The Math and Science of Top MSP Profitability
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The top 10% of MSP’s enjoy profit margins that are 3 times the industry average. These top providers are not smarter and they don’t work harder, they simply focus on key metrics and priorities that drive massive results. Join MSP guru Gary Pica as he shares secrets that have transformed two of his MSP’s into industry leaders. You will take away ideas that you can immediately implement to improve results. During this session you will learn: • The most common mistake that kills profitably • 3 metrics that change the way you set priorities • A framework to ensure higher margins You will learn to calculate the unrealized profitability locked inside your business and develop a plan to unlock it. If higher profitability is your priority you don’t want to miss what Gary has to say.
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The Math and Science of Top MSP Profitability
- 1. © 2015 N-able Technologies, Inc. All rights reserved. 1 The math and science of top MSP profitability
- 2. © 2015 N-able Technologies, Inc. All rights reserved. 2 Webinar details ? REC Length: 60min Questions welcome any time Recording and slides available next day
- 3. © 2015 N-able Technologies, Inc. All rights reserved. 3 On today’s Webinar Presented By: Gary Pica President, TruMethods David Weeks Channel Sales Manager, N-able
- 4. © 2015 N-able Technologies, Inc. All rights reserved. 4 Giving service providers the insights we’ve gained from working with over 5,500 MSPs
- 5. www.trumethods.com The Math and Science of top MSP profitability © TruMethods, LLC. 2016 - All rights reserved.
- 6. www.trumethods.com • There is a science to generating higher MSP profit margins • Most MSP don’t understand the simple math MSP Science © TruMethods, LLC. 2016 - All rights reserved.
- 7. www.trumethods.com MSP Math and Science 1. MSP Pricing 2. Impact of client size 3. Measuring value through reactive time © TruMethods, LLC. 2016 - All rights reserved
- 8. www.trumethods.com Checkpoint Average World Class AISP < $100 $130-$160+ Average MRR < $2,000 $3,500+ Net Profit 10% 25%+ Leverage $100,000 $150,000+
- 9. www.trumethods.com Copyright 2013 TruMethods, LLC Leverage • Relationship between an hour worked and a dollar billed • More revenue with less EE’s Pricing Guidelines
- 10. www.trumethods.com Measuring Leverage Average MSP World Class Number of Employees 10 10 Annual Service Revenue 1,000,000 $1,500,000 Leverage $100,000 / EE $150,000 / EE Unrealized Profitability = $500,000! © TruMethods, LLC. 2016 - All rights reserved.
- 11. www.trumethods.com Unrealized Profitability What is your unrealized profitability? Number of employees * $150,000 minus Annual Service Revenue = Unrealized Profitability Copyright 2012 TruMethods, LLC
- 12. www.trumethods.com MSP Math and Science • How much should you charge for your services? • How much will clients pay? © TruMethods, LLC. 2016 - All rights reserved
- 13. www.trumethods.com MSP Math and Science • How much should you charge for your managed services? –What are you costs? –What GM do you expect? © TruMethods, LLC. 2016 - All rights reserved
- 14. www.trumethods.com MSP Math and Science • Pricing hourly services is easy –Hourly rate –Employee cost –Utilization/effective rate © TruMethods, LLC. 2016 - All rights reserved
- 15. www.trumethods.com MSP Math and Science • MSP pricing is more complex –We charge a monthly fee –We have tools and technology –Several people and roles deliver services –We need a standard to measure costs and profitability © TruMethods, LLC. 2016 - All rights reserved
- 16. www.trumethods.com MSP Math and Science • All in seat price (AISP) –Average price per seat –Total MRR divided by total seats supported –$2,000/month for 20 seats=$100 AISP © TruMethods, LLC. 2016 - All rights reserved
- 17. www.trumethods.com MSP Math and Science • What is your gross margin on the $2,000/month client? –You need to calculate your average cost per seat –If you don’t know your seat cost you don’t know if your price is right © TruMethods, LLC. 2016 - All rights reserved
- 18. www.trumethods.com Cost per Month per Seat Support $9.38 Centralized Services $9.50 Network Administration $11.60 vCIO $6.31 Total: ~$36 / Month / Seat Micro Picanomics © TruMethods, LLC. 2016 - All rights reserved.
- 19. www.trumethods.com Gross Margin: AISP Total Cost per Seat Gross Margin Gross Margin % $125 $36 $89 72% Micro Picanomics © TruMethods, LLC. 2016 - All rights reserved.
- 20. www.trumethods.com What if your AISP is lower? AISP Total Cost per Seat Gross Margin Gross Margin % $125 $36 $89 72% $100 $36 $64 64% $85 $36 $49 58% Micro Picanomics © TruMethods, LLC. 2016 - All rights reserved.
- 21. www.trumethods.com What if cost per seat is higher? Micro Picanomics AISP Total Cost per Seat Gross Margin Gross Margin % $125 $46 $79 63% $100 $46 $54 54% $85 $46 $39 45% © TruMethods, LLC. 2016 - All rights reserved.
