Addressing the hidden costs in your MSP business – Part 2
Customer retention is a big concern for MSPs. It relies on you being able to deliver the services your customers have contracted for efficiently and in accordance with your Service Level Agreement (SLA). It also frequently means going the extra mile to keep them happy.
The risk is that you can focus so much on the ‘keeping happy’ that you forget this comes with a price tag; a cost to your business that may not be immediately evident, but which can hit your bottom line – and hard.
The hidden costs of customer support come in a variety of guises: some directly generated by an individual customer; others, the result of general service delivery issues.
Here are five areas of support cost that may be ‘hidden’ in your own MSP business.
1. Misuse of technicians’ time
How much potentially billable time are you losing?
Billable resource utilisation comes top of the list of success metrics tracked by MSPs, so it was all the more surprising when a recent Autotask Study revealed just how many potentially billable hours are being lost each week – often on tasks that could be automated, eliminated or streamlined. Some 52 per cent of respondents to the survey admitted to losing up to five hours per week in each of these tasks; while, worryingly, some 20 per cent weren’t sure how much time was being lost to them.
Of course you wouldn’t expect every hour worked to be a billable hour. That’s just not realistic. Indeed, this non-billable time may be being spent in activities that will ultimately be more profitable for your company – in generating new business, for example, or acquiring new skills to support more advanced services.
But this is not always the case.
How often are your highly skilled resources used to carry out routine maintenance tasks?
Are your technicians constantly being called upon to carry out routine maintenance and low-level reactive support tasks? To resolve daily network and server maintenance issues for NOC, for example, or to handle basic user requests, such as password changes and new user set-up, for Service Desk? It may be the quickest way to get an issue sorted but it can be a costly way, diverting technicians from generating billable hours or from focussing fully on delivering higher value services.
And there is a further cost lurking below the surface here.
If your technicians feel their skills are not being used properly, then you risk losing the very people you don’t want to see walking out of the door… which brings us to our next area of hidden cost.
2. Technician turnover
The ‘people’ cost to your business is usually a very visible one – and a very necessary one. After all, you wouldn’t be able to deliver your services if you didn’t have the right people in place.
Less visible is the cost of repeatedly having to advertise, interview, recruit and train up new staff as a result of ‘technician churn’.
Employee retention is an ongoing problem for MSPs, with 92 per cent of respondents to the CompTIA ‘5th Annual Trends in Managed Services’ survey claiming it as a major (41 per cent) or minor (51 per cent) challenge. Indeed some 80 per cent of MSPs said that they had seen one or more technicians ‘jump ship’ in the previous year to join an end user’s IT department. This may be people taking advantage of a genuinely better opportunity – or the result of being undervalued, overused or inappropriately deployed within the MSP organisation.
Whatever the motivation, the result is additional cost just to get back to where you were before.
3. Scope creep
A term long familiar in the IT industry, scope creep occurs when a project gradually expands beyond its planned objectives – usually with negative effects on timescales and budgets.
It can begin as early as the onboarding stage, setting a bad precedent for the ongoing relationship; and it frequently occurs when you operate under fixed-fee pricing
In some instances, your customer may genuinely not have realised that a particular activity fell outside the scope of the contract; in others, it may be a deliberate attempt to obtain more service without paying for it. Whichever, it can be difficult to say ‘no’ to the extra requirement, with new customers in particular, given your desire to expand business with them.
Plus, scope creep isn’t always instigated by the customer. Technicians, being problem solvers at heart, can be tempted to expand the scope of a service if it resolves a customer issue. It may seem preferable at the time to do what the customer wants to keep them happy, but it can lead to problems in the future, when the expanded scope may have to be supported.
So, you could be hit by a double whammy: the initial cost of doing the extra work, plus an ongoing support cost – neither of which is being covered by customer fees.
And don’t forget the ‘opportunity cost’ of scope creep: are you bundling in so much extra work at no extra cost that it is becoming expected by your customers and is impacting your ability to sell an out of scope service as a new project?
Scope creep is more likely to happen when a project or service has been poorly defined and doesn’t include proper change control. That is why it is so important to offer customers a detailed project plan and a contract with specific milestones that clearly defines what happens if the scope changes. In other words, make sure you leave the minimum ‘wriggle room’ so both you and your customers are clear on what is being delivered, when and how.
4. Scaling for growth
As a growing MSP, you need to ensure you have the right level of resource in place to support current and ‘pipeline’ customers effectively – as well as to cover periods of peak activity and the introduction of new services. Too few technicians and customer service can suffer; too many and the model becomes uneconomic.
Typically, MSPs have grown by taking on additional technicians so they can service more clients. The cost of doing this, however, is driving many to consider partnering – for NOC and Service Desk delivery in particular. Partnering can be a cost-efficient way of acquiring the skills and support you need to deliver high-quality service to your customers ‘on-demand’ and without the constant recruitment/training headache. You gain access to a highly experienced team, with the expertise that it would be both difficult and costly to retain in-house.
In other words, you have access to an elastic pool of technicians, ‘on-demand’ at a predictable cost.
5. Unprofitable customers
It’s not always evident which of your customers are making you money – and which are costing you. The customers you send the biggest bills may not be the most profitable. You need to delve into the detail to find out why.
But in a ranking of key performance indicators (KPIs) by MSPs surveyed by Autotask, while almost 95 per cent of respondents said they measured at least one of the KPIs listed, measuring ‘profitability by customer’ came in only at number four on the list.
Key Performance Indicators rankings
To calculate profitability by customer, you need to know what your service delivery costs are – and which metrics you need to determine them. Any PSA will work this out, once you know your burden rates for each resource. (You can access a simple methodology for calculating your burden rate in our recent blog: Here
The results may surprise you – and lead to some difficult decisions….
Be prepared to say goodbye to unprofitable business
Having done the maths, if you identify that a customer is not profitable, it’s probably time to have a frank conversation about how much their business is costing you – and what changes may be necessary moving forward.
Your customers know that you are not running a charity. If they are still not willing to pay for additional services that are not covered by the existing contract, then difficult though it is you should be prepared to say goodbye – and focus your efforts on your profitable customers.
At the end of the day, not all business is good business and the extra support you are bundling in to keep your customers happy may be putting your MSP operation at risk.
 Autotask, Metrics that Matter, 2016
 Autotask, Metrics that Matter, 2016