Most MSPs price their services too low and try to appeal to everyone instead of a specific high-value client. To succeed as an MSP, your service offerings must be profitable, scalable, and competitive. To become successful in these areas you must have an understanding of what kills profit. Here are the top five profit killers every MSP needs to know.
- Pricing Too Low
- Poor Financial Reporting and Disciplines
- Not Raising Prices
- Poor Billing Practices
- Not Marking Up New Software Tools and Services
How To Be Profitable
The inability to sell because you don’t have a good sales and marketing plan in place is a real concern and I see it with MSP owners all the time. It is the lack of confidence in yourself because you don’t know what your actual gross margins are. That is why you must have good financial reporting and discipline, otherwise, you’re not going to know if you’re making money or not.
I often see MSP owners that don’t want to raise prices annually even though costs steadily increase. This is a slow bleed and you must raise your prices to align with costs. However, how do you do an annual price increase with poor billing? You must have a good handle on collecting money. Let me give you an example, one of my Technology Marketing Toolkit members came to me and told me one of their senior engineers, who was also a partner in the business, was not logging hours and they found out nine months after the fact. Because of this, they had various clients that were not billed. It was an insane number of around $600,000 that they hadn’t billed clients. Now they have to go knock on these client’s doors and go, sorry, we forgot. I know it’s January, but we forgot to bill you in July. Can you pay this massive bill right now? And these clients shit a brick – some of them refuse to pay it. Now you are stuck with not getting paid or negotiating 20% or 50% of the payment. This will kill your profit fast. This is exactly why you must monitor your techs and enforce time reporting. Recording time will decrease missed billing by $17,000 on average a month.
Another example is a client adds two new employees and you deploy the workstations, but you forget to start billing them for managed services. You could be priced properly, but you’re not collecting all the money that you should and therefore your profit comes right off the bottom line. Every dollar you don’t collect is a full dollar off the bottom line, not just the margin on that, the full dollar on the bottom line. It will absolutely kill your profits.
The problem is you don’t know how profitable a customer is. If your techs are not putting their time against the tickets, you don’t know the profitability of that client on an ongoing basis and you could be losing money. The client could be paying you $50,000 a month, but you could be spending $57,000 a month on costs. These are the financials you must know.
Lastly, adding new software tools and services and then not marking them out is another mistake MSPs make that ends up costing them. I see this all the time; I’m just going to add it to the client’s package and give it to them for free. No, upsell that. That is an opportunity to upsell a new service because when you add something, you’re taking from your bottom line and that’s just killing your profits.
The most important step is getting good financial disciplines and reporting in place. I recommend hiring an accountant or a bookkeeper who knows how to actually give you correct financial reports.
Want to learn how to quickly and easily blow past a million in profitable revenue this year? Join us for a free livecast training for MSPs to shift from an exhausted tech into a profitable multi-million-dollar MSP owner!
