You’re Profitable, but Are You Profitable?

May 21, 2013  By Vince Tinnirello

One thing many MSPs (Managed Service Providers) struggle with is understanding the profitability of their business.  Sure they may know overall whether or not they are profitable, but do they really know which lines of business (LOB) are driving that profit and which aren’t? 

MSPs need strong financial management skills

MSPs often give great attention to the technical skills and tools it takes to do the job, but frequently overlook the financial management skills and tools required to adequately measure the profitability of their businesses.  One look at their profit and loss (P&L) statement reveals this.  Service and admin labor is often grouped together, what should be a cost of service delivery is listed as an overhead expense, or revenue from different lines of business is all lumped together. I can say this because our P&L used to look very similar!

In order for MSPs to really understand how their business is doing and which lines of business are profitable, they need to properly organize their chart of accounts in their financial software (such as Quickbooks or Peachtree).  They also need to have payroll divided into service and admin departments so that admin labor isn’t miscalculated as a cost of service delivery.   MSPs can use Autotask to help determine cost of labor and also to feed Quickbooks the appropriate revenue data, and use Excel to track this data for historical comparison.  Third party tools such as Corelytics can also be useful and provide further granularity of data if desired.

Once the financial data is in order, MSPs will have a very clear picture of where their strengths and weaknesses are by line of business. You can even take this data and compare it to the benchmarks that organizations such as Service Leadership publish regarding best in class MSPs.   From there you can set goals for the future and take action.  Are you charging enough for projects?  Are there components of your managed services offering that are eroding profits?  Is your hourly rate too low for any break/fix work you might do? 

Autotask Community Live power session

If you are attending Autotask Community Live in Arizona, we’ll be reviewing this topic and the steps and processes required to determine profitability by LOB in our session. Join us at 11:30 am on 4 June in the Power User Session: Using Autotask to Measure Profitability by Line of Business. Learn more about Autotask Community Live! AZ online

Vince Tinnirello
President and CEO of Anchor Network Solutions. Vince founded Anchor in 2002 starting as a one man consulting practice. He handles all sales, marketing, and account management responsibilities at Anchor. Vince has over 15 years experience in the IT industry and is passionate about helping small businesses focus on running their businesses rather than worrying about IT solutions.
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