As an MSP, you’re expected to be something of a clairvoyant by anticipating customer needs and predicting your own fortunes. Neither is easy. And when it comes to projecting profitability, it requires a fine calibration of income and operational costs.
That means taking a deep look within – to determine which current business offerings bring in the most profit – and outward – to identify new high-margin technologies and ascertain market demand.
Successful businesses periodically review historical profit data to determine which offerings generate the most profit. This requires looking at all associated costs and taking care not to overlook hidden ones. Calculating staff time is relatively straightforward, but you must take into account other costs – the technology you use, time spent on customer acquisition and marketing, overhead and utilities, and even taxes.
Leave any of these expenses out of the equation, and you’ll end up with a skewed picture of your costs and inaccurate profit projections.
When you figure out which services generate the most profit, try to expand them if you can. If it’s a service you offer to a limited customer base, market it to other clients. Also determine if you can build value-add around the service. For instance, if you offer password management, there could be an opportunity to offer user training and consulting services.
Do Some Math
Now, let’s be realistic: Projecting managed service profits isn’t an exact science. If it were, we wouldn’t be having this conversation. Unforeseen factors are always possible. A customer could go out of business. One of your service platforms could become unstable. You could lose one or two key employees and, as a result, have to put money into recruitment.
Macro economic factors and Mother Nature’s surprises also can get in the way of running a profitable business. Other factors such as the recent presidential race can have an impact on business if they affect economic conditions.
The best way to maintain your business profitably through market fluctuations is by keeping an eye on the future and making smart decisions. You’ll need to keep up with emerging technologies and services to determine which are good fits.
Learn New Technologies
Currently there’s a lot of talk about data analytics and the emergence of the IoT (Internet of Things). Managed security is another fast-growth area, with cyber threats such as ransomware and phishing finding new victims everyday.
Familiarize yourself with in-demand technologies to see if they match your business strategy and customer needs. Don’t just focus on potential profit margin. Also take into account whether a new offering requires recruiting new skills and an investment in new systems.
It’s a good practice to test out new offerings on existing customers – do it for free! – to learn the technology, figure out what resources it requires, and create a pricing formula that brings in enough margin while still making it attractive to customers.
Running a profitable company requires paying close attention to internal business data, emerging technologies and market demands. Strike the right balance, and you’ll maintain a profitable business for the long term.