The Science of World Class Providers Author: Gary Pica, President of TruMethods, LLC. Our industry continues to evolve. MSPs and the MSP business model have matured. There are a lot of tools and technology available to every managed service provider. Everyone has access to the same resources, which makes differentiating yourself more difficult. Bundling services and taking great care of your clients is not enough to separate your company from the competition. This makes selling new recurring revenue and commanding the right price more difficult. The result of these factors has meant that many MSPs get stuck. Sales become stagnant and industry average profit margins are too low as a result. At the same time, top performing providers are soaring. Sales, prices and profit margins are at an all-time high for the top 5% of our industry. What separates the high fliers from the rest of the industry? How do these World Class Providers (WCPs) achieve such dramatically different results in the same industry, in the same markets with the same tools and resources? World Class Defined The essence of a World Class Provider is culture. It s what happens when a company is thriving. A culture where everyone is striving to be the best they can be and help team members do the same. The true measure of World Class is the value you provide to clients and employees. You can measure value to clients by the price your services command. This is for both your hourly rate and your seat price. If your hourly rate is not at the top of the market or your all in seat price (AISP) is below $150/seat for full fixed fee then your support is not World Class. This doesn t mean that you don t do a good job supporting clients or that your clients don t like you, it just means that you are not delivering World Class results. It also means in most cases that your service delivery efficiency is also not World Class. At TruMethods, we measure efficiency with a ratio of service revenue to people that we call leverage. You calculate leverage by dividing your total annual service revenue by the total number of employees in your company. WCPs generate over $150,000 of annual service revenue per employee (total employees, not just techs) compared to average MSP s that generate just $100,000.
Moving Up the Stack There is only one way to achieve World Class results; you need to provide a higher value to your clients. We call this process of increasing perceived value, moving up the stack. Think of your value proposition as a pyramid. At the bottom is technical value and the top is business value. The base of the pyramid is the MSP model: Support: You provide reactive support to clients. Often times, success is measured in terms of response times. Every IT provider offers support. Centralized Services: This includes all services delivered centrally through remote monitoring and management tools (RMMs). It also included centralized cloud services and application such as Office 365 or remote BDR. All MSPs provide these base services. Professional Services: This includes the implementation of new equipment and services. Something needs to be updated or replaced with a new premise or cloud solution. All MSPs provide professional services. Consulting or vcio: Every MSP gives their clients advice. Any time you offer solutions to technical problems you are acting as a consultant. The primary value clients perceive from MSP services is technical value. It is expected that every MSP offers the services listed above. However, there is a limit to the value these services can deliver and therefore a limit to the price you can command. In addition, it is very hard to differentiate yourself from competitors, which impacts sales. At the top of our value pyramid is a TruBusiness partnership. This relationship is one where you not only understand their technology but you understand their industry, market position, competitive advantage, goals, obstacles, profit margins, vision and core values. You provide a technology roadmap in the form of strategy and budgeting. The primary value clients perceive with a TruBusiness partnership is business value. Establishing a TruBusiness partnership requires several things: Dedicated role: Creating a TruBusiness partnership requires that you have a role dedicated to this process. This is the role of the vcio. However, most vcios don t have the time or process to be successful. They deal with client s issues and have limited information to work with. The result is they deliver technology plans and advice that any MSP could offer. Information: Each client s technology is comprised of hundreds of details. Analyzing a client s environment in a standard way is difficult. Documenting your client s environment is a good start, but just organizing technical details does not provide a framework for developing
strategy. vcios must be given technical details in a way that allows them to get a clear picture of each client s risks and issues. Process: The process of creating a TruBusiness partnership must be a repeatable process that delivers the same level of results to every client. Time: There must be enough time within your inventory of technical time to focus on building a TruBusiness partnership. This is where the Math of World Class comes into play. The result of the above factors is that every MSP provides vcio services at some level but most do not create a TruBusiness partnership. Unfortunately, good intentions are not enough to make this important change in your business. There are physical and mathematic barriers that stand in your way. In the next section we look at the Math of WCPs. The Math of World Class Providers We have established that delivering a TruBusiness partnership requires process and time. Let s look at the issue of time from a mathematical perspective. You have a finite amount of available technical time in your organization. This is determined by the number of technical employees. Consider this your inventory of time. As your team completes tasks that you have promised your clients, you deplete your inventory. Let s use reactive support as an example since you must respond to all client issues and alerts in a timely fashion. Most MSPs spend too much time on reactive tasks, which leaves less or no time at all for building a TruBusiness partnership. We can measure your reactive time commitment by looking at your reactive hours per endpoint per month (RHEM). Reactive support is any technical support that is covered under the agreement with your client. This includes fixing issues, doing moves / adds / changes or answering a how-to question. How much time do you spend on reactive support each month based on the number of endpoints you support? In other words, how much of your available inventory of time is already allocated? Two factors determine your RHEM; how many reactive tickets are created (tickets per endpoint per month) and how much time is spent on the tickets (resolution time). On the next page is a chart showing the dramatic impact of this math on your business.
