Maximizing Margins: The Why and the How
BY IT GLUE | April 28, 2020
Building a business that can withstand anything is about more than just continuity planning. The simple reason is that continuity planning is all about surviving catastrophe. You want that, of course, but resilience is about much more. It’s about being adaptive, so that no matter what the outside world looks like, you’re coming through at the highest level.
You run a business, so you know that the “bottom line” isn’t just some metaphor – it’s your mortgage payment, your children’s tuition, it’s your retirement fund. Your net margin is the bottom line, but the gross margin and operating margin are full of things you can influence in order to improve your net margin.
As a documentation solution, we probably can’t tell you much about things like rent on your physical facilities, but we do know a thing or two about reducing operating costs.
Total Lifetime Cost vs. Sticker Price
A surefire way to crush your margins is to focus strictly on sticker price. It’s a bit counter-intuitive because sticker price is so big and obvious. But total cost is what matters. Think about your PSA, for example. The leading PSAs are pretty powerful, but often come with steep learning curves, require consultants to help set them up, and then someone on staff to help with the administration.
Where documentation is concerned, total cost is more about what the solution offers you. Use a solution that doesn’t have professional-grade security? Ok, factor in the cost of a breach. Use a solution that does only a few basic things? Ok, factor in the opportunity cost because instead of cutting down time waste by 50%, maybe you’re cutting it down 10%. That 40% difference is money you’re not saving now – what’s that worth? Use a solution that talks big but is mostly just vaporware? Ok, but now you’re waiting around to get the automation and deep workflow integrations you need. Cost that out.
Ultimately, if you’ve got a laser focus on sticker price, and not thinking about total cost, your margins will suffer for it.
Total cost today is important but you’re probably already noticing that something like a consulting fee is not necessarily an ongoing expense. True – it calls to attention that total cost has to be looked at from a lifetime perspective. Makes sense – that 50% time waste reduction saves you a few bucks on any given day. But over the course of years, that savings is into the tens of thousands, if not more.
Total lifetime cost includes development – i.e. where the product is going. At every event in the channel, that product roadmap discussion is the one MSPs care about the most, for this very reason. So where is the product going? Does the roadmap focus on deeper workflow integrations between critical tools?
And with the roadmap, does the vendor have the team to deliver? Did they just lay off a bunch of people? Do they have a roadmap that sounds brilliant but only has a couple of engineers to make it happen?
Most MSPs get decent margins in the good times. The trick is getting good margins when les bon temps no longer rouler. How you perform in a recession and coming out of one is really a reflection of the habits you build when you don’t need them. And paying attention to the total lifetime cost of your stack, including the opportunity cost of using immature tools, is absolutely one of those habits.
Doing more with less takes more work that most people realize. In the short run, you can cut corners on sticker price and just work more hours. In the long run, that’s not going to be sustainable, not if you want operational excellent and healthy margins no matter what the economic conditions are.
Want to see how IT Glue maximizes the efficiency of your team and functions as the missing link between the tools in your tech stack? It’s a must have for any MSP that wants to maximize margins.
