The ability to effectively manage cash is the single most important skill and concern of the entrepreneurial CEO, including managed service providers.

You can take all of the brilliant strategy, sales skills, people skills, and product innovation and toss them all out the window if you can’t effectively manage cash.

One of the beauties of the managed services business model is that is makes cash flow management much easier than the break-fix business model due to the recurring revenue. However, if you want to run a fast growth business, or to ensure your survival even in tough times, just relying on the recurring revenue isn’t enough; you need to take advantage of other strategies to ensure that you actually collect that revenue in a timely fashion.

While cash flow is different than profitability, I think it deserves to be in this section of the site. You can have all of the bottom-line profits in the world on your accounting statements, but it won’t matter if you can’t survive your cash flow situation.

At the time I am writing this introduction, our economy is starting to recover from what was previously a terrible state. I read the results of a survey of CEOs across the country from every industry and size of company, and cash management was the #1 concern of over 90% of those CEOs. Previously very successful and very profitable companies are in danger of disappearing almost overnight because their sources of cash have dried up. Their business models may still be perfectly sound, but their cash flow has dried to a trickle.

Don’t let that happen to your business.

Dig your well before you are thirsty.

Put the practices that we recommend in this section into place before you need them. Don’t wait until you’re in a bad spot; that’s the hardest time to collect cash.

MRC

To be successful, a managed service provider should have enough service offerings to match the various needs of your clients’ desired service levels.

One size does not fit all when it comes to offering services to your clients, so you need to have a variety of services if you want to keep your clients happy and keep your business profitable. At the same time, you can’t let your service offerings become too rambling or out of focus, or you will destroy your service delivery capabilities and cost structure.

So how to accomplish all of this?

The key is to really understand the target market you are going after, and to thoroughly understand the cost/benefit of your service offerings.

Who is your target client?

It’s absolutely critical that you really know this. If your answer is “anyone with a network”, you are in big trouble. Small companies and big companies both have networks, but their service needs and how they want to be worked with are dramatically different.

Let’s say that you are targeting small law firms in particular. You may know that their most pressing needs are:

1. Speedy performance of desktops and laptops
2. 24-7 access to their case management systems
3. Handheld support

If you know your market this well, then you can structure service offerings that match their needs and protect your profitability.

Designing segmented service offerings

Layer

In this case, you could easily develop three service offerings:

1. A desktop/laptop support service
2. A service with the above and case management support
3. Both of the above and handheld support

You are effectively layering additional benefits into each service package. If you know your cost to support these really well, it becomes pretty easy to also put layered pricing in place that properly compensates you for the effort you are putting forth in the service.

You can also layer based on things like response time, access to higher level of engineers, SLA’s, etc. There is really no limit to the creative things you can do to layer your services, as long as each additional layer has obvious value to your client.

In this scenario, a lot of law firms will choose to sign up for option 1 or 2, and not find value in signing up for the handheld support. That additional layer may not seem like it’s worth the extra expense. That’s ok, as long as you…..

Control the variables

In the scenario described above, many of the law firms that don’t sign up for the 3rd layer of service are still going to call you for handheld support.

This is fine, as long as you have a way to control your variable costs and make sure you bill for the additional costs of supporting this client.

This is where it is absolutely critical to have a PSA package like Connectwise or Autotask in your business that allows you to use distinct billing codes. In this case, you would need an hourly billing code that resulted in the client receiving an additional invoice for services outside of their contracted agreement.

Success – with the proper agreement structure and PSA billing codes in place, you have successfully controlled your costs and billed for the additional effort you put forth for this client. Again, this can be done for just about anything, as long as you have proper billing codes in place and your staff has the means to easily (or better yet, automatically) identify the right codes to use at the right time.

Easier to sell

The beauty of having multiple packages like this is that it becomes easier to sell your ideal services. We’ve found over time that people generally do not like to choose the cheapest or the most expensive packages. Why? The fear of buying the wrong thing and/or getting ripped off – fears commonly associated with both the cheapest and most expensive products. The middle seems “safe”.

