Best Practices Blog

Blog archive

Dynamic Duo and Word Problems

In early October of 2010, Coreconnex's Frank Coker and Service Leadership Inc.'s Paul Dippell turned up at the Tigerpaw User Conference in Dallas and raised some eyebrows with some pretty hefty challenges to MSPs on how to manage their finances from revenue to profit to reinvestment.

Here are two of their most salient points. Accordingly MSPs should do the math.

The Formula: Monthly Billables/Payroll Expenses = good finance.

Take your monthly billable service revenue, divide it by your payroll and if you don't have a multiple of at least 2.5, you need to drum up more business, adjust pricing or streamline service level agreements. According to Paul Dippell, a good number of service providers, if they plugged in this formula are or would be at about a 1.9 or 2.0, which is essentially breaking even because benefits, training, marketing and service management aren't even in this formula.

The Formula: Price - cost = the difference between success and mediocrity.

Billable revenue, should translate to profit after all the bills are paid, especially if, as is the case with most IT Service shops, the cash position or line of credit for continuing operations is nominal or only for emergency use.

This brings us to price, which can be determined by local market for your products and services of course minus the cost determined by vendor materials: Then you take the amount of man hours it would take to deploy the services and subtract the cost of the hourly rate not to the customer, but to you for your manpower. If you're charging the customer a flat fee, say once a month, all of those internal costs should be rolled into what you charge the end customer.

You're not passing along the costs, but you're being realistic based on how many end clients you service.

If you're discouraged by these "word problems," you should remember as a small IT service provider, you're not Infosys and you should only compare your financial performance to competitors who are in the same vertical or have similar business models. At some point though, if you'd like to grow to be an Infosys or similar company, it pays, literally and figuratively, to do the math.

Posted by Jabulani Leffall on October 18, 2010 at 11:57 AM

Reader Comments

Add Your Comments Now:

Your Name:(optional)
Your Email:(optional)
Your Location:(optional)
Please type the letters/numbers you see above

Connect your clients to the cloud and revolutionize the way business gets done. Join Zenith at the next Cloud Revolution event near you to learn how you can deliver right-sized cloud solutions along with peace of mind using an enterprise level cloud solution tailored for the SMB market. At the Cloud Revolution event you will see SmartStyle Computing - a new way of looking at IT infrastructure. Using cloud technology, SmartStyle Computing provides high availability, built-in business continuity and a revolutionary storage system. Zenith's SmartStyle Computing solutions will set you apart from the competition, allow you to close more sales, reduce overhead costs, and increase profits all while ensuring maximum customer satisfaction.

The future is efficient, affordable and easy to implement. Join the Cloud Revolution and connect to the future. Each session runs about three hours. Registration begins at 8:00 AM for the morning sessions and at 12:30 PM for the PM sessions. There will be plenty of one-on-one time for questions, as well as, networking with your peers.

To register, please visit

ZenithZenith BDR Solution: Overview
Watch a brief overview of Zenith's Backup and Disaster Recovery Solution. Learn more about the Zenith BDR and how it can grow your business.
Duration: 2 minutes, 22 seconds

ZenithZenith BDR Solution: NAS versus Tape
Take an in-depth look at the advantages of using disk-based backup over tape. Learn how the disk-based architecture used in the Zenith BDR is more effective and economical than traditional tape backup solutions.
Duration: 4 minutes, 15 seconds

ZenithZenith BDR Solution: Features
Zenith's Backup & Disaster Recovery Solution has many features to keep your business up and running. Take a tour to learn more and explore our robust backup and recovery platform.
Duration: 2 minutes, 58 seconds

ZenithZenith Services Commercial
Description: A brief overview of how Zenith Infotech can help grow your managed services offering.
Duration: 1 minutes, 38 seconds

more resources from Zenith