Earlier this year, Commercial Integrator kicked off a two-part series about optimizing your MSP business. Of course, CI pursued this topic by working in close partnership with The ASCII Group, an organization that serves the MSP community. The series is focused the small tweaks, changes and strategic moves that organizations can make to achieve stronger growth, assure long-term financial sustainability and bolster industry reputation. Here, we present the second and final installment.
Top ASCII Group Members on MSP Business Issues
This time, we feature insightful comments from five leading ASCII Group members: Kim Nielsen, CISSP, CCSA (Computer Technologies, Inc.), David Stinner (US itek), Rick Ornato (Reliable Technology Services Inc.), Michael Hornby (Techmentum) and Paul Parisi (SaviorLabs LLC). We hope you enjoy their insights and analysis.
Commercial Integrator: At a time when labor costs are going up and businesses are looking to save money, how does an MSP business like yours determine proper staffing levels?
Kim Nielsen: We have not changed the way we determine proper staffing levels. Even though labor costs are going up we still need to staff like we always have in order to service our clients the way they are used to being serviced.
David Stinner: Salary pressures started during the pandemic, as we are essential workers and needed to continue to support our clients onsite though the thick of the COVID-19 crisis. We started increasing technical salaries by double-digit percent increases mid-2020, and, when the inflationary period started, the large salary increases continued year after year. Reducing head count was not an option, as we had growth plans and needed to move forward, pay our staff more and hire more team members. We have doubled in size since the low point of 2020, and all with increases to our customer of no more than 3% annually. We were able to do this by building a team overseas. In fact, we have added seven talented and experienced team members, and we are increasing our U.S.-based headcount, as well.
Rick Ornato: We base our staffing levels on utilization. We are 100% managed service. When tech utilization gets to the 75% range, we start looking at hiring. Some clients require more attention than others, so that metric is balanced with Time to Resolution metrics. If utilization is up and TTR is starting to affect SLAs, then we need to consider adding a tech.
Michael Hornby: Since our business has shifted from break/fix into Managed Services, our workload had gotten much more predictable, and we are able to plan many projects six months to one year out. We’ve created a “technology roadmap” for ourselves and our clients, and we can forecast staffing needs with reasonably high accuracy. Much of our labor is focused on testing, developing best practices and deploying technology solutions to our client base as a whole (obviously, much of it focused on cybersecurity). Several members of our team shift between client support and R&D which keeps our utilization rates high even during “slow periods” of client requests.
Paul Parisi: We determine proper staffing levels based on utilization and client growth. Each team member is part of service delivery in some form or fashion. It is what we do: deliver service. Everyone is onboard with that concept and keeps it top of mind. We track response times and always follow up work with customer surveys. Any customer feedback less than excellent is quickly followed up in person.
Commercial Integrator: What calculus does an MSP business like yours do when setting your pricing levels? Have you had to change your pricing substantially in response to inflation?
Kim Nielsen: We have had to raise our rates on both our services and products that we sell. For products, we normally do a cost-plus pricing. For our services we continue to calculate the time involved in servicing a client, based on number and type of devices, and multiply that hourly calculation by our “billable” rate.
David Stinner: We have increased our pricing about 3% year over year to most customers. That is half the rate of the inflation that we have experienced for two years now. We leveraged the ability to introduce our overseas staff with the low increase, but that also helped us hire more staff than we have had before. That means we are able to respond faster and have more proactive positions than ever before.
Rick Ornato: We don’t really have a formula for pricing levels, per se. Each client is evaluated based on requirements and a package is developed around what they require. We are closely monitoring this as it is difficult to scale. We raised our base rate as of July 1. Our last change had been four to five years ago.
MSP Business and Passing on Costs
Michael Hornby: Inflation has hit our company, just as it has the rest of the economy, and we have been forced to pass some of these increases on to our clients. There have been substantial cost increases on existing expenses (from labor to tools to insurance), but we’ve also needed to add additional tools to our stack to keep up with the ever-changing cybersecurity landscape. When adjusting our pricing levels, we perform pricing analyses to compare against market rates, as well as analyzing profitability on a client-by-client basis. We also take a more holistic view to make sure we are providing more value to our clients than the price we are charging. Fortunately, it’s been an easy discussion with our clients the past few years, as the risks they need to protect against are growing at an extraordinary pace.
Paul Parisi: We have not raised our prices directly. We have unbundled some products from our offerings. For example, we previously included the costs for Microsoft M365. Clients now pay those fees directly to Microsoft; we manage it, but they pay it. We did not want to incur costs that are difficult to cancel.
Commercial Integrator: How critical is it for an MSP business like yours to continually broaden their core competencies and areas of expertise? Which areas are you looking to strengthen?
Kim Nielsen: In IT it’s critical for us to constantly keep up with new technologies and bring into our stack those that we feel would be the most beneficial for our small business clients. Currently, we are working on a more robust cyber security offering as well as starting to look at AI/ChatGPT and how it can benefit/help small businesses.
David Stinner: MSPs needs to broaden their competencies as the demand for technology services expands. Everything is digital; everything needs to be connected; and work needs to happen from anywhere. This is all while the security threats increase; compliance requirements increase; and customer demands for business intelligence and productivity increase. The skills of 2019 aren’t good enough to compete in 2023 and beyond. Small business now needs the interoperability of platforms and cloud applications because the small businesses that made it through the pandemic are all digital. COVID-19 accelerated the digital transformation and the cloud migration by five or more years in 2020. Those businesses that could still operate on paper and accept downtime are nearly gone, and the MSPs that have those customers will soon find themselves in a declining position. We are strengthening our ability to deal with compliance and business intelligence.
How an MSP Business Keeps Up with Client Needs
Rick Ornato: I have been in the IT industry since 1987. I’ve seen it go from box builders to MSSPs. In order to stay relevant, MSSPs have to keep up with the ever-changing needs of the client. Our approach is security focused first and foremost, and we continue to adapt our stack to ensure our customers have best-in-class products and services protecting them.
Michael Hornby: Technology is changing faster than ever. Cybersecurity is forcing the advancement; it’s a race to not fall behind the cybercriminals. The types of systems and projects we’re working on cannot wait until the end of a hardware refresh cycle to implement for a client. We believe that one of the primary differentiators between MSP’s will be how quickly each company can adapt to the changing technology landscape. The majority of our new spending as a company has been on staffing to investigate and deploy new systems and tools at a much more rapid pace than we’ve ever done in the past.
Paul Parisi: It is critical for us to become more expert on what we do. While it is not “hard,” it is a lot of work. We are particularly focused on risk and risk management, and, most importantly, how to match the right risk response to the risk assessment.
If you enjoyed this article and want to receive more valuable industry content like this, click here to sign up for our digital newsletters!