MSP Pricing Tips | Determining Optimal Margins for IT Managed Services

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MSP Pricing Tips | Determining Optimal Margins for IT Managed Services. Presented by Kaseya and MSP University. March 2012.

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MSP Pricing Tips | Determining Optimal Margins for IT Managed Services

  1. 1. MSP Pricing Tips:Determining Optimal Marginsfor your Service OfferingsMarch 20, 2012
  2. 2. Agenda • Introductions • Our sponsor • Our MSP pricing expert – MSP University – How to define – and calculate – labor cost – How to define – and calculate – overhead cost – How to use these data to optimize profits – How to use these data to grow your business • Recap • Q&A2
  3. 3. Our Speakers Erick Simpson Vice President & Co-Founder MSP University Alex Brandt Director Kaseya3
  4. 4. Complete the poll/survey and you may win!
  5. 5. About Kaseya Patented #7,827,547 #7,620,707 #7,895,320 • Enterprise-class IT systems management for everybody • Value Proposition – A single Kaseya user can proactively manage 1,000s of automated IT systems and network tasks in the same amount of time required by a team of technicians using other techniques • Key Facts – Founded 2000 – Privately held, no debt, no external capital requirements – 33 offices worldwide in 20 countries with 450+ employees • 12,000+ customers • Millions and millions of assets managed – Patented IT service delivery process & remote IT management process • 24 patents pending – Common Criteria (EAL2+) certified and FIPS 140-2 security compliant – ITIL v3 compliant5
  6. 6. The Kaseya Solution for Automated Managed Services • Comprehensive – Automates all systems management tasks – Expert RMM via Kaseya Live Connect & ITIL SD – Integration friendly (PSA) – Scalable and flexible • Uncomplicated – One lightweight agent – Cross platform – Thousands of pre-built scripts – Easy to install & use via a www.kaseya.com/solutions.aspx single management console • Affordable – On-premise or cloud6
  7. 7. MSP Benefits via Kaseya 60%+ use Kaseya • Higher revenue – Integration gives you more services to offer • Higher profit – Integration means fewer techs per managed machine and cloud means pay as you go & grow • Better service delivery – Automation provides standardization, which means faster responses with less errors • Better control – Integration means it all ties together so you can actually see everything you need7
  8. 8. With respect to your pricingmodel, are you satisfied with yourcurrent margins?1. No, and I don’t really know what my true margin is2. No, but Im not sure how to improve my margin3. Yes, but Im concerned that my margin may decrease over time4. Yes, and Im not worried about any changes to my margin
  9. 9. Organization’s Full Burden• Calculate billable staff’s Total Labor Burden• Calculate organization’s Total Overhead Burden• Add values to determine Full Burden• Divide these by number of billable staff (use Full Time equivalent [FTE])• Account for productivity9
  10. 10. Hourly Labor BurdenThe yearly amount of all labor costs (including costs above andbeyond gross compensation)• Total Compensation • Sick Leave• FICA • PTO• FUTA • Vacation• SUTA • Holiday• Disability • Profit Share/Pension/401k• Workers Comp • Retirement• Healthcare • Additional Bonus
  11. 11. Labor Burden Example • Scenario – 3 billable staff • Total Labor Burden = $150,000 yearly$150,000 2080 hrs. 3 $24.04/hr 11
  12. 12. Hourly Overhead BurdenThe yearly amount of all company overhead costs (includingindirect labor costs)• Total Non-Billable Staff • Water & Sewage (indirect labor costs) • Rent• G/L Insurance • Equipment and Maintenance• Picnics, Parties • Clothing• Tool/Gas/Vehicle• Company Meetings • Telecom• Training/Education • Office Supplies• Cell/Mobile/Internet • Postage• Vehicle Fuel/Maint./Insurance • Cleaning & Maintenance• Electricity • Bank Charges• Gas • Payroll Taxes• Heating Fuel Oil • Property Taxes
  13. 13. Overhead Burden Example • Scenario – 4 non-billable staff (not relevant) • Total Overhead Burden = $200,000 yearly • Divide by BILLABLE people (or FTE)$200,000 2080 hrs. 3 $32.05/hr 13
  14. 14. Full Hourly Burden• Add billable staff’s hourly Labor Burden to organization’s hourly Overhead Burden $24.04 $32.05 $56.09/hr14
  15. 15. What About Productivity? • 2080 hours assumes no vacations, sick days, holidays, training days, etc. • Use chart below to estimate your TRUE cost based on ACTUAL billable hours: • Simple Formula: – All Expenses/productive hours/billable FTEProductivity (actual/possible) 50% 60% 65% 75% 85% 100% True cost per productive hour $112.18 $93.48 $86.29 $74.79 $65.99 $56.09 15
  16. 16. Service Desk Profitability• Calculate organization’s Full Burden• Determine monthly Managed Services billing• Calculate total labor hours delivered against all Managed Services Agreements by billable staff• Calculate Total Cost Of Service Delivery (TCSD)• Do the math to determine margin and profitability!16
  17. 17. The Math• Scenario – 25 Managed Services Agreements @ $3,000 each/mo = $75,000 recurring• 3 Service Desk staff with Full Burden of $74.79/hr (use overall productivity, 75% here)• Last month’s labor against Agreements = 150 hrs150 hrs $74.79 $11,21817
  18. 18. Calculating the Margin • Determine the percentage of profit by calculating the difference between what was billed against your TCSD$75,000 $11,218 $66,587 89% 18
  19. 19. Let’s Dive Deeper• 3 Service Delivery Staff Realized 150hrs out of 480hrs (40x4x3) on Service Desk Against Managed Services Agreements –Leaving a balance of 330hrs –At 75% utilization, that leaves about 247hrs• Let’s apply those hours evenly to T&M and Projects and see what happens19
  20. 20. Blended Billing• Managed Services Billing 150hrs $75,000• T&M Billing for the Month 123hrs $75/hr $9,225• Project Billing for the Month 123hrs $125/hr $15,37520
  21. 21. Blended Cost• Managed Services Billing 150hrs $74.79/hr $11,218• T&M Billing for the Month 123hrs $74.79/hr $9,199• Project Billing for the Month 123hrs $74.79/hr $9,19921
  22. 22. Total Total Cost Profit Billing $99,600 $29,615 $69,985 Blended Margin $69,985 $99,600 70%22
  23. 23. Once You Know Your Full BurdenYou can target your desired labor margin• Select conservative productivity – 75% here ($74.79)• Goal: 50% Margin on Labor – Add 50% to Full Burden hourly rate $74.79 50% $112.18/hr23
  24. 24. Attend a Boot CampFocus Areas Structured Training and Networking• Marketing • Reduce operational costs, – Lead generation, branding and improve efficiencies, awareness accelerate sales and increase• Sales the value of each sale – Increasing sales velocity and effectiveness • International Presence• Service Delivery • 3 Things to Implement – Improving sales engineering, project management and service • General and break-out desk efficiencies sessions• Operations • Testing and Certificates of – Leadership, financial acumen, pricing, agreements, talent Completion management and vendor • Peer and Vendor Networking relationships• Solutions • Live and On-Demand www.mspu.us/bootcamps
  25. 25. Next Steps • Attend Atlanta Boot Camp virtually – courtesy of Kaseya www.mspu.us/livebootcamp • Learn more about MSP University www.mspu.us • For a free live product demo: www.kaseya.com/demo • For a free trial: www.kaseya.com/freetrial • To speak with us: www.kaseya.com/contactme25 /KaseyaFan /kaseya @kaseyacorp

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