Imagine a hypothetical MSP. This MSP has been in business for a few years and their managed services practice is starting to make sense. The company had a decent book of business, a good compliment of tools, and a qualified staff. In all, this hypothetical MSP company has all the outward trappings of a solid managed services organization. It even has a website that says all the right things. It's only missing one thing: margin!
In thousands of MSPs I've worked with over the years, achieving and maintaining an acceptable service margin can be very elusive. The best way I can describe it is like getting behind the wheel of a very nice sports car that hasn't been used in a long time; in order to get it to operate normally, you need to do a little work on it first. Here are a few areas where I've seen MSPs lose margin.
1) No Process. It only takes a few minutes to see that MSPs who have a new way of doing the same things again and again will never achieve significant margin. A good MSP practice must have a process for every repeatable thing it does within its service portfolio; from the mundane to the complex. Processes make everyone a lot happier, including your clients.
2) Documentation. When I tell MSPs you need a process, they all say ok, we have that. When you tell them to document, they look at it as homework and tend to push it off. Documentation does not have to be that difficult. First, start by jotting down a few notes on how you do a particular task, like de-fragging a hard drive. Write those things down and place them under "Hard Drive Maintenance." Then, when you want to add to that task, it's already there and you're only modifying an existing process for doing something. Next, move on to setting up a new user, and so on, and so on.
Documentation scares people because they typically look at the end result and think they need to write a huge manual for their company. Not so. Just start slowly and methodically, and pretty soon you'll have a pretty good handle on things.
3) SLA Review. Obviously, you will blow through your margin if you don't pay attention to the service agreements you have in place with your clients. Case in point; MSP has a clear agreement stating that if the client environment changes and breaks due to another 3rd party contractor hired by the client, the MSP is not responsible and can charge for fixing that problem. This is actually a very typical situation for MSPs. Client hires a contractor, contractor makes a change on the network, something breaks, and client calls MSP asking them to fix it. Completely unfair in my opinion.
So, having a SLA that is actually used will save MSPs a lot of un-billed work, and it will help educate the client on why it is important to adhere to better change management processes.
4) Internal Audits. Separate from 3rd party audits, which every MSP should have, conducting internal audits can be a great way to uncover hiding margin. For example, I've seen a lot of MSPs who have a service desk technician who is very chatty with the end users and spends more time than is needed on less important tasks. Customer service is important, but if you spend too much time needlessly, you can start to burn through the margin and actually end up losing money assisting a client. Nobody wants this.
Internal peer review helps build employee confidence, gives management invaluable insight and information into the service delivery mechanism, and it helps reduce the chances of accidental or intentional actions that can harm the MSP and/or the end user.
5) Pricing. I write and talk a lot about pricing. The amount of confusion, lack of certainty and confidence, makes many MSPs approach pricing in potentially dangerous ways. For example, I've heard MSPs tell me they set their pricing after seeing another MSP disclose their pricing; naturally, they feel they should match that company's pricing model, regardless if it actually will work. You cannot set a price and then change your business and service delivery model to adapt to it. Pricing must be a product of your cost of delivering goods and services sold.
This is why MSPs across the world have no set pricing model for commonly delivered solutions. Every region is different, every MSP is unique. But, remember this. When you do arrive at your true cost for delivering services and finally set your price, do so with the objective of preserving margin. Without the margin, your MSP practice, and your clients, will all be at risk.
If you do these simple things, I think you'll find your margin will grow. More importantly, you can start to fine tune your managed services practice and really start to make it run like the fine engine that it should be. You may even find some margin you never knew was there!
