It will come as no surprise to you for me to say that business skills are becoming more and more important in the managed services industry every day.
No longer is it OK to suggest technology solutions for the sake of technology solutions. You have to convince the owner or C level exec of a prospect that you understand his or her business before you can begin talking technology.
This business ability is also increasing important in running your own organization. Recurring revenue comes with some business challenges that are different than the hourly business. What happens to your gross margins when you roll out and all you can eat service to a client and they have a large appetite? It may look great from the sales side of the house to sign that $8,000 per month recurring deal but if it leaves you with 30% gross margins you are in trouble.
So that example always prompts the question, what are good gross margins for a managed services business?
This is a question that is often hard to answer as different organizations include different items in both their revenue and their cogs making the comparison challenging. I can tell you that a service business with a large percentage of their revenue coming from recurring services and not including any product revenue you want to be aiming for the 50% gross margin mark.
In fact we use this mark as our floor and try to drive products and services that will push our gross margins into the mid to upper 50% range.
As you start focusing on the numbers of your business it is important to understand where you have been in order to lay out a plan on getting to where you want to go. I also believe it is important to know what others have been successful doing as a benchmark.
A good resource for this benchmark information comes from Paul Dippell and his Service Leadership organization. This year he is working with CompTIA to create a benchmark study that will provide us all some numbers to compare ourselves against and to strive for.
I look forward to the results and to the continued conversation about driving your margins higher.
Josh
