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…