- 22. www.trumethods.com Not all costs are per seat • Per seat costs –Support desk –Tools and technology © TruMethods, LLC. 2016 - All rights reserved
- 23. www.trumethods.com Not all costs are per seat • Per client costs –vCIO –Network Administration © TruMethods, LLC. 2016 - All rights reserved
- 24. www.trumethods.com Not all costs are per seat • One vCIO can manage 35-40 accounts –35 X $1,500 MRR/client= $52,500 MRR –35 X $3,500 MRR/client= $122,500 MRR © TruMethods, LLC. 2016 - All rights reserved
- 25. www.trumethods.com Not all costs are per seat • One Net Admin can manage 20 accounts –20 X $1,500 MRR/clients= $30,000 MRR –20 X $3,500 MRR/client= $70,000 MRR © TruMethods, LLC. 2016 - All rights reserved
- 26. www.trumethods.com The impact of price Example Avg. Seats Avg. AISP Avg. MRR MRR with 50 clients Seats Right Customers- Right price 20 $140 $2,800 $140,000 1000 Right Customers- Wrong Price 20 $95 $1,900 $95,000 1000 © TruMethods, LLC. 2016 - All rights reserved.
- 27. www.trumethods.com MSP Math and Science • How much should you charge for your services? • How much will clients pay? © TruMethods, LLC. 2016 - All rights reserved
- 28. www.trumethods.com Value based pricing • Technology based pricing: Value built on features, tools and support • Value based pricing: Value build on business impact • Ability to “reframe clients” by showing the impact on the big costs in their business © TruMethods, LLC. 2015 - All rights reserved
- 29. www.trumethods.com Reframing process Copyright 2010 TruMethods, LLC
- 30. www.trumethods.com The MSP Value Stack MSP • Support • Cloud services • Professional services © TruMethods, LLC. 2015 - All rights reserved
- 31. www.trumethods.com The MSP Value Stack Budget Strategy Impact Alignment MSP © TruMethods, LLC. 2015 - All rights reserved TruBusiness Partner
- 32. www.trumethods.com TruBusiness Partner • Technical to business relationship • Business Strategy • Business goals, challenges, risks, vision, core values, competition, competitive advantage, market position, margins… • Technical Alignment and Business Impact are the foundation © TruMethods, LLC. 2015 - All rights reserved
- 33. www.trumethods.com The Value Stack © TruMethods, LLC. 2015 - All rights reserved World Class Impact Alignment MSP • Time at the top of the stack=value • Reactive time is the barrier • Control reactive time to control your value!
- 34. www.trumethods.com Inventory of Time © 2015 TruMethods, LLC. All rights reserved
- 35. www.trumethods.com Finite amount of time • Your technical time is inventory • You have a finite amount of inventory • Your inventory has no shelf life • What percentage do you spend on reactive support? • How much time is left to spend at the top at the stack? © TruMethods, LLC. 2015 - All rights reserved
- 36. www.trumethods.com How your inventory is allocated • How many tickets do you close in a month? • How much time does it take to close? • How much of your total available time is reactive? © 2015 TruMethods, LLC. All rights reserved
- 37. www.trumethods.com Calculate RHEM Tickets / Endpoint / Month times Average Resolution Time equals Reactive Hours / Endpoint / Month (RHEM) © 2015 TruMethods, LLC. All rights reserved
- 38. www.trumethods.com Example A B C D Tickets / Endpoint / Mo. 1 0.5 0.5 0.25 Avg. Resolution Time 1 hour 1 hour 0.5 hours 0.5 hours RHEM 1 hour 0.5 hours (30 minutes) 0.25 hours (15 minutes) 0.125 hours (7.5 minutes) Support Resources 6.25 3.1 1.55 0.78 © TruMethods, LLC. 2015 - All rights reserved • Endpoints supported: 1,000
- 39. www.trumethods.com Inventory of time Total available technical time minus RHEM = time left at the top of the stack? © 2015 TruMethods, LLC. All rights reserved
- 40. www.trumethods.com Hours per Delivery Area © TruMethods, LLC. 2015 - All rights reserved 0 200 400 600 800 1000 1200 1 hour RHEM .5 hours RHEM .25 hours RHEM .125 hours RHEM Hours / Delivery Area (1,000 Endpoints) Reactive Support Professional Services Centralized Services vCIO Network Administration Company B Company C Company D Company A
- 41. www.trumethods.com Bold Statement • You can control the amount of reactive service requests generated from your clients! • What is the science behind lowering RHEM? © 2015 TruMethods, LLC. All rights reserved
- 42. www.trumethods.com Lowering RHEM © TruMethods, LLC. 2014 - All rights reserved • Using Automation to lower RHEM –Review tickets and alerts monthly –Look for recurring issues –Use monitoring and automation –Go beyond patch, spy, and spam
- 43. © 2015 N-able Technologies, Inc. All rights reserved. 43 Managed Services PlatformRemote Services Technology | Product Family MSP Anywhere Remote access & support MSP Manager Ticketing & billing N-central Monitor. Manage. Automate. Connect in seconds Cross platform Support mobile devices Session transfer Session recording Performance dashboard Ticket management Customer portal Password management Technician scheduling Customer billing Accounting integration Device monitoring Health & performance alerts Drag & drop automation Integrated patch, AV, backup Integrated remote control Business reports $49 USD / month per concurrent user $49 USD / month per concurrent user Starting at $499 USD /month Unlimited sessions 300 devices Unlimited tickets Unlimited billing Monitor 100 devices free Free business coaching
- 44. © 2015 N-able Technologies, Inc. All rights reserved. 44 SIGN UP FOR A FREE TRIAL N-ABLE.com The N-ABLE TECHNOLOGIES and N-CENTRAL marks are the exclusive property of N-able Technologies, Inc. and its affiliates, are registered with the U.S. Patent and Trademark Office and the Canadian Intellectual Property Office, and may be registered or pending registration in other countries. All other N-able trademarks, service marks, and logos may be common law marks, registered or pending registration in the United States, Canada, or in other countries. All other trademarks mentioned herein are used for identification purposes only and may be or are trademarks or registered trademarks of their respective companies.
