Posts tagged with managed services

Effective Hourly Rate

September 18, 2014 by   •  Leave a comment

Effective Hourly

Effective Hourly Rate Calculations – If you don’t know, now you know

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Effective Hourly Rate for Managed Services Contracts

November 18, 2013 by   •  Leave a comment

I’ve been getting a lot of questions about effective hourly rate lately. I thought I would do a quick post here:

Example: If I paint your house for $100 and it takes me two hours, my effective hourly rate (EHR) is $50 per hour. If it takes me four hours, then my EHR is $25.

Comparison: If you have a managed services agreement with $1000 in monthly revenue and $100 in hard costs, then you have $900 left over. If you want a MINIMUM of $150/hour then the most time you can spend is $900/$150 = 6 hours. That is your BUDGET for that contract. Never exceed your budget and you’ll be in great shape to match up your EHR with your stated hourly rate. Any time under 6 hours spent will INCREASE your EHR.

Folks, this is critical to understanding the profitability of your managed services contracts.

Let me know if you need some help! Do this!

Josh Peterson

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Managed Services Providers Please Tell Me You have Your CONTRACTS!!

December 21, 2011 by   •  1 Comment

Sweet holy mother of all things ridiculous.  Please tell me that as a managed services provider you have your contracts ready to go and that EVERY client has a signed contract on file.  Don’t tell me about a credit card authorization form or a signed quote or a signed proposal.  YOU MUST HAVE CONTRACTS.

Let’s go over the basics.  A contract does some of the following:

1. Limits your liability (ie…liability for any provider caused issues will be limited to the amount paid to the provider)

2. Sets forth the payment terms and amount (ie…$2,000 for 36 months due on the 15th of each month)

3.  Describes early termination penalties (ie…client must provide thirty days written notice of intent to cancel.  Remainder of contract value will be prorated

4.  Non-hire/Non-solicitation WITH PENALTIES DESCRIBED (ie…we won’t hire your employees, don’t hire ours.   If you do hire our employees you agree to pay us a penalty equal to one year’s salary of hired employee)

5.  Sets the venue for disputes (ie….requires mediation…disputes will be handled in our state and county)

These are the basics of every contract.  Here are some common contracts you need to have at the ready:

1. Master services agreement (rates, after hours, response times, trip charges, emergency fees)

2. Managed services (what’s covered, what’s not covered, what devices/employees are covered,  service level agreement, response times, etc)

3. Riders to Managed services (anti spam, anti virus, hosted exchange, etc) Continue reading Managed Services Providers Please Tell Me You have Your CONTRACTS!!

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AMC Advance Microcomputing Services Needs a Sales Manager

December 1, 2011 by   •  Leave a comment

Just a quick shout out that the San Dimas, CA company owned by Anthony Chiapetta is beginning the search for a Sales Manager.  AMC is a managed services provider whose performance in the last 12 months has been remarkable.  Under Anthony’s leadership they have grown tremendously in both revenue and profitability.  Anthony has taken the very bold step of creating a top down sales department.  One of the most prevalent hurdles to real growth of managed services providers is the lack of a dedicated sales force.  Typically the owner is the best and only sales person but unfortunately that model does not seem to scale beyond the $1,000,000-$2,000,000 mark.

This is an aggressive move on AMC’s part.  The Sales Manager will be tasked with building the sales infrastructure, recruiting four sales people, training them and getting them all up to quota and beyond.  This is not something that has been attempted by many MSP’s.

Soooooo…if you are a seasoned sales manager who wishes to work in a company with a phenomenally motivated and positive culture, consider contacting AMC.  No bullies, intimidation, or lameness will be considered.  This is the opportunity for high performing sales managers to finally build their dream team from the ground up.  Could not ask for a better scenario.

Visit to find contact information.  You should be able to find the job posting on the Ladders, Craigslist, and Linkedin shortly.

Best of luck to Anthony and all you looking to take on this role!

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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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Is tech billable utilization relevant to the managed services provider?

March 11, 2010 by   •  Leave a comment

I’ve struggled with this question for the last couple years and it is one that gets thrown at me any time I speak at a workshop or conference.  For me, the answer is still a resounding YES!

Even with the advent of automatic updates and backups and remote monitoring, solutions still need to be implemented.  Of course putting time against a contract reduces its profitability, but what are you going to do? Ignore the issue in order to avoid putting time onto the agreement?  Of course not.

The whole point of measuring utilization has always been to track how many client facing hours engineers put towards clients for billing.  The only difference with managed services is that we’ve been prepaid for those potential hours.  Time will still need to put towards clients networks and we as managers, owners, and sales people must keep the client base large enough for their to be enough networks to work on.  Hopefully each individual network needs less touch but does that mean we want techs sitting around?  Definitely not, it means go out and find MORE networks for them to maintain.  Low utilization STILL means that we are losing production out of our staff.

We also can not forget about projects!  Sales should be out filling the pipeline and queue with new projects that are what? BILLED BY THE HOUR OR FLAT FEE!  That means billable hours that need to be tracked and measured to determine production levels of our engineers.

Don’t throw the baby out with the bath water folks.  Keep measuring utilization.  Add to that some strong analysis of time on task and efficiencies of implementing solutions.  Now more than ever you need your engineers working smartly and efficiently on solving client issues.  If you’re not hitting 75% utilization look at your sales pipeline, bring in more clients until you can fully utilize your engineering team.

More on this topic later…it’s a big one and there are many more factors such as fudging time sheets, loading time against agreements, etc…all real issues and all incredibly simple to combat!  Let me know what you think?

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