MSP Pricing Tips:

Determining Optimal Margins Determining Optimal Margins

for your Service Offerings

March 20, 2012

Agenda

• Introductions

• Our sponsor

• Our MSP pricing expert – MSP University– How to define – and calculate – labor cost

– How to define – and calculate – overhead – 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&A

2

Our Speakers

Erick SimpsonVice President & Co-Founder MSP University

3

MSP University

Alex BrandtDirector Kaseya

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About Kaseya

• 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 FactsFounded 2000

Patented

#7,827,547

#7,620,707

#7,895,320

– 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 compliant

5

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– Scalable and flexible

• Uncomplicated

– One lightweight agent

– Cross platform

– Thousands of pre-built scripts

– Easy to install & use via a single management console

• Affordable

– On-premise or cloud

6

www.kaseya.com/solutions.aspx

MSP Benefits via 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

60%+ use

Kaseya

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 need

7

With respect to your pricing

model, are you satisfied with your

current margins?

1. No, and I don’t really know what my

true margin istrue margin is

2. No, but Im not sure how to improve

my margin

3. Yes, but Im concerned that my

margin may decrease over time

4. Yes, and Im not worried about any

changes to my margin

Organization’s Full Burden

• Calculate billable staff’s Total Labor Burden

• Calculate organization’s Total Overhead

Burden

• Add values to determine Full Burden

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• Add values to determine Full Burden

• Divide these by number of billable staff (use

Full Time equivalent [FTE])

• Account for productivity

The yearly amount of all labor costs (including costs above and

beyond gross compensation)

• Total Compensation

• FICA

• FUTA

• Sick Leave

• PTO

• Vacation

Hourly Labor Burden

• FUTA

• SUTA

• Disability

• Workers' Comp

• Healthcare

• Vacation

• Holiday

• Profit Share/Pension/401k

• Retirement

• Additional Bonus

Labor Burden Example

• Scenario – 3 billable staff

• Total Labor Burden = $150,000 yearly

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$150,000 2080 hrs. 3 $24.04/hr

The yearly amount of all company overhead costs (including

indirect labor costs)

• Total Non-Billable Staff (indirect labor costs)

• G/L Insurance

• Picnics, Parties

• Water & Sewage

• Rent

• Equipment and Maintenance

Clothing

Hourly Overhead Burden

• Picnics, Parties

• Tool/Gas/Vehicle

• Company Meetings

• Training/Education

• Cell/Mobile/Internet

• Vehicle Fuel/Maint./Insurance

• Electricity

• Gas

• Heating Fuel Oil

• Clothing

• Telecom

• Office Supplies

• Postage

• Cleaning & Maintenance

• Bank Charges

• Payroll Taxes

• Property Taxes

Overhead Burden Example

• Scenario – 4 non-billable staff (not relevant)

• Total Overhead Burden = $200,000 yearly

• Divide by BILLABLE people (or FTE)

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$200,000 2080 hrs. 3 $32.05/hr

Full Hourly Burden

• Add billable staff’s hourly Labor Burden to

organization’s hourly Overhead Burden

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$24.04 $32.05 $56.09/hr

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:

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based on ACTUAL billable hours:

• Simple Formula:

– All Expenses/productive hours/billable FTE

Productivity (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

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

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all Managed Services Agreements by billable

staff

• Calculate Total Cost Of Service Delivery (TCSD)

• Do the math to determine margin and

profitability!

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)

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$74.79/hr (use overall productivity, 75% here)

• Last month’s labor against Agreements = 150 hrs

150 hrs $74.79 $11,218

Calculating the Margin

• Determine the percentage of profit by

calculating the difference between what was

billed against your TCSD

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$75,000 $11,218 $66,587 89%

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

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–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 happens

Blended Billing

• Managed Services Billing

• T&M Billing for the Month

150hrs $75,000

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• T&M Billing for the Month

• Project Billing for the Month

123hrs $75/hr $9,225

123hrs $125/hr $15,375

Blended Cost

• Managed Services Billing

• T&M Billing for the Month

150hrs $74.79/hr $11,218

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• T&M Billing for the Month

• Project Billing for the Month

123hrs $74.79/hr $9,199

123hrs $74.79/hr $9,199

Blended Margin

Total Billing

$99,600 $29,615 $69,985

ProfitTotal Cost

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Blended Margin

$99,600 70%$69,985

Once You Know Your Full Burden

You can target your desired labor margin

• Select conservative productivity

–75% here ($74.79)

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• Goal: 50% Margin on Labor

–Add 50% to Full Burden hourly rate

$74.79 50% $112.18/hr

Attend a Boot Camp

Focus Areas

• Marketing– Lead generation, branding and

awareness

• Sales– Increasing sales velocity and

effectiveness

Structured Training and Networking

• Reduce operational costs, improve efficiencies, accelerate sales and increase the value of each sale

• International Presenceeffectiveness

• Service Delivery– Improving sales engineering,

project management and service desk efficiencies

• Operations– Leadership, financial acumen,

pricing, agreements, talent management and vendor relationships

• Solutions

• International Presence

• 3 Things to Implement

• General and break-out sessions

• Testing and Certificates of Completion

• Peer and Vendor Networking

• Live and On-Demand

www.mspu.us/bootcamps

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:• 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/contactme

25@kaseyacorp/kaseya/KaseyaFan