Archive for January, 2011

Help Wanted….NYC MSP GG Group is hiring

January 24, 2011 by   •  Leave a comment

One of the best Managed Services Providers in NYC is looking for a Technical Services Manager. Here’s a copy of the ad and a link to their web site….

Do you enjoy working with small and medium businesses and understand what it takes to achieve the highest levels of customer satisfaction? Do you have at least 3 years of experience managing a single large account or several small to medium-sized accounts? Continue reading Help Wanted….NYC MSP GG Group is hiring

Pricing Managed Services Part 5…Validate Your Decision

January 23, 2011 by   •  Leave a comment

Alright…final post on this topic. Hope you got some good information. Let me know how it goes for you!

Validate Your Decision
Congratulations! You’ve followed the steps to pricing, your marketing and sales engine are humming and you’re taking on new clients as quick as you can get the contracts in front of them. Now what? This is the REST OF THE STORY.
I sit with well over a hundred owners and managers every year and when I ask them the contract gross profitability I can count on 95 of them looking at me with a deer in the headlight expression. No sooner is the question out of my mouth when they have the “AHA” moment. They can’t believe that they have no idea. I don’t need to cajole them, teach them, or convince them. It is so obvious but they aren’t taught that in most of the calculators I’ve seen. THIS IS THE MOST IMPORTANT DECISION MAKING TOOL AT YOUR DISPOSAL!
Here’s the formula for calculating:
Gross Profit = Revenue – Cost of Services Sold
Gross Profit % = Gross Profit/Revenue *100
Here’s an example:
ABC Managed Services Provider sells a contract for $2,000 per month. They pay their RMM $6.00 per license and they use 15 licenses. Joe the engineer’s loaded cost is $32 per hour. Joe was the only engineer to work on this client this month and he put in 14 hours. What is our Gross Profit %?
Revenue = $2,000
Licenses – $6 * 15 = $90
Labor = $32 * 14 = $448
Gross Profit = $2000 – ($90 + $448) = $2,000 – $538 = $1462
Gross Profit % = $1462/$2000 = .731 * 100 = 73%
Target = 60%
In this example we passed the Gross Profit test since we are making 73% on that contract.
Moving Forward
• Make a time budget for each contract based on your own contract gross profit goals.
• Make sure your dispatcher and service manager understand the budget and how to achieve it
• Measure your contract profitability weekly and monthly
• Evaluate why you ARE or ARE NOT meeting that profit goal
• Adjust service delivery if necessary
• Adjust pricing strategy if necessary

Wall Street Journal Article on S Corp Owner Compensation

January 23, 2011 by   •  Leave a comment

My man Scott Wilson at Marathon Consulting sent out this article that you should definitely review on what “reasonable” compensation is for an S Corp Owner.

There’s a saying: Pigs get fed and hogs get slaughtered. The Internal Revenue Service surely hopes that includes tax hogs.

That is the message of a recent U.S. district court case won by the IRS against David Watson, a CPA in West Des Moines, Iowa. At issue: a common tax-cutting maneuver available to the owners of millions of closely held businesses. Continue reading Wall Street Journal Article on S Corp Owner Compensation


Pricing Managed Services Part 4….per Person Pricing

January 21, 2011 by   •  Leave a comment

Per Person Model of Pricing
This is not a new model by any means but it is gaining some very interesting discussion and adoption among top level MSP’s around the world.
Calculating is similar to above. Take the total service revenue and divide by total number of employees that were supported. You do have that information right?
• As in the per device model it is easy to calculate
• Easy to scale with your client’s business expansion and contraction
• Keeps the discussion centered around PEOPLE and the true cost of an employee overhead (Now that sounds like a business discussion! We need more of that in our industry when we talk to our clients)
• All but eliminates the Moves, Adds, and Changes discussion as it relates to the NETWORK. Our clients report that more project work comes their way using this model since it is people focused, not device focused.
• Allows for “type of employee” pricing. For example; we all know of a client or two that has a VIP that needs help at home with the kid’s computer or the in home network. Go ahead and come up with a pricing for those services. Nice value add; you’re going to end up doing the work anyway, why not charge for it up front?
• Can you name others?
• Determining what and how many devices can be associated with a user. Can you truly support an iPhone or an iPad?
• Determining how you will true up with head count.
• Can you name others?

Pricing Managed Services Part 3…Pricing Models

January 20, 2011 by   •  2 Comments

Device Model of Pricing
Using the numbers you researched and collected, you can begin seeing what you might need to charge per specific device. Simply divide the total service revenue by the number of devices your clients have. You can get very granular by calculating on a per client basis. You can also divide just by number of servers or just by number of workstations.
If you’re saying to yourself that this will only help us maintain the same revenue you are correct! However, you must remember that increasing top line revenue is only half the story. Through your Remote Monitoring & Management tool you will gain many efficiencies thus leading to less engineering hours and subsequently greater GROSS PROFIT which is really the name of the game here.
PROs of this model
• Easy to calculate how much a client will spend with you
• Easy to scale up or down with client’s budget
• Can you name others?

CONs of this model
• Many MSP’s report that it is cumbersome to audit new and removed machines from network regardless of monitoring and PSA tools
• Somewhat difficult to separate MOVES, ADDs, and CHANGES from included work
• Most common method of pricing therefore a competitive discussion becomes easy for client to commoditize the service
• Can you name others?

Pricing this way is perfectly acceptable. It’s like the saying in the 90’s regarding computer sales; “You’ll never get fired for buying an IBM.” Likewise, you’ll never go too far wrong pricing this way!

