MSP Revenues: Break Through the Financial Glass Ceiling
The infamous revenue glass ceiling. I am pretty sure most MSPs have heard of it – or worse felt it. The two ceilings we hear about are the $2 million ceiling and the $4 million ceiling. I only came across this glass ceiling in the last few years when speaking to MSPs, yet I have had my MSP since 2000. When I had first heard of it, I was quite confused as to why MSPs talked about it, getting past it was like winning a prize. It was only after speaking to many MSPs about the way they did what they did and a few years of digging to really understand what made this glass ceiling – and why so many were affected by it.
The great news is that these ceilings are glass – so we can definitely smash through them, but what makes these ceilings and more importantly how can we get past them?
What Causes the MSP Revenue Glass Ceiling?
The ceiling is a result, not a cause, just as the profitability of a business is a result. As a business, if you want different results than what you are seeing you’re going to have to take different actions. What I found interesting was that the word ‘culture’ gets thrown around in these discussions, and it was this that started my thinking. What is the relation between the way that different MSPs define their culture and their size? Does it have anything to do with the ceiling?
What we found is that the smaller MSPs struggle to get past the $2m ceiling not because its $2m. The reason is that as a business they need to do things differently, they need to be more structured and put in the processes to make this happen. The unfortunate thing is that many MSPs have been started by a tech themselves, and a lot of the time they don’t have the business knowledge to take their MSP to the next level. This has a compound effect. They are not profitable enough to be able to afford to bring a business manager into the business to help them make the change, and if that’s not hard enough, the last compounding point is that they, the business owner, are not ready for the change. They cannot expect this change to happen without them, and they need to do what is required to make the change.
I have spoken to many business owners that are under that $2m ceiling – that will never go past it, due to themselves. They cannot expect their team to do something one way if they don’t do it themselves. This is the single most common reason the $2m ceiling will continue to keep them trapped. They need to embrace structure and process to be able to not only get past the $2m ceiling but also to enjoy higher profit margins.
How to Break the MSP Revenue Glass Ceiling
So what do MSPs that are trying to break the $2m ceiling and $4m ceiling look like – and how do they compare with those that didn’t see the ceiling to start with? Here is a table we put together, and for those that have read any of my blogs or heard me at an event or in a podcast – you will see a reference to restaurants. But this time it’s not fast food. After reviewing the table, can you see where you are and how others do things differently? Have you experienced being a consumer in a restaurant and experiencing what is described below? Put yourself into your customer’s shoes and think about things from the way they see it.
|$2m Ceiling||$4m Ceiling||Ceiling Smashed|
|Tech Team Size||Under 10||10 - 20||Over 20|
|Culture||I don’t want my people to be restricted.||I want people to have fun, and colleagues to work with their peers through issues.||I want my team to grow with my business. I want a performance team that succeeds together.|
|How the do it||They let techs do what they want, when they want. Tickets are just picked by the techs. It’s up to them to keep an eye on the queue. They allow customers to dictate how the log tickets. Data from emails don’t always go into the ticket (PSA).||Tickets are allocated by a dispatcher The dispatcher is a tech that spends some of their time looking at the ticket queue. They depend a lot on email, communicate back and forth via email.||Dispatcher allocates all work once it’s logged. Dedicated Customer Service Representative (CSR) logging tickets. Tier 1 team works on basic tickets. Tier 2's and Tier 3s are in smaller ratios compared to Tier 1.|
|Delivery of Service||Inconsistent.||Transitioning between inconsistent -> consistent.||Consistent|
|Their people||Everyone they hire is a T1-T3. Their people should be able to do any ticket.||Different levels of techs are hired as required. Growth of each team member is unstructured and driven by the team member. Any success of this growth by the MSP is accidental.||People are hired for specifics skillset. Junior hires are put through a structured development plan. Team members are shown how they can grow into future roles.|
|Net Profit||Low - < 10%||Medium 10% - 15%||Higher 15%+|
|Data Analysis||Looked at quarterly if at all. Utilization & Labour cost are not measured.||Looked at once per month – or less frequent. Utilization is measured, but data accuracy is assumed.||Service Manager oversees day to day ticket flow and customer satisfaction. Data is reported daily / weekly, and people held accountable.|
|Tech to Endpoint Ratio||1 : <120||1 : 120 – 1 : 150||1 : >150|
|Team utilization (real)||< 55%||55% - 65%||> 65%|
|SLA||Not in place, as tools and process are not in place to measure.||Are set out with the customer, but processes are not in place to ensure they are met. Not well communicated to the team.||Clear and documented for the customer. Documented and communicated to the team.|
|Real world analogy||It is like going into a restaurant, sometimes they greet you and take you to your table, other times - it’s up to you to find somewhere. The pages on the menu are just clipped together with a paper clip. Sometimes you have to put your hand up for service, other times they come to you. Sometimes you need to have a booking, other times you don’t. Sometimes your meals come out fast, and hot - other times you look around and other guests seem to be getting the royal treatment and the waitress is on their beck & call, while your constantly putting your hand up for attention||It is like going to a restaurant where you are always greeted at the door. Sometimes you can choose where you sit, other times they will direct you to a specific table. When you sit down sometimes they offer you water and the menu. Some days the person who greeted you then becomes your server and has to rush back to the front door when a new customer walks in, on other occasions you feel really looked after. The meals are always good value but the portion size and attention to detail vary depending on if it’s a weekend or a weekday.||It is like going to a restaurant - your greeted every time at the door, and taken to a seat. They ask for your preference of location to sit. The person that took you to your table hands you over to a server who then looks after you until you leave. On sitting down your asked if you would like water, and given the menus. The menu is simple that anyone can work through it. The meal sizes are similar, and you always feel the same value of your outing.|