the math and science of top msp profitability
TRANSCRIPT
© 2015 N-able Technologies, Inc. All rights reserved. 1
The math and science of top MSP
profitability
© 2015 N-able Technologies, Inc. All rights reserved. 2
Webinar details
? REC
Length: 60min Questions welcome any time
Recording and slides available
next day
© 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
© 2015 N-able Technologies, Inc. All rights reserved. 4
Giving service providers the insights we’ve gained from
working with over 5,500 MSPs
www.trumethods.com
The Math and Science of
top MSP profitability
© TruMethods, LLC. 2016 - All rights reserved.
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.
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
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+
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
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.
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
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
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
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
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
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
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
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.
www.trumethods.com
Gross Margin:
AISPTotal Costper Seat
Gross Margin
Gross Margin %
$125 $36 $89 72%
Micro Picanomics
© TruMethods, LLC. 2016 - All rights reserved.
www.trumethods.com
What if your AISP is lower?
AISPTotal Costper 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.
www.trumethods.com
What if cost per seat is higher?
Micro Picanomics
AISPTotal Costper Seat
Gross Margin
Gross Margin %
$125 $46 $79 63%$100 $46 $54 54%$85 $46 $39 45%
© TruMethods, LLC. 2016 - All rights reserved.
www.trumethods.com
Not all costs are per seat
• Per seat costs
–Support desk
–Tools and technology
© TruMethods, LLC. 2016 - All rights reserved
www.trumethods.com
Not all costs are per seat
• Per client costs
–vCIO
–Network Administration
© TruMethods, LLC. 2016 - All rights reserved
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
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
www.trumethods.com
The impact of price
ExampleAvg.
Seats
Avg.
AISP
Avg.
MRR
MRR with
50 clientsSeats
Right
Customers-
Right price20 $140 $2,800 $140,000 1000
Right
Customers-
Wrong Price20 $95 $1,900 $95,000 1000
© TruMethods, LLC. 2016 - All rights reserved.
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
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
www.trumethods.com
Reframing process
Copyright 2010 TruMethods, LLC
www.trumethods.com
The MSP Value Stack
MSP
• Support
• Cloud services
• Professional services
© TruMethods, LLC. 2015 - All rights reserved
www.trumethods.com
The MSP Value Stack
Budget
Strategy
Impact
Alignment
MSP
© TruMethods, LLC. 2015 - All rights reserved
TruBusiness Partner
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
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!
www.trumethods.com
Inventory
of
Time
© 2015 TruMethods, LLC. All rights reserved
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
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
www.trumethods.com
Calculate RHEM
Tickets / Endpoint / Month
times
Average Resolution Time
equals
Reactive Hours / Endpoint / Month (RHEM)
© 2015 TruMethods, LLC. All rights reserved
www.trumethods.com
Example
A B C D
Tickets /
Endpoint / Mo.1 0.5 0.5 0.25
Avg. Resolution
Time1 hour 1 hour 0.5 hours 0.5 hours
RHEM 1 hour0.5 hours
(30 minutes)
0.25 hours
(15 minutes)
0.125 hours
(7.5 minutes)
Support
Resources6.25 3.1 1.55 0.78
© TruMethods, LLC. 2015 - All rights reserved
• Endpoints supported: 1,000
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
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 DCompany A
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
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
© 2015 N-able Technologies, Inc. All rights reserved. 43
Managed Services PlatformRemote Services Technology
| Product Family
MSP AnywhereRemote access & support
MSP ManagerTicketing & billing
N-centralMonitor. Manage. Automate.
Connect in secondsCross platform
Support mobile devicesSession transfer
Session recordingPerformance dashboard
Ticket managementCustomer portal
Password managementTechnician scheduling
Customer billingAccounting integration
Device monitoringHealth & performance alerts
Drag & drop automationIntegrated patch, AV, backup
Integrated remote controlBusiness reports
$49 USD / monthper concurrent user
$49 USD / monthper concurrent user
Starting at
$499 USD /month
Unlimited sessions300 devices
Unlimited ticketsUnlimited billing
Monitor 100 devices freeFree business coaching
© 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 andthe 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 aretrademarks or registered trademarks of their respective companies.
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
www.trumethods.com
© TruMethods, LLC. 2014 - All rights reserved
SupportCentralized
ServicesProfessional
ServicesNet
AdminvCIO
Super
Power!
www.trumethods.com
Network Administration vCIO
Unleash your Super Power
StandardsTechnicalAlignment
BusinessImpact
ClientStrategy
© TruMethods, LLC. 2014 - All rights reserved
www.trumethods.com
© TruMethods, LLC. 2014 - All rights reserved
Your client’salignment against
your standards
Your standards(Super Power)
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
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
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.
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
www.trumethods.com
Copyright 2013 TruMethods, LLC
The FormulaWon ProgramFueling MSP Growth
Growth Tracks is $399/month $349On boarding $1,500 NO CHARGE
Special Offer: Expires 7/22/16
www.trumethods.com
First 10 attendees who email:
Subject line: Sign me up!
SPECIAL OFFER: Expires 7/22/16
TruMethods Promotion
www.trumethods.com
First 10 attendees who email:
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-ableTechnologies, Inc. and its affiliates, are registered with the U.S. Patent and Trademark Officeand the Canadian Intellectual Property Office, and may be registered or pending registrationin other countries. All other N-able trademarks, service marks, and logos may be commonlaw marks, registered or pending registration in the United States, Canada, or in othercountries. All other trademarks mentioned herein are used for identification purposes onlyand may be or are trademarks or registered trademarks of their respective companies.
Questions
© 2015 N-able Technologies, Inc. All rights reserved. 56
The N-ABLE TECHNOLOGIES and N-CENTRAL marks are the exclusive property of N-ableTechnologies, Inc. and its affiliates, are registered with the U.S. Patent and TrademarkOffice and the Canadian Intellectual Property Office, and may be registered or pendingregistration in other countries. All other N-able trademarks, service marks, and logos maybe common law marks, registered or pending registration in the United States, Canada, orin other countries. All other trademarks mentioned herein are used for identificationpurposes only and may be or are trademarks or registered trademarks of their respectivecompanies.