14 Business and Financial Tips for MSPs
Which financial and business metrics are most important for a managed service provider to track? Larry Schulze, co-founder and principal consultant at Taylor Business Group, offered up key thoughts during the N-able Partner Summit. Here are 14 key business and financial metrics he mentioned.
All thoughts below are paraphrased from Schulze’s presentation.
1. Mandate that your preliminary finances are on your desk by the 10th day of every month. If you aren’t looking at real numbers regularly, you can’t make informed decisions.
2. Sales team should have a predictable day: Don’t manage people, instead managed their activities.
- Client-only focus time (9:00am to 11:30am, 1:30pm to 4:0opm)
- Cold calling: 20 to 50 per day (or until one new appointment is created per day)
- Appointments: strive for 10 per week
- Proposals: 3 per week
- Closes: 2 per week (not just managed services)
- 70 to 80 percent of all your proposals should be closed. Don’t waste time doing proposals for business you won’t likely win.
3. First meeting with customer should be a needs analysis rather than a product or service pitch. On the second meeting, you present the solution based on their budget, timeframe and needs.
4. Timesheets turned in every day; utilization of at least 75% billable time. Pursue technical certifications as required. Measure customer satisfaction achivement. Utilization rates are still part of the MSP formula, according to Schulze.
5. Service: Only one question for your customer matters: “Would you refer us to someone else?”
6. At least 35 percent of revenues should be services
7. Minimum 8.6% net operating profit
8. Annuity revenues should represent at least 37.5% of your services revenue.
9. Services salaries should be no more than 33% of service revenues
10. Minimum of 18 percent gross margin on product.
11. Sales expense not to exceed 10% of total revenues.
12. One third of every GP dollar goes to the sales person, two-thirds of every GP dollar goes to the company.
13. No more than 10 percent of accounts receivable over 60 days past due.
14. Sales days outstanding less than 35 days.
Did I miss anything? I’m all ears.
These are some great tips except for #6 and #8. This is MSPMentor NOT The VAR Guy. If service is only 35% of your business and recurring service is only 1/3 of that you are NOT an MSP. You are a product focused VAR that dips it’s toes into Service. When we were a VAR our rule of thumb was 30% product 70% service, now that we are an MSP it is 100% service and 90% of that is recurring.
Hey Lane: Our comment boards will always remain open to constructive criticism, like the info you’ve offer up. Thanks for taking the time to add your perspectives. There often is a blurry line between VAR and MSP. You’ve helped to make the line a bit clearer.
-jp
I have to agree with Lane and state that from a simple analysis, the tips are good for those trying to make the shift from VAR to MSP. One thing Larry seems to have missed is the points to work on for the transition to being a profitable MSP being a VAR. I have always advocated the following:
1. Teach every employee about the inherently elegant beauty of recurring services contracts and why they are the lifeblood of your company.
2. Develop a Service Level Agreement for your customers and stick to it. Design your SLA to be in concert with your service delivery and then expound the value that you provide.
3. Forget about hardware margins – make it a convenience to your customer not a profit center. Use SaaS solutions like ChannelOnline (http://www.channelonline.com) to streamline the procurement process. Sell from a cost plus basis and you will never lose money on a deal. If you follow this strategy in respect to hardware you will never suffer when there is a shortage of Capital Expenditures (the last 18 months…)
4. Forget about utilization rates – focus on automation, process and procedure not billable hours. Managed Services customers do not like surprise hourly bills for work that is not covered. For your technicians and engineers, billable utilization rates encourage the wrong activities – it tells them to spend more time fixing the problem rather than preventing it.
5. Invest in yourself – hire the best, use the best tools, develop systems that fit your customer’s needs and your company’s offerings.
6. Sell on value not on margins – The day you start selling on value and not a multiple of your costs is when you will achieve the most profitable phase of your company’s existence.
My opinion, your mileage may vary.
Good points Gregg and Lane. Just one thing, measuring utilisation isn’t good enough anymore. You need a clear understanding of employee productivity per task. If you don’t think that is important then more than likely you are heading for trouble. The more accurate and productive your staff and processes are the better for the staff, your clients and your bottom line.
Just an observation, for better or for worse (or for neither), this 1/3 and 2/3 in #12 is exactly what law firms who use the partner/associate model do. The one exception is that law firms split it 1/3 associate who brings in the deal, 1/3 partners and 1/3 to the firm. That’s just an FYI for you guys and depending on whether you like or hate how law firms do it or not. That being said, most do have polished woods and marble floors in their offices at the big firms :-).