MSPs have plenty of options when selecting their technology partners, so what is the criteria that matters most when choosing the best partner for your business? In this seventh and final installment of the 7 Proven Tactics for MSP Growth, you’ll learn why a low total cost of ownership for your technology solution over time is the best way to maximize margins and optimize productivity.
At Navigate 2017, Continuum CEO Michael George outlined seven building blocks that the most profitable, growth-oriented MSPs in the industry all seem to have in common. Designed as actionable skills you can put to use immediately in your business, these tactics are proven building blocks for success in a modern managed IT services business. Each of the seven posts in this special series will explore one tactic in greater detail.
Tactic #7: Choosing Technology Partners Based on TCO—Not Surface Price
As the diversity and complexity of small business IT has changed over the last several years, ITSPs have been forced to employ a variety of tools and technologies to support the entire service delivery chain. The days of depending on just one technology (or one technology partner) are long gone, and many providers today find themselves with a series of disparate tools and vendors.
An Expanding Technology Stack = Expanding Labor Costs
It’s very difficult to manage all of these relationships at once, and it’s very inefficient for your technical teams to learn how to use all of these different tools effectively to support the various environments they are working in.
Just look at your cost of goods sold (COGS) on your profit and loss statements. Labor is by far your greatest expense, as payroll should account for 60–70 percent of your COGS. Optimizing and reducing your labor costs should be your principal objectives, along with increasing the speed and the quality of services you deliver. These objectives must be factored into your decisions around platforms and tools.
Why Total Cost of Ownership Matters
The actual cost of a tool has become far less important than the total cost of ownership (TCO) associated with that tool. TCO includes things like training your team to become efficient with it, the need to manage multiple dashboards and glean insights from various screens, and more. The time it takes to perform and execute tasks correctly using the tool—multiplied by the number of tasks that can be successfully executed in a given timeframe—is all a part of the total productivity it brings to your business. If that tool is hampering your productivity, then labor costs go up in the form of additional hours spent managing the tool, additional hires needed to manage the it, etc. These hidden costs of owning an inefficient tool drive up the TCO far past its initial price or monthly service fee, and affects your COGS significantly.
Seek out technology partners that offer solutions designed to keep TCO low; these are the partners that aren’t interested in selling you a product off the shelf—they are invested in the profitability and success of your business!
Optimize Your Partnerships
Your team will be most efficient when you’re working with the fewest number of technology partners as possible, and by having as much information as possible flowing into a single portal. By focusing on forming two or three critical technology partnerships, you’re not forced to spend your time—and the time of your employees—managing each customer across an overly broad and cumbersome set of technologies and vendors. Maintaining a limited number of partnerships also means you’ll have data that’s more streamlined, easier billing processes and the opportunity to align more closely with your provider, which can help you reduce inefficiencies, facilitate new product rollouts, and be more profitable overall.
Looking beyond price and measuring true TCO is a critical driver of profitability and growth in this market. Just as selling on value is crucially important when talking to an SMB, it is equally as true when evaluating your technology vendors and providers. The value of any given tool corresponds directly to its TCO—and will be the measuring stick of your growth velocity. If you choose the right platform that offers the best margins and a low total cost of ownership, the opportunity for rapid, profitable and steady growth will be tremendous.
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