Are your Managed Service Agreement profit margins where they should be, need to be, and where you want them to be?
If not, ask yourself these key questions to help you identify some of the root of the problem:
- Do your Techs know when to apply a contract or to remove the default contract on a service request?
- Does someone review the Customer’s request prior to, during, and after the engagement to ensure the work being done is within the scope of the Managed Service Agreement?
- Do you have processes in place to require the review, and to make the process as easy as possible?
- Are you using automation to ensure the work being done is covered by a contract?
Are Your Procedures Doing the Job?
How can you tell if your procedures are doing the job when it comes to Contract vs non-Contract work? From our experience, the average MSP enjoys a ratio of 80% contract work to 20% T&M.
If your billable T&M work is under 20%, then there is a chance you are giving away too much. In fact, you could be in a position to increase profit without even onboarding a new Customer or hiring another Tech.
What is it worth? For an MSP with 5 Techs, running at about 10% T&M, improved Communication and Accountability are worth about $156,000 per year. Not too bad, right?
The lost profit issue is brought about by two challenges:
- Communicating to the Support Team what is included (and what is not included) in the service agreements.
- Creating and implementing the procedures to check the contract in tickets and holding the Support Team accountable to follow the procedures.
Why a Communications Gap Is a Problem
Go figure, the root of the problem is COMMUNICATIONS. In this case, we are talking about the communications gap between Sales and Service.
Close the gap by following this process:
- The IT Service Manager should meet with the Sales Manager to review the agreements, so there is a clear understanding of what services are being offered.
- Together, the IT Service Manager and Sales Manager need to create a list of Customer Agreement one-offs.
- A simple presentation (Excel Services Grid, PowerPoint presentation, Word or PDF one-sheeter, etc.) should be created and distributed to everyone in the Company.
- Add Services to the Customer Contracts in the PSA/IMS tool, so that the intake personnel and Technicians can quickly review what Services are available for that Customer and update the Ticket accordingly.
- The IT Service Manager needs to monitor Ticket quality, looking for coaching opportunities to prevent profit loss or to see if they are understating the value of the Managed Services Agreements.
Sounds easy enough…right?
Not so fast. Even in small shops, experience has shown me that these five simple steps are not all that easy.
- There are months of back and forth between Sales and Service before the general services offering is actually defined.
- Then another month goes by before it is simplified and ready to present to every Employee.
- Add a few more weeks to change the configurations in the PSA/IMS tool.
- Finally – you’re looking at another six months of coaching and monitoring before new habits are established.
- Don’t fret, the profit increases start almost on day one.
Accountability: Another Root of The Problem?
Over the past few months, Resource Utilization has been a huge topic for us. (Click to read article #1 in our Resource Utilization series, or download our FREE comprehensive eBook on how to leverage the report).
Our experience has shown us that when using the Resource Utilization Automation System, the average Contract to non-Contract work is 80/20.
In fact, several times while piloting the Resource Utilization Automation System, we came across MSP’s with less than 20%. Boy did they smile as the Automation System helped them increase T&M billing to 20%.
Each 1% increase is worth $3K per year – and for one MSP, the 18% increase resulted in another $168K in profit.
Discovering less than normal T&M to Managed Service ratio drove us to…
- Develop Triage procedures where the Contract is checked after there is a clear understanding of the request and description.
- Encourage the Service Managers to coach and mentor good disengagement habits with the Techs to have them check the Contract before saving and closing the time entry.
- The best–in–class Service Managers also leverage the automation in the Resource Utilization report to highlight lost profit areas and return the Time Entries to the T&M bucket.
Do you know your T&M to Managed Service Ratio? If not, purchase and implement our Resource Utilization Automation System.
If you know your ratio but it is under 20%, enter into a Trusted Advisor relationship with SDB-Consulting, and leverage our expertise to help you make major improvements at your IT MSP.
P.S. Here are the five articles in our Resource Utilization series to serve as a quick, easy go-to reference for you:
- How Resource Utilization Can Help Your IT MSP Prosper: Part 1
- Why Resource Utilization Can Help You Balance Internal Time in Your IT MSP
- 4 Keys to Managing Company Time at Your IT MSP