If you know this is true, you can consciously design your middle package to be your most profitable. The majority of people will be drawn to this package by their own instincts; you just need to make it an attractive offering and your sales and profits will come easier.

MRC

Though managed service providers deal with technology issues for clients, they are not technology companies. They are service companies. Therefore, the single most important asset you have as a MSP is your people.

To make your people successful, you need to have a team structure in place that clearly delineates each person’s role and how they work together. However, it can get tricky to pick which roles to add to your team and how to delineate responsibilities.

To help, we’ve put together a guide with perspective on who to hire when and how to divide responsibilities in a way that makes your team a cohesive whole.  Click here for this free MSP Coach guide on MSP team structures.

Every MSP is unique and every employee has a unique set of skills and capabilities. Therefore, there is no perfect team structure that every MSP should adopt. Just use our advice in the way that best fits your needs.

MRC

Attention managed service providers: One of the most damaging statements every made in the history of business is:

“The customer is always right.”

Why is this one of the most damaging statements ever? Because too many people take that statement and expand it in their minds until they think that they have to do anything and everything for every customer.

Not all customers are created equal!

We’ve all had customers that want everything in the world, but don’t want to pay for it. We’ve also all had customers that won’t actually listen to our advice, then get upset when they haven’t had their problems solved.

These customers are called Killer Customers, and you need to learn to identify them and deal with them appropriately, or they will suck the life out of your business.

This idea – that I could run my business without bowing down to every demand of every customer – was a revelation to me. I first grasped the concept when I read the book Killer Customers: Tell the Good from the Bad–and Dominate Your Competitors . It’s a great book; you should add it to your business library.

The point of the book is that you should get really good at telling the good customers from the killer customers, and then ditch the killer customers so your competition can have them and get bled to death (that may not be how the author would summarize it!).

How to segment

In my experience, the keys to customer segmentation are the following:

1. Know your target customer very well
2. Train your salesforce to find target customers and provide incentive to make sure they don’t sign killer customers

You will not turn a bad prospect into a good customer!!! It doesn’t matter how big the deal is or what the prospect tells you about how the relationship will be after you have signed a deal- it won’t turn into a good customer. You must make sure that you don’t bother bringing the wrong customer into your portfolio of business. The sale won’t stick and neither will the commission – it’s a waste of time for everyone involved.

1. Have a process for continuously reviewing your customers to weed out the killer customers that you accidentally let on board
2. Have enough service offerings to match the various needs of your clients’ desired service levels

Doing any one of these things will help you out a lot, but doing all four will result in increased profits, happy customers, and happy employees – a combination that’s hard to beat.

MRC

Always remember that.

This is a saying we use at Everon when building and running our managed services business, and it has served us very well.

There are two realities in the managed services industry:

1. You are in the PEOPLE business
2. Just about everything you do for your clients is done by people

Both of these realities seem obvious and just common sense but they are often forgotten or neglected so they’re important to address.

People are first, technology comes second.

Reality 1: You are in the PEOPLE business

This means that we expect our engineers to solve the people problems related to the service just as much as they are expected to solve the technology problems. We’ve found that when we’ve hired very tech gifted people they can solve tech problems easily but they don’t necessarily have the best people skills. Though they can solve the technology problems, they leave the clients feeling like the service was only so-so and that they weren’t really taken care of.

We’ve found that we have to hire people with great interpersonal skills first. The tech skills, though obviously important, are secondary. Our philosophy is that we can teach the tech skills but it’s much harder to teach the interpersonal skills. We look for people with the right personality, the right people skills and then we tech the tech skills.

Reality 2: Just about everything you do for your clients is done by people

Since the managed service industry started, there’s been lot of focus on tools that deliver these services. These tools are very important and have taken this industry far in terms of automating some things. However, the reality is that the far majority of services are still performed with some sort of people interaction. You must make sure that the people delivering these services are equipped to do so and are happy to provide those services.

There’s a saying that if you want to deliver great service, you have to have happy people delivering the service. Do they like taking care of customers? Do they like delivering the services? Do they feel like the company they work for cares about them and creates a positive environment for them? We at Everon put a lot of focus on having happy people that will deliver great services.

MRC