There's a perfect storm of having a finite opportunity pool combined with competition saturation making it incredibly difficult for MSPs to bring on a steady flow of new clients. This makes every client you have that much more valuable to your business. Making the most of what you have will help drive your business forward and better stabilize it for future growth and sustainability.
There are three key areas or strategies that MSPs can use to avoid these leaks and stabilize.
The first place you should look at is cost management.
Have you ever realized the real cost of payment processing fees? Fees on EFT/ACH and credit card transactions may sound insignificant, but when you look at the fees as a percentage of your total annual revenue – it really adds up. Sure, it may be another "cost of doing business," but have you shopped around to see where you can potentially reduce your rates and shave up to $5,000 off your annual costs?
A fundamental component of the MSP business model is acting as a value-added reseller for manufacturers and cloud vendors. Many MSPs have taken the pricing and margins at face value whether these products are procured directly or via distribution. Sometimes with a bit of added pressure, you can get a few points of margin knocked off depending on the approach taken. Sometimes, MSPs will grow through volume tier thresholds and never get adjusted to the new margins without contacting the partner to ensure they are applied. Using that one strategy, we found $50,000 in additional annual profit in the early days of our MSP. We were then able to hire a full-time procurement person who streamlined our quoting and ordering processes, doubling our resale volume within a year.
Next, let's turn our attention to revenue recognition; the next focus area that can significantly benefit your business.
Let's be honest, when is the last time you completed a thorough review reconciling vendor usage counts with your client billing - reconciling vendor charges across your clients and comparing them to what you are billing clients, or even have deployed? In many cases, you will find small incremental adjustments across your client base over several months or longer, cumulatively add up and result in you floating thousands of dollars in costs that are not being collected with margin from your clients.
It is common for MSPs to miss charging clients for everything they are consuming and frequently undercharge for products and services. Many MSPs play "secret shopper" to find what their competitors are charging for specific services and then purposefully undercut them in hopes of winning more business. The reality is, many clients understand "you get what you pay for." In the end, this undercutting drives down the market's perception of value for managed IT services… and that doesn't do anyone any good.
In essence, make sure you are collecting on what you’ve sold, and charge fair prices, but make sure you are also fairly compensated for the value you deliver.