Home / Other / Do you know how much your resources are really costing you? Part 1 of 3: The impact on your margins

Do you know how much your resources are really costing you? Part 1 of 3: The impact on your margins

You wouldn’t expect your surgeon to come round post-op to check your blood pressure; or a Michelin-starred chef to give a hand with the washing up at the end of the night; or the pilot to emerge from the cockpit to serve drinks.

So why is it accepted practice for MSPs to regularly deploy some of their most valuable resources on routine, albeit necessary tasks: resolving daily network and server maintenance issues for NOC and handling basic user requests, such as password changes and new user set-up, for Service Desk, for example.

It is usually done in the name of ensuring the highest levels of service for customers at all times – an understandable priority given that ‘near-perfect uptime’ and ‘responsive, friendly customer service’ are now expected as ‘basic needs’ by customers, according to a recent CompTIA survey of managed services.

And, since levels of customer demand fluctuate considerably day-to-day making it uneconomic to employ permanently the number of staff you need to cope with the busiest days, it is inevitable that during periods of peak activity your most skilled technicians will have to attend to routine tasks – a case of ‘all hands to the pump’.

Plus, you may also need to deploy them as a ‘safe pair of hands’ during periods of staff shortages – through holidays, training or sick days.

For many MSPs, however, this inappropriate use of valuable resources is becoming ingrained and an accepted way of doing business. But it comes with a high price tag – literally and figuratively.
You could of course argue that the skills of your engineers are readily available in-house; their salaries already paid. Unfortunately, this just means that the cost of their ‘misuse’ is hidden; the cost is still real and it is quantifiable – as we illustrate in the example below.

Margins on ‘basic needs’ services such as NOC and Service Desk can be very slim for MSPs; and they can be quickly eroded – irrespective of the pricing model you operate.

The ‘flat rate’ pricing model (the ‘all you can eat’ option) gives the customer access to a selected set of services for a fixed cost – this predictability makes it popular with many companies, but gives MSPs little room for manoeuvre in the case of very demanding customers.

Pricing by number of devices is often less popular with customers because costs tend to fluctuate in line with usage patterns; while for MSPs, ‘per user’ pricing can bring a higher burden if each user has multiple devices. Even if the pricing takes the number of devices into account- more devices means a greater management overhead for the MSP.

Therefore, the ability to deliver on SLA commitments within fairly confined pricing parameters makes it even more imperative to ensure that the burden does not suck in your most expensive resources.
The figures make for interesting reading, as we show in this cost comparison illustration.

In the scenario below, we look in simple terms at what the real cost could be to have your most qualified technicians (we assume Level 3 engineers in the example) work on routine NOC and Service Desk tasks – as opposed to less expensive people – say Level 1 or Level 2 support.

We have used average annual salaries, applicable to the different levels of engineer for this illustration, across three major geographical markets: UK, US and Australia. Note – these are salary figures only rather than the fully burdened per hour cost, i.e. before any overheads are apportioned.
Even at this simplistic level, it is clear that using a higher-skilled resource for routine activities could be costing you as much as 40% more than a less experienced technician.msp1part1storypicpmg

NB: Figures have been rounded up or down and are for illustrative purposes only.

*Figures from Reed.co.uk/average-salary and Robert Half UK Salary Guide 2015

**Figures from www.salary.com

***Source figures from Robert Walters Global Salary Survey 2015, based on four major cities

If this costing scenario is one you are familiar with, is the difference in resource-cost being reflected in the amount your customers are paying? Probably not; particularly if you are locked into fixed contracts.

And, not only is it costing you significantly more to have your brightest and best ‘keep the engine room running smoothly’ – it also means they have less time available to work on higher value projects. A double whammy in other words, affecting both your margins and potential revenues.

If this is just an occasional occurrence, then there is perhaps less need to worry.

If it happens regularly and is expected of your engineers as ‘going with the territory’ however, then it can cost you dearly in other ways too.

Use them or lose them!

The fact is you risk losing the very people you don’t want to see walking out of the door: your most highly skilled and experienced technicians.

If these people are bogged down in the day-to-day grind, with no opportunity or time to achieve their potential or to develop new skills with you, then they are more likely to respond to new opportunities elsewhere. This leaves you with the expensive problem of rehiring and inducting new staff into the company – while ensuring that your client service levels don’t slip in the meantime.

And even if they stay with you, are they adding as much value to your business as they could be?

Rather than being bogged down in routine network monitoring and management tasks, your senior technicians could be focussing on higher-margin services in the areas that will extend and improve your company’s value in the eyes of your customers: cloud, big data and security, for example. These are the areas where companies readily admit to needing outside help.

It makes sense then to ensure that your senior, client-facing people have access to the training they need to keep their skills up to date – and the opportunity to develop the new skills they need to be deployed on projects in these major areas of IT concern. Also, they need to have the time to develop relationships with your customers, progressing towards acting as virtual CIO or CDO.

Of course the time-consuming, low-revenue work that supports NOC and Service Desk delivery still has to be done if you are to deliver the ‘near perfect uptime’, ‘responsive/friendly customer service’ and 24/7 support now expected as standard by companies.

Here, it’s worth turning the mirror on your own company. Just as your customers are hiring you so they can free up their team to concentrate on their core business (as per the quote below), you should be using the same rationale to seriously consider using a partner to alleviate the day to day burden on your own team, so freeing them up to work on higher value projects that will “delight” your customers and differentiate you from competitors.

Watch for part 2 in this series: ‘Does lack of relevant resource mean you are missing out on the new high-value opportunities?’ looks at why and where an MSP’s senior resources should be ‘repurposed’ and ‘refocused’.

Kristian Wright