The Math and Science of Top MSP Profitability

© 2015 N-able Technologies, Inc. All rights reserved. 1
The math and
science of top MSP
profitability

Webinar details
? REC
Length: 60min Questions
welcome any time
Recording and
slides available
next day

On today’s Webinar
Presented By:
Gary Pica
President, TruMethods
David Weeks
Channel Sales Manager, N-able

Giving service providers the
insights we’ve gained from
working with over 5,500 MSPs

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The Math and Science of
top MSP profitability
© TruMethods, LLC. 2016 - All rights reserved.

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• There is a science to
generating higher MSP profit
margins
• Most MSP don’t understand the
simple math
MSP Science

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MSP Math and Science
1. MSP Pricing
2. Impact of client size
3. Measuring value through reactive time
© TruMethods, LLC. 2016 - All rights reserved

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Checkpoint
Average World Class
AISP < $100 $130-$160+
Average MRR < $2,000 $3,500+
Net Profit 10% 25%+
Leverage $100,000 $150,000+

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Copyright 2013 TruMethods, LLC
Leverage
• Relationship between an hour worked
and a dollar billed
• More revenue with less
EE’s
Pricing Guidelines

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Measuring Leverage
Average MSP World Class
Number of
Employees 10 10
Annual Service
Revenue 1,000,000 $1,500,000
Leverage $100,000 / EE $150,000 / EE
Unrealized Profitability = $500,000!

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Unrealized Profitability
What is your unrealized profitability?
Number of employees * $150,000
minus
Annual Service Revenue
=
Unrealized Profitability

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• How much should you charge for
your services?
• How much will clients pay?

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• How much should you charge for
your managed services?
–What are you costs?
–What GM do you expect?

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• Pricing hourly services is easy
–Hourly rate
–Employee cost
–Utilization/effective rate

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• MSP pricing is more complex
–We charge a monthly fee
–We have tools and technology
–Several people and roles deliver
services
–We need a standard to measure costs
and profitability

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• All in seat price (AISP)
–Average price per seat
–Total MRR divided by total seats
supported
–$2,000/month for 20 seats=$100 AISP

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• What is your gross margin on the
$2,000/month client?
–You need to calculate your average
cost per seat
–If you don’t know your seat cost you
don’t know if your price is right

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Cost per Month per Seat
Support $9.38
Centralized Services $9.50
Network Administration $11.60
vCIO $6.31
Total: ~$36 / Month / Seat
Micro Picanomics

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Gross Margin:
AISP
Total Cost
per Seat
Gross
Margin
Gross
Margin %
$125 $36 $89 72%
Micro Picanomics

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What if your AISP is lower?
AISP
Total Cost
per Seat
Gross
Margin
Gross
Margin %
$125 $36 $89 72%
$100 $36 $64 64%
$85 $36 $49 58%
Micro Picanomics

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What if cost per seat is higher?
Micro Picanomics
AISP
Total Cost
per Seat
Gross
Margin
Gross
Margin %
$125 $46 $79 63%
$100 $46 $54 54%
$85 $46 $39 45%

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Not all costs are per seat
• Per seat costs
–Support desk
–Tools and technology

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• Per client costs
–vCIO
–Network Administration

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• One vCIO can manage 35-40
accounts
–35 X $1,500 MRR/client= $52,500 MRR
–35 X $3,500 MRR/client= $122,500 MRR

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• One Net Admin can manage 20
accounts
–20 X $1,500 MRR/clients= $30,000 MRR
–20 X $3,500 MRR/client= $70,000 MRR

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The impact of price
Example
Avg.
Seats
Avg.
AISP
Avg.
MRR
MRR with
50 clients
Seats
Right
Customers-
Right price
20 $140 $2,800 $140,000 1000
Right
Customers-
Wrong Price
20 $95 $1,900 $95,000 1000

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Value based pricing
• Technology based pricing: Value built on
features, tools and support
• Value based pricing: Value build on
business impact
• Ability to “reframe clients” by showing
the impact on the big costs in their
business

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Reframing process

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The MSP Value Stack
MSP
• Support
• Cloud services
• Professional services

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The MSP Value Stack
Budget
Strategy
Impact
Alignment
MSP
TruBusiness Partner

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TruBusiness Partner
• Technical to business relationship
• Business Strategy
• Business goals, challenges, risks,
vision, core values, competition,
competitive advantage, market position,
margins…
• Technical Alignment and Business
Impact are the foundation

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The Value Stack
World
Class
Impact
Alignment
MSP
• Time at the top of the
stack=value
• Reactive time is the
barrier
• Control reactive time
to control your value!

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Inventory
of
Time
© 2015 TruMethods, LLC. All rights reserved

www.trumethods.com
Finite amount of time
• Your technical time is inventory
• You have a finite amount of inventory
• Your inventory has no shelf life
• What percentage do you spend on reactive
support?
• How much time is left to spend at the top at
the stack?

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How your inventory is allocated
• How many tickets do you close in a month?
• How much time does it take to close?
• How much of your total available time is
reactive?

