THE PROBLEM
The landscape in which MSPs are operating is more difficult to navigate than ever before. It is an unfortunate truth, but one that MSPs are forced to adapt to in order to achieve the results they want.
The good news, however, is that all MSPs that are performing best-in-class despite recent obstacles share a set of key characteristics. This means that we can easily identify what makes an MSP work in the current market and help your business achieve those benchmarks.
The landscape for independent MSPs is more challenging than ever. Technology is changing rapidly, and MSPs need to innovate their offerings in order to adapt. Competition is fierce and larger companies have more money to spend on sales and marketing than you do. Increasing complexity on both operational and customer ends demands innovative use of new tech. Increasingly sophisticated customers want to buy on their terms, trying to buy your service as if it were a commodity. MSPs must either evolve to match this environment by adopting the key characteristics of top-performing peers or suffer and fall to the wayside.
Luckily, evolution is fairly straightforward. The MSP industry is very well-understood, brimming with data that helps us identify what is driving strong financial performance in the best businesses. Let’s break down the key attributes of top-performing MSPs and how we can develop them in your business:
Clearly Defined Targets
Top MSPs have specific marketing personas and accordingly tailored communication strategies. Clearly defining your target and gearing your sales toward them are essential to efficiently finding, quantifying, and evaluating your potential client pool. When you know who you’re looking for, they are easier to find!
Streamlining your marketing target allows you to capitalize on your differentiators and hold onto the customers you want; you are giving your business the opportunity to go deeper in its familiarity with your client and their challenges and adopt their language and jargon. This leads to better service, better customer satisfaction, and better financial performance.
Credit-Worthy Clients
Speaking of the customers you want: top-performing MSPs all prioritize relationships with valuable, reliable clients. These MSPs aren’t just catering to anyone with a pulse and a checkbook… they “no” to clients who don’t adequately value their service.
Clients who are difficult to work with, who fail to pay on time, or who doubt the price tag on your offers only create aggravation and obstacles to good service. Establishing a credit-worthy customer base will allow your business to function at its best, and the numbers will follow.
Efficient Technology Designs
Successful MSPs use technology stacks that are efficiency-driven, NOT customer-reactive. This means that they aren’t adapting their tech on a customer-by-customer basis or bending to the whims of difficult clients, but rather simplifying and standardizing their services.
More consistency and less complexity make it easier to provide efficient, high-level service that leads to better results for both your client and your team.
Valuable Solution Offerings
Best-in-class MSPs have honed their services to be narrow and deep rather than wide and shallow. This means that they’ve identified their strengths and mastered them instead of trying to be jacks-of-all-trades.
Once you’ve established your strongest services, you can bundle them and price appropriately. Trying to be the cheapest service on the market is simply a race to the bottom. Rather, owning your services, bundling them, and pricing them according to the value they provide will lead to desirable financial results.
Rigorous Sales Models
Distinguished MSPs are operating with sales models that fit the current market: short cycles with qualified prospects only. They prioritize screening their prospective customers heavily in order to avoid wasting limited resources on unqualified leads.
When you establish a high standard for your clients, you can avoid putting your key sales staff in front of anyone who won’t buy your service. You will save time and maximize output.
Financial Discipline
Top-performing MSPs never offer discounts. Instead, they maintain robust score-keeping and allocate their costs exactly as needed. Doing so allows them to clearly identify which investments are yielding returns and adjust accordingly to optimize profitability.
Financial discipline involves maintaining healthy metrics beyond just the profit line. Statistics like headcounts, ratio of revenue to employees, percentage of revenue spent on each team, etc. are key to understanding and improving your MSP.
Healthy Gross Margins
Above all else, best-in-class MSPs are achieving both sufficient gross margin dollars (to pay the bills) and gross margin percentages (to ensure stable profitability).
A strong gross margin is THE key indicator of a successful MSP, as it is an expression of value created for the customer. This expression is especially sensitive in service industries, in which poor service quality leads to more free re-work and a lower gross margin percentage.
A high gross margin is achieved by controlling your cost of product and labor, pricing your services properly, and conveying your value powerfully.
THE PLAN
Striving to achieve these attributes in your MSP is well worth your time; the differences between median and top-performing MSPs are significant. If you work toward these qualities, you will be rewarded with higher revenue, a higher valuation, more time, and a better quality of life for your whole team. Here’s how to get there:
Know Your Gross Margin
Refine your understanding of your MSP’s gross margin by breaking it down so you can analyze it by individual lines of business and categories of spending. Track your costs very carefully in order to identify where your profits are coming from (or not coming from).
Timekeep Accurately
Build an organizational habit of accurate timekeeping for everyone on your team. Knowing where and how each employee is spending their time will help you produce the quality data needed to understand and evolve your business. This is a key step to improving your gross margin.
Advance Your Marketing
Develop marketing strategies and tactics that focus on the right target and convey your MSP’s value properly. Get to know your ideal client and create a value proposition that is both unique and compelling to them.
Increase Skills
Invest in advancing your team’s technical skills at all levels. You are responsible for ensuring that your employees can keep up in a complex and competitive landscape.
Adjust Your Focus
Always ask yourself, “what is the best next step?” Guide your focus toward doing the right thing at the right time. Don’t rush toward these goals all at once; small adjustments at an appropriate pace will grant you best results.
Understanding a top-performing MSP is half the battle of becoming one. Implement these strategies to elevate your independent MSP and enjoy the benefits of improved performance.