5 lessons for profitability

I recently had a conversation about the challenges of running and growing an MSP with Mike Nelson of Arizona-based Canyon Horizon LLC.  Many of the points we discussed seemed like common sense, but several of the experiences he shared might be considered insightful.  Here’s a summary of our conversation:

1.   Offer a disaster recovery program – insist that your clients sign-up

Don’t wait for your customer to say they need to back up their mission-critical data. You tell them it is necessary and then implement it.

“Whenever I take on a customer, establishing clean backups and testing restoration are the first things I do,” said Nelson. “Even if they already have a backup solution in place, I never trust those. I only trust what I put together. Too many times I have had those hard conversations when you cannot provide a clean data backup.”

Always have three copies of mission-critical data – in the cloud, location-based with a robotic tape library and other long-term backups, and one onsite. That gives you three places to go anytime anybody needs any data.

When restoring, first check the onsite backup, then the location, and then the cloud. Cloud restorations take a long time, so it is the last resort.

Verify the backed up data more often than monthly, because there might be a flaky tape library or other intermittent hardware failure.

2.   Use remote access and monitoring software

Your Remote Access (RA) software is always on, even when customers are not logged in, because you must be able to run patches as soon as they become available.

Remote Monitoring (RM) software monitors hard drive status and critical events, and emails you when a critical event happens.

Some solutions require you to have your own server. Some are cloud-based and some have hybrids. Costs of these solutions vary, depending on whether the system is monitoring enterprise-wide or only a few workstations.

In many instances, antivirus (AV) software is partnered with remote access software. When you migrate you have to take that into consideration; if you change RA and RM, you will likely have to change AV.

Each has its strengths and weaknesses. LogMeIn for example, works on an iPad, whereas a lot of RA software does not work on tablets.

3.   Understand your pricing model

Have the costs in your head before the meeting, because you want to be upfront about your pricing, and you do not want to be fumbling with cost calculations in front of a customer.

  • You want to keep the customer’s network healthy, so you make the most amount of money with the least amount of work.
  • Customers do not have to worry about high monthly bills and their systems work well.

MSPs generally operate one of two pricing models – flat rate and value based.

Flat rate pricing gives the same service, whether that service requires 1,000 hours per month or 5 hours per month.

Value based pricing requires wowing customers with your bonuses. You may offer to provide monthly reports on hard drive status or some other example. The expectation from the customer is high, while you want to do as little as possible to maintain margin. We have seen issues with this model.

“Customers have left me at renewal time when I did value-based pricing, going to John Doe down the street who comes onsite a couple of times a week and offers them a lower value-based price,” commented Nelson. “When they don’t see me every day they don’t always recognize the value they’re getting from always-on remote monitoring. Then sometime later (when things haven’t gone well with John Doe) they call me to ask if I still have any clean copies of their backups. Unfortunately I have usually deleted them by that time.”

The mark of a good business is valuing itself. To be a profitable and high quality provider, you don’t want to be the lowest price on the street.

4.   You don’t have to be an expert at everything

You are going to have server problems, ladder and switch problems, and physical problems like network cards and workstations.

It is common for MSPs to feel they can solve any issue with an Internet search. It is reasonable to assume solutions for 80% of issues are only a search away.

However, when the solution is not findable online, an engineer might spend hours and hours on an issue. When your customer is having serious downtime and you’re saying, “We’re trying this and we’re trying that and waiting to see what happens,” they’ll eventually move elsewhere.

To stop that from happening, show you can pull in the same resources as the big companies, even if you are a smaller MSP.

“Now if it takes more than two hours and I don’t have the skillset internally, I post an ad on Upwork,” commented Nelson.  “The other day I had a CCIE at $40/hour troubleshooting the issue, which he resolved very quickly. Solving an issue fast is not only cost efficient, but it keeps your customers happy and continuing to work with you.”

It is also a sales point for customers when you tell them, “I have access to top skillsets”, even if they are contractors and not full-time with you. You can mitigate the problem as much as possible by having available someone who is a true expert.

You are not necessarily your own best expert. Find the right people to escalate to and incorporate them into your team.

5.   Have a clearly defined business process

Many business owners learn the hard way that you cannot cut corners with your business software. If at first you choose a lower cost business software solution you will end up having to pay to migrate to a better one.

Your business software must have an easily used invoicing component – fill out the work log, complete the invoice, and send it. Some online programs are very efficient and save you time.

Have both a bookkeeper and an accountant. Someone responsible for taxes and annual expenses. Many businesses cut corners here too, and eventually end up paying more for it.

You also definitely want a work order/assignment tracking system. A work order system does not have to be fancy, as long as it is good. It is also a great time management tool, because if there aren’t work orders there’s no reason to have technicians.

“I’ve seen lot of MSPs who take the reactive approach, reacting any time they get a call,” Nelson concluded. “It’s a terrible business model. Even backups should be a monthly work order so they can be scheduled and completed. As long as you’re prioritizing your work orders, you won’t have issues.”


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