- 45. www.trumethods.com Lowering RHEM © TruMethods, LLC. 2014 - All rights reserved • Using Technical Alignment lower RHEM –Develop detailed standards –Continuously align clients technology –Dedicate resource to this network admin role
- 46. www.trumethods.com © TruMethods, LLC. 2014 - All rights reserved Support Centralized Services Professional Services Net Admin vCIO Super Power!
- 47. www.trumethods.com Network Administration vCIO Unleash your Super Power Standards Technical Alignment Business Impact Client Strategy © TruMethods, LLC. 2014 - All rights reserved
- 48. www.trumethods.com © TruMethods, LLC. 2014 - All rights reserved Your client’s alignment against your standards Your standards (Super Power)
- 49. www.trumethods.com MSP Math and Science 1. MSP Pricing: AISP 2. Impact of client size: Average MRR 3. Measuring value through reactive time: RHEM © TruMethods, LLC. 2016 - All rights reserved
- 50. www.trumethods.com Summary • Target 70% GM on MSP revenue • To command high prices you need a value based pricing approach • Lower RHEM and move up the value stack © TruMethods, LLC. 2016 - All rights reserved
- 51. www.trumethods.com The FormulaWon Program • Lower RHEM and increase efficiencies • Build a true competitive advantage • Eliminate price as an objection • Consistently build recurring revenue • Dramatically increase profit margins • Ready to achieve financial independence! Why TruMethods? © TruMethods, LLC. 2016 - All rights reserved.
- 52. www.trumethods.com FormulaWon Training • Over 150 hours of role based content • 2 Live Webinars / mo. • Weekly Podcasts Community • Member Forums • Ask TruMethods • Schnizzfest • Events Tools • myITprocess™ • SMART Numbers • Business Plan Template • Sales Playbooks Copyright 2010 TruMethods, LLC Results: • Complete Business Plan • Gain Command of your SMART Numbers • Align packaging and pricing with World Class standards • Develop your Super Power • Implement Sales Discipline • Generate Leads • Raise your expectations about what’s possible
- 53. www.trumethods.com Copyright 2013 TruMethods, LLC The FormulaWon Program Fueling MSP Growth Growth Tracks is $399/month $349On boarding $1,500 NO CHARGE Special Offer: Expires 7/22/16
- 54. www.trumethods.com First 10 attendees who email: gary.promo@trumethods.com Subject line: Sign me up! SPECIAL OFFER: Expires 7/22/16 TruMethods Promotion
- 55. www.trumethods.com First 10 attendees who email: gary.promo@trumethods.com Subject line: Sign me up! SPECIAL OFFER: Expires 7/22/16 SIGN UP FOR A FREE TRIAL N-ABLE.com The N-ABLE TECHNOLOGIES and N-CENTRAL marks are the exclusive property of N-able Technologies, Inc. and its affiliates, are registered with the U.S. Patent and Trademark Office and the Canadian Intellectual Property Office, and may be registered or pending registration in other countries. All other N-able trademarks, service marks, and logos may be common law marks, registered or pending registration in the United States, Canada, or in other countries. All other trademarks mentioned herein are used for identification purposes only and may be or are trademarks or registered trademarks of their respective companies. Questions
- 56. © 2015 N-able Technologies, Inc. All rights reserved. 56 The N-ABLE TECHNOLOGIES and N-CENTRAL marks are the exclusive property of N-able Technologies, Inc. and its affiliates, are registered with the U.S. Patent and Trademark Office and the Canadian Intellectual Property Office, and may be registered or pending registration in other countries. All other N-able trademarks, service marks, and logos may be common law marks, registered or pending registration in the United States, Canada, or in other countries. All other trademarks mentioned herein are used for identification purposes only and may be or are trademarks or registered trademarks of their respective companies.