Let’s look at an alternative

Pricing Managed Services Part 2

January 19, 2011 by   •  Leave a comment

Ok, so you’ve had some time to think over step on to some more practical steps that you need to take:

Gather your data
Step 1
You need YOUR numbers to have the best results when you price your managed services offerings! Below are the numbers you need
1. How much did my top 20 clients by revenue spend with me last year on services?
2. What is that total dollar amount?
3. How smoothly was the money spent; break it down by month.
4. How many total employees did that support?
5. How many workstations did that support?
6. How many services did that support?
7. What was my gross profit on those top 20 clients?
8. How many hours did I spend on those top 20 clients?
9. What was my effective hourly rate?
10. How many tickets did these top 20 clients generate?

You can gather this information from your PSA application and your accounting package in pretty short order.
Step 2
Start making a spread sheet. Make columns for items above. Play with the numbers a little bit. Become very familiar with patterns. When you see spikes in the data, figure out why and research the anomalies.
Step 3
Learn your top 20 client’s top line revenue. This is the hard step but one of the most important. Since they are your top 20 clients we can safely deduce that they are your target client. Therefore you want more like them. Once you learn their revenue you can apply a rule of thumb that most firms will spend 4.5% of their revenue on IT. Put that information into your spreadsheet as well and see how their spending with you compares. Do additional research using resources like Gartner Group, CIO Magazine, and specific industry publications to get actual data on what they spend. 4.5% is a rule of thumb and we all know what rules of thumb are best for…measuring thumbs!

Time to make some choices with what model you will use!


Pricing Managed Services Part 1

January 4, 2011 by   •  Leave a comment

I recently participated in teleconference with Robin Robins regarding Pricing Managed Services.  It went great and I’ve had a lot of requests to share the information.  I thought I’d put it here over the coming week.


Pricing managed services is not a science, it’s not an art, it’s simply viewing information in front of you and making a decision based on the facts.  There are over twenty calculators available to you from your vendors, your competition, your friends, and yes even some that you’ve made yourself.  And guess what?  They are all right even if they spit out different answers.  The caveat is that they are all right for the person making the calculator and what their approach was going to be.

I like to compare pricing managed services to launching a website.  It would seem natural that imitating a successful website would be the right answer.  If Coca-Cola has the best website for sodas and if I’m going to start any beverage company I might as well do what Coke is doing?  Wrong!  Coke developed a strategy based on their target market and their product offering to come up with the most appealing design and function.  If I imitate that for my little company it’s going to seem “off” somehow because it doesn’t match my internal vision for my company.  Same is true of pricing managed services.   If I take a vendor’ s calculator and start plugging in numbers they will be “off” somehow.  The reason is because I don’t understand how and why the person who drew the short straw of creating the calculator came up with his formulas.

As MSPs, VARs, and IT Solution Providers you get hit from every conceivable angle with a vendor trying to simplify your life and give you a formula on exactly what to do.  Well, I’m here to tell you that in our experience, no cookie cutter spreadsheet is going to get you where you need to be.  It’s going to take some hard work, some number crunching, and some data collection on top of having some financial goals of where you want your company to land.

As we get started, please consider the following so you can decide how you need to be pricing your offering:

  2. What was my SERVICE DEPARTMENT GROSS PROFITABILITY before I started offering managed services?
  3. What is my current NET OPERATING PROFIT?
  4. What was my NET OPERATING PROFIT before I started offering managed services?
  5. What is my target for CONTRACT GROSS PROFITABILITY?
  6. What is my target EFFECTIVE HOURLY RATE?

We are going to address each of these items directly or indirectly throughout this exercise.  If you’re unclear how to calculate any of these, please, interrupt or email me directly at

Let’s get started!

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Employees who won’t get along

January 4, 2011 by   •  Leave a comment

It’s been a good start to a new year.  Meeting lots of new business owners and hearing lots of good things that people intend to do.  Had an interesting conversation with a long time client this morning and it sparked a thought about what many of my clients face.

This particular owner was enthusiastically describing a solution he’d come up with to deal with two employees who could not work together.  The idea was to move one employee back to an area of the company that he used to be in with some changes to his previous responsibilities and to give the OTHER employee full control of a department that he currently worked in.

In theory this was a great solution; separated to people who were doing more harm than good when they worked together.  In reality however the owner was simply avoiding the real issue.

These two employees have spent weeks if not months complaining to the owner daily about the other person.  The owner would play the role of good listener and peacemaker.  He ended up being the dumping ground for all of their dissatisfaction.  The owner would do everything he could to keep the peace for fear of losing either employee.

Midway through our conversation it became very clear to the owner that he had to do the uncomfortable which was to stop letting the employees shape his actions and instead put his foot down.  The owner is not going to sit both the employees down and let them know that if they can’t work together in the roles they were hired for, neither of them would be with the company any longer.  They will need to stop coming to him with their complaints and instead start focusing on working together.  The owner will let them know that the next time they speak it will be all three of them with the employees presenting THEIR plan on how to keep moving forward or they will both be terminated.

I”m proud of my client for having this realization and hope his meeting goes well.  The take away here is:

1. Employees are adults and need to act like adults

2. Owners must not play middle man in these immature battles

3.  Owners need to know that no one is irreplaceable.  Just because someone is good at the tasks of their job does not mean they are good employees

4.  When faced with these situations, owners need to be leaders and lead the employees to the solution, not be participants in the problem

I see this behavior all to often in small businesses.  Owners typically go to one extreme or the other; over empathizing or becoming furious and ignoring the issue.  In this case the owner has decided to actively solve the problem.

I’ll let you know how it turns out