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Our new eBook created in tandem with Channel Futures, Secrets to Sustainable Growth — for MSPs, by MSPs, offers critical guidance to MSPs on how to run their businesses better and smarter, growing their revenues and profit margins across pivotal maturity stages.

In Chapter 1, we interviewed managed services providers from around the globe, with track records of success, as well as Continuum’s managed services experts to understand how they have jumpstarted growth.

The most recent installment, Chapter 2: Maximize Your Profitability, picks up after MSPs have implemented foundational automation tools and outsourced day-to-day managed services tasks to achieve growth at scale. In this middle stage, the focus shifts from establishing a solid foundation to reaping the rewards that come with being a well-oiled machine.

 

Getting to the Next Level

Let’s talk about measuring profitability. Companies that sell hardware typically measure gross margin, but the Technology Services Industry Association (TSIA) recommends that service-based businesses like MSPs instead measure net margin. “Operating income, or net margin, is the most accurate indicator of profitability for a managed service provider… and is a strong indicator of a company’s profitability compared to their peers and the industry overall,” TSIA notes in its report The State of Managed Services and XaaS 2019.

However they calculate them, MSPs have a few basic levers to pull to boost margins.

1. Cut Costs

While there are many areas where MSPs can trim expenses, few are as impactful as reducing (or at least not increasing) headcount as client revenue grows. The total costs of recruiting and retaining staff — including training, salaries and benefits — are by far the largest line item in any MSP’s general ledger

2. Optimize Processes

Disorganization is a silent margin killer. It’s not a line item on the general ledger, but it has a big impact nonetheless. MSPs can counter its effects by instituting — and more importantly, documenting — repeatable processes that can be automated (with RMM or PSA solutions, as explained below) or mandated as best practices, so expensive staff time is used cost-efficiently.

3. Sell Higher-Value Services

Just as cutting costs improves the bottom line, adding revenue boosts the top line. Savvy MSPs are able to retask on-staff experts from reactive activities to proactive project work, increasing revenue and elevating the MSP to trusted adviser status — as well as an ongoing, more lucrative consultative role with its clients.

For more insights from MSPs on how to pave the path to sustainable growth, download Chapter 2 of  Secrets to Sustainable Growth — for MSPs, by MSPs, here.

Stay tuned for more practical advice from our expert MSP executive panel in our third and final chapter, where we focus on ways to protect your revenue by improving customer experience, taking more wallet share and grooming for acquisition or sale.