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Calculate RHEM
Tickets / Endpoint / Month
times
Average Resolution Time
equals
Reactive Hours / Endpoint / Month (RHEM)

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Example
A B C D
Tickets /
Endpoint / Mo.
1 0.5 0.5 0.25
Avg. Resolution
Time
1 hour 1 hour 0.5 hours 0.5 hours
RHEM 1 hour
0.5 hours
(30 minutes)
0.25 hours
(15 minutes)
0.125 hours
(7.5 minutes)
Support
Resources
6.25 3.1 1.55 0.78
• Endpoints supported: 1,000

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Inventory of time
Total available technical time minus
RHEM = time left at the top of the
stack?

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Hours per Delivery Area
0
200
400
600
800
1000
1200
1 hour RHEM .5 hours RHEM .25 hours RHEM .125 hours RHEM
Hours / Delivery Area (1,000 Endpoints)
Reactive Support Professional Services Centralized Services vCIO Network Administration
Company B Company C Company D
Company A

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Bold Statement
• You can control the amount of reactive service
requests generated from your clients!
• What is the science behind lowering RHEM?

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Lowering RHEM
• Using Automation to lower RHEM
–Review tickets and alerts monthly
–Look for recurring issues
–Use monitoring and automation
–Go beyond patch, spy, and spam

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Performance dashboard
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Customer portal
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Technician scheduling
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Health & performance alerts
Drag & drop automation
Integrated patch, AV, backup
Integrated remote control
Business reports
$49 USD / month
per concurrent user
$49 USD / month
per concurrent user
Starting at
$499 USD /month
Unlimited sessions
300 devices
Unlimited tickets
Unlimited billing
Monitor 100 devices free
Free business coaching

SIGN UP FOR A FREE TRIAL
N-ABLE.com
The N-ABLE TECHNOLOGIES and N-CENTRAL marks are the exclusive property of N-able Technologies, Inc. and its affiliates, are registered with the U.S. Patent and Trademark Office and
the Canadian Intellectual Property Office, and may be registered or pending registration in other countries. All other N-able trademarks, service marks, and logos may be common law marks,
registered or pending registration in the United States, Canada, or in other countries. All other trademarks mentioned herein are used for identification purposes only and may be or are
trademarks or registered trademarks of their respective companies.

www.trumethods.com
Lowering RHEM
• Using Technical Alignment lower RHEM
–Develop detailed standards
–Continuously align clients technology
–Dedicate resource to this network
admin role

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Support
Centralized
Services
Professional
Services
Net
Admin
vCIO
Super
Power!

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Network Administration vCIO
Unleash your Super Power
Standards
Technical
Alignment
Business
Impact
Client
Strategy

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Your client’s
alignment against
your standards
Your standards
(Super Power)

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1. MSP Pricing: AISP
2. Impact of client size: Average MRR
3. Measuring value through reactive time:
RHEM

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Summary
• Target 70% GM on MSP revenue
• To command high prices you need a
value based pricing approach
• Lower RHEM and move up the value
stack

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The FormulaWon Program
• Lower RHEM and increase efficiencies
• Build a true competitive advantage
• Eliminate price as an objection
• Consistently build recurring revenue
• Dramatically increase profit margins
• Ready to achieve financial independence!
Why TruMethods?

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FormulaWon
Training
• Over 150 hours of role
based content
• 2 Live Webinars / mo.
• Weekly Podcasts
Community
• Member Forums
• Ask TruMethods
• Schnizzfest
• Events
Tools
• myITprocess™
• SMART Numbers
• Business Plan Template
• Sales Playbooks
Results:
• Complete Business Plan
• Gain Command of your SMART
Numbers
• Align packaging and pricing
with World Class standards
• Develop your Super Power
• Implement Sales Discipline
• Generate Leads
• Raise your expectations about
what’s possible

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The FormulaWon Program
Fueling MSP Growth
Growth Tracks is $399/month $349On boarding $1,500 NO CHARGE
Special Offer: Expires 7/22/16

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First 10 attendees who email:
gary.promo@trumethods.com
Subject line: Sign me up!
SPECIAL OFFER:
Expires 7/22/16
TruMethods Promotion

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First 10 attendees who email:
gary.promo@trumethods.com
Subject line: Sign me up!
SPECIAL OFFER:
Expires 7/22/16
SIGN UP FOR A FREE
TRIAL
N-ABLE.com
The N-ABLE TECHNOLOGIES and N-CENTRAL marks are the exclusive property of N-able
Technologies, Inc. and its affiliates, are registered with the U.S. Patent and Trademark Office
and the Canadian Intellectual Property Office, and may be registered or pending registration
in other countries. All other N-able trademarks, service marks, and logos may be common
law marks, registered or pending registration in the United States, Canada, or in other
countries. All other trademarks mentioned herein are used for identification purposes only
and may be or are trademarks or registered trademarks of their respective companies.
Questions

The N-ABLE TECHNOLOGIES and N-CENTRAL marks are the exclusive property of N-able
Technologies, Inc. and its affiliates, are registered with the U.S. Patent and Trademark
Office and the Canadian Intellectual Property Office, and may be registered or pending
registration in other countries. All other N-able trademarks, service marks, and logos may
be common law marks, registered or pending registration in the United States, Canada, or
in other countries. All other trademarks mentioned herein are used for identification
purposes only and may be or are trademarks or registered trademarks of their respective
companies.

The Math and Science of Top MSP Profitability

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