There’s an old cliché that says, “I know only half of my clients are profitable; I just don’t know which half.”
Life isn’t that bad, thankfully.
Find out quickly, without all the spreadsheets
I want to show you a quick way of estimating whether a client is making it worth your while.
Some very simple definitions first
- Rate = the revenue in pounds that you want per hour – let’s shorten it to – R
- Charge – the price for monthly support – let’s shorten that to – C
- Hours = the number of hours of support provided – call it – H
Secondary school algebra revisited (optional)
Skip this if variables and operations are like white noise to you
As always, don’t be put off.
It’s dead easy to manipulate an equation containing multiplications and divisions if there are three variables.
In other words (equations!), all the following are true:
- C / H = R
- R * H = C
- C / R = H
Same thing in plain English
- If you know how much you charge a client for their support contract, and the number of hours you support them, you can work out your hourly rate.
- If you know the rate/hour you want to be billing, and the number of hours support you provide, you can work out what you should charge for the support contract.
- If you know the price for the support agreement, and the rate/hour you want to bill, you can work out the maximum number of hours of support you should provide.
It’s the latter that interests people most.
What should your hourly rate be?
You need to figure that one out for yourself. You know your salaries, costs, and the margins you want.
All I can offer you is saying that most MSPs are gunning for around £65 to £75 per hour for the support they provide.
There’s nothing to stop you trying different rates to see what effect it has on the number of hours you can afford to provide.
Easy example of working out how many hours you can spare
Example 1: I bill my client £500 a month. I want to get a rate of £50 per hour.
500 / 50 = 10 hours, tops
Easy and obvious.
Real life example
Example 2: I bill my client £900 a month. I want to get a rate of £75 per hour
900 / 75 = 12 hours maximum
Proviso: remember, “Rate” is not the same as profit
Just a reminder… the rate you want is not the same thing as your hourly cost.
You can feed you hourly cost into the equation (i.e. as “R”) to get an idea about whether the client is breaking even for or even costing you money.
Some clients will be wasting your time and/or your money; typically, your old clients that you took on while building-up your business, or often those bigger clients who make-up a significant part of your total revenue.
Hopefully all your clients comply with the number of hours you should give them.
If not, it’s time to review the price of your support contract with them. At risk of stating the obvious, these are the options:
- Do nothing – because there are other factors that make it worth your while to take a hit on the nose – these typically include project work, products, reciprocal benefits, marketing benefits, or recurrent licensing;
- Send in the Account Manager – perhaps surprisingly, some clients will renegotiate their fees or agree to cap the hours they use. Don’t laugh; I have seen it happen more than once.
- Let them find another MSP – I won’t use the word “sack” again when referring to clients. But:
- They’re costing you money. You’re not a charity. You have costs to think about.
- They’re using up resources. The time spent on them is time that could be spent on your better clients.
- They reduce morale in your engineering team. Whether you’re aware of it or not, you will almost certainly have a client that drives your engineers mad, what with pointless calls, time wasting, and (sometimes) shouting at them
- So, win wars without a fight. This is horribly mercenary, but most of us are here to make a profit. Bad clients can go elsewhere, causing your competition to waste resource, take a hit on their margins, and face low morale. Sometimes clients will come back, ready to renegotiate because you provide a far better service.