Being a successful MSP today means going beyond traditional project-based work and support for your clients. The business landscape is changing every day, and as a business owner you need to be constantly improving to stay competitive, or better yet, to lead the charge. Whether it be providing annual IT budget advice, vCIO support or rolling full IT management into your contracts – your number one focus should be on developing strategic partnerships with your clients. In order to do so, you must first ensure that your internal team is all working in the same direction.
Taking your MSP business to the next level requires buy in from your entire organization and alignment with your business’ goals. To yield the best results, you might have to make changes both internally and externally. However, making internal changes starts with how you compensate your employees – but be sure to incentivize them on the right behaviors.
Your current compensation model could very well be the biggest hurdle in making the transition from an average IT service provider to a true strategic partner. Paying technicians by the hour can lead to problems being resolved at a slower rate. Additionally, paying salespeople based on one-time set-up fees and resale of on-site devices is antiquated, especially when it comes to managed services, which is sold in monthly recurring revenue. So what can you do?
First, let’s take a look at some of the elements of the old comp model and you’ll quickly see why IT service providers need to rethink how their employees are compensated.
When you pay techs hourly they are:
- Incentivized to do their work less quickly. Add the thought of ‘overtime pay’ onto this mindset and you get an employee who feels that in order to maximize their employment they need to work slower and stretch their hours. Do you want your techs acting this way?
- Not receiving a proper balance. Your techs will be less motivated when you only send them in to clean up a mess and deal with an unhappy client. In addition to fixing your clients problems, you should be putting them in a position to strategize, add value and possibly up-sell if the opportunity presents itself.
As for your sales team, you need to motivate them to sell based on your business model. You also should incentivize them in a manner that increases your gross profit. If you’re compensating your sales people simply on the number of new accounts they sign up, it can lead to the following:
- Quantity not quality. A quicker sales cycle is ideal but doing the proper discovery research is just as important, if not more. In an effort to land a contract faster, a salesperson might miss crucial information and not fully understand the clients’ needs. If so, are you sure they’re selling the right solution to your clients?
- Contracts that are not as profitable as they could be. Your sales team won’t concentrate on selling profitable deals if they’re not compensated on them. Is this client ultimately adding profit to your company, or just adding to the sales rep’s comp package? (Hint: it should be both!). Will this client just cost your business money?
What Can You Do Differently?
- Institute payment structures that are driven by individual or team metrics. You could even go as far as incentivizing both individual and team goals. These goals may focus on customer satisfaction, time to resolution or tickets resolved per hour. Another area to consider is compensating them based on the number of devices they can handle/manage. Ideally, you want your techs to be effective and efficient. Make sure to compensate them in a way that promotes just that.
- Concentrate on overall performance and not isolated tasks. Customer satisfaction should be the metric here; instituting customer feedback surveys is a good way of tracking this. Reward those technicians that excel!
- Compensate your salespeople based on monthly recurring revenue (MRR). This could be a percentage of the annualized MRR they sell. Also, you could compensate them if they increase a current client’s MRR through upselling.
- Reward them for clients that stay a long time. As a MSP, you want your clients to stay with you a long time. Rewarding salespeople when their deals stay after a certain period of time (for example, 1 year anniversary) will incentivize them to bring on the right clients and to sell them the solution that best fits their business needs.
- Know what products and solutions carry the highest margins. If your margins are higher with your backup and disaster recovery (BDR) solution than they are with your other managed services, you can increase your rep’s incentives when they sell a BDR contract.
- Reward them on renewed contracts. Salespeople are always focused on finding the next customer (which is not necessarily a bad thing). But oftentimes this leads to them forgetting to renew contracts with current customers. Renewing customer contracts takes significantly less time and energy for your sales reps, which means higher margins for you! Make sure you reward sales reps who renew contracts so they don’t fall to your competition.
What techniques for employee compensation have you found to be effective? Let us know in the comments section.
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