen at the top of the funnel (if you are expecting your sale people to manage their own funnels from top to bottom you will find it exceeding hard to keep good salespeople on staff). Get the prospects into the hands of your sales team, and convert those prospects into customers. On average, 20 prospects are going to yield 2 customers.
You just grew by two customers. Congrats. One of the customers was a 2 (smaller) and one was a 4 (larger) for a total of 6 additional points of burden, leaving you 9 left before you are fully burdened.
As you repeat this process month after month, you will have suspects that did not make it into the prospect pool, and prospects that did not make it into the customer pool. Those prospects are still valuable, and should recycled into the prospect pool after a period of time (maybe 6 months), to be contacted again.
Suspects are a little more challenging. Sometimes they are rejected because they simply don’t fit your business model, and likely never will. Those you should flush out of the funnel, but keep the contact information somewhere, as you might have an offering that is a better fit somewhere down the road. Others will not qualify as a prospect because they demonstrate no current need. Those should go back into the suspects funnel after a resting period (6 months to a year).
Staffing – there are a number of different ways to determine when to hire, and they all revolve around the resources available to you. When I was running my IT business, I led the sales effort (for the most part) and depending on me to actually provide viable tech support was not a good idea. As a result, we tried to hire roughly three months ahead of need, while paying close attention to the impact that was going to have on cash flow at the same time.
It usually took the first thirty days for someone to get acclimated, the next thirty days for them to become productive, and about thirty days after that for the customers to become comfortable with them. With a functional pipeline (funnel) and a good weighting system, you will be able to quickly determine when it is appropriate to hire a new person and get them up to speed.
If you are a technical CEO, you may be able to “gap fill”, but be warned – if you step in and start solving problems, you are going to end up with customers who won’t be happy unless you are doing the work. Further, when you are working in the business, you are not running it.
Act like a CEO
So, establish some goals, understand how much you can actually accomplish per month, and establish a sales funnel. These three simple things will allow you to determine marketing spend, track sales productivity, predict technical resource need and anticipate cash flow issues. Additionally, you will have a better handle on your growth, be able to talk more intelligently about your business, and justify funding requests. In short, you will be acting like a CEO.
Ted Roller is vice president of Channel Development at LogMeIn. This guest blog is part of MSPmentor’s Platinum Sponsorship Program.
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