Example of an MSP with 1,000 endpoints under management: Tickets / Endpoint / Mo. Avg. Resolution Time Avg. Reactive Time / EP Support Resources A B C D 1 0.5 0.5 0.25 1 hour 1 hour 0.5 hours 0.5 hours 1 hour 0.5 hours (30 minutes) 0.25 hours (15 minutes) 0.125 hours (7.5 minutes) 6.25 3.1 1.55 0.78 An average MSP with 1,000 endpoints under management would have approximately 10-12 employees and 7-9 of those employees would be technical in nature. If you are company A, there is no way you can move up the stack. Nearly all of your resources are required to solve reactive support tickets. If you are company B, it will still be a challenge. Remember that you have other services that you need to deliver before devoting time to developing a TruBusiness partnership. Here are other services that will deplete your technical inventory : Professional Services: You have projects that you need to complete (billable or non-billable) that will reduce your inventory of time. If your project revenue is $20,000 a month and you are 100% billable, one more resource would be depleted from your inventory. Centralized Services: You have committed to deliver centralized services to every client each month. You must subtract the time and resources devoted to centralized services from inventory. How much time is left? How much of your available inventory of time do you have left to build a TruBusiness partnership? This math is the harsh reality of your business model today. You can change the math with focus and discipline on the right priorities. TruBusiness Partnership There is only one way to move up the stack; you need to reduce your reactive tickets relative to the number of endpoints supported. This will allow a greater percentage of your inventory time to be allocated to a TruBusiness partnership. The Network Admin role, which is the discipline of standards and alignment, is the key to lowering your RHEM. Unless you can reduce your RHEM, it will be mathematically impossible for you to become a World Class
Provider. The TruMethods process of delivering your Super Power (standards and alignment) is proven to reduce total reactive time by 50%-75%. Action Items Now that you have a better understanding of where you need to go and the obstacles in your way, let s talk about the solutions. Once you accurately define your total reactive time and reactive hours per endpoint (RHEM) the next step is to lower it. Below are the steps our top members (and my current MSP) have followed to move up the stack. 1. Define you process for lowering RHEM. Watch the videos, Unleash your Super Power and Implementing Net Admin and vcio in the TruMethods portal. These videos will give you a solid perspective on the process. 2. Be sure you have captured all reactive tickets and time. This includes all support requests as well as tickets generated for your RMM. You cannot solve a problem that you cannot define. A good place to start is by filling out the TruMethods Quarterly Business Review sheet. This can be found in Resources. Watch the video, Smart Numbers & Quarterly Business Review in the Command section of the Starter Kit. 3. Define your first 3-4 standards. Choose best practice areas that create noise and risks. You don t have to get them 100% complete on the first pass. 3-4 best practices with 20-30 questions each is good start. Watch the video, Standards and Best Practices. 4. Schedule alignment visits with 4-5 of your noisiest clients. Complete the technology alignment process for each client. Watch the video, The Network Admin Role. 5. Use the alignment information to create a technology summary for each client. Next, schedule a meeting with the decision maker of each client to review the technology summary. Watch the video, the Virtual CIO Role and The vcio technology Steering Meeting. 6. Put a plan in place to role the process out to all clients. Schedule technology alignment visits for the next 12 months with each client. If resources are tight because your reactive support is high, watch the video, Not all MRR is Good MRR to prioritize clients. If you want to increase leverage and margins and command a higher price, the process explained above needs to be your top priority. I have not only transformed two MSPs personally, I have also watched this process dramatically impact 100s of TruMethods members. Don t wait those tickets will just keep coming. Let s Go People! Make it a great day, Gary Pica President TruMethods, LLC.