Managed service providers (MSPs) have many technology options to choose from in order to run their business, and these solutions run a full spectrum of costs and features associated with each. As a business, you need to make a margin on the technologies you choose for your clients; however, many MSPs think that the best way to do this is to choose the technology with the lowest cost.
This is the wrong way to think about making margins. Almost all low-cost solutions offer just software, which can lead to many on-going, unforeseen costs. Let’s discuss some of the drawbacks of a software-only solution.
A software-only solution is exactly as it sounds; it only includes software. More importantly though, is what it doesn’t include: the services and support attached to the software.
Let’s take RMM software as an example. Some solutions may cost just a few dollars per agent, while others may be over $25 per agent. However, calculating your margin is not as simple as just looking at the software cost. You also need to think about what’s built into that cost and what sort of savings you’re achieving long-term.
Some good questions to think about relating to ongoing maintenance and time costs are:
- How much time do you spend setting up this solution?
- How much time are you (or your techs) spending managing this software solution?
- How fast does it allow you and/or your technicians to work vs. another solution?
- What tasks are you and/or your technicians spending time on with this solution?
These are all questions you should be asking yourself as it relates to your technology solutions and how they affect your margin.
3 Drawbacks to a Software-Only Solution
Let’s look at 3 common drawbacks to using solutions that don’t have services and support built into them.
1. Difficulty Maintaining a Consistent Margin
It can be hard to calculate and maintain margins when you’re using a software-only solution. Services and time can be hard to track, which means it’s difficult to calculate all of the costs that go into your service delivery. Using a PSA tool can help with this, but it’s hard to calculate this cost until after you commit and start using the solution.
Even if you’re using a PSA tool to track your time for each client, your time managing the software can fluctuate each month, which means your margins are going to fluctuate as well. When you have services built into your initial cost, your margins will be more stable, meaning it’s much easier to create a plan for growth.
2. Hiring a Dedicated Maintenance Employee
Another drawback to using a software-only solution is that you typically need to hire a dedicated, full-time employee just to manage the software. This person won’t provide any services to your clients, meaning they don’t directly contribute to any revenue for you. They just work internally to make sure settings are configured the right way so the rest of your employees operate efficiently using the software.
This employee can typically cost anywhere from $50,000-$70,000 per year in salary, then you also have to add in benefits and other costs to your business. If you need a full-time employee to manage your software-only solution, you need to build this into the overall cost of the solution.
3. Inefficient Technician Utilization
As a business, your technicians are probably your biggest expense. If you’re not using them effectively, you’re ultimately wasting money. Techs can get fatigued by routine maintenance and support tasks, e.g. resetting passwords, ticket remediation, managing and testing backups etc.
By taking the mundane tasks off their plate, your most talented technical staff has the ability to work on fixing real business issues for your clients. This will help keep your techs engaged at work and reduce churn. A talented technical asset will grow weary of a job quickly if they spend much of their time helping end users connect to WiFi.
As I mentioned earlier, Software-Only solutions don’t include services and support built into the cost. It’s important to look beyond the cost of a solution and focus on the benefits and efficiencies you gain from it. If you want to grow your business, you must evaluate the tools you’re using and look closely at how they fit in to and affect your business model.
If you’ve experienced some of the pain points listed above, it may be time to start looking at other solutions and how they may be more favorable to your business.
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