It’s not easy to run a successful managed service provider (MSP) business. From managing financial metrics to optimizing time entry and following standard procedures, optimizing MSP operations is crucial in order to maximize efficiency and ensure long-term growth.
In this blog post, we will explore the top six operational pitfalls that MSPs commonly face. While it’s nearly impossible to avoid every issue presented here, we will provide practical strategies to deal with them when they arise.
1. Not managing the financial metrics
One of the most damaging operational mistakes that an MSP can make is failing to effectively manage financial metrics. Just as individuals must manage personal finances, businesses need to manage their financial health to make informed decisions and drive growth.
Managing financial metrics includes practices such as budgeting, utilizing industry tools and standards, and seeking guidance from peer groups or coaches. By mastering financial data, MSPs can gain the insights necessary to set realistic goals, achieve optimal profitability, and make data-driven decisions to steer their business towards success.
One financial goal should be to attain a multiple of wages of three when it comes to labor costs versus revenue—so your goal would be $3 in revenue for every $1 you spend on wages. The other key goal metric is a 20% net profit, once your expenses are considered, such as sales, marketing, rent, and training costs. These metrics can serve as benchmarks to achieve best-in-class service margins and significant net profits.
To help you achieve these goals, first things first: set a realistic budget and follow it. You can also rely on established industry tools and standards to help and tap into peer groups and coaching for more tailored guidance. Pax8 offers valuable tools such as a calculator where you can alter your financial numbers to try to reach best-in-class status, as well as Pax8 Peer Groups and coaching to help you reach your financial goals.
2. Compromising on time entry
It may sound simple, but ensuring accurate time entry is a crucial aspect of efficient MSP operations. Real-time recording of activities ensures that time is properly allocated, invoices are accurate, and data for analysis is comprehensive.
Unfortunately, compromising on real-time time entry is a pitfall that many MSPs fall into. It is vital to hold all employees to the same standards and emphasize the importance of promptly recording time spent on tasks. By doing so, MSPs can enhance accountability, improve accuracy in financial reporting, and optimize resource allocation.
Time is a valuable resource, and treating it as inventory is a key concept in effective time management. Just as physical inventory must be managed and tracked to ensure profitability, time must be diligently recorded to measure productivity and quality of service, to inform internal and client communications, and to accurately invoice clients. By adopting real-time time entry practices, MSPs can ensure the availability of accurate data for decision-making and gain better control over their operations.
To help improve your time entry practices, make “real time, all the time” your cultural norm—meaning no one, not even the business owner, can get away with inaccurate time entry. Clarify what you want and why from your team, get their buy-in, and offer training, feedback, and support to improve your time processes. You’ll have to be patient for time accuracy to improve, so consistency is key.
3. Not following your own standard procedures
Establishing and following standard operating procedures is crucial for consistent service delivery, productivity, and quality. When leaders do not follow their own established processes, confusion and inefficiency can arise.
To overcome this pitfall, MSP leaders must lead by example, consistently follow established procedures, and foster a culture of accountability within their teams. Don’t expect a big change after one meeting or email. Investing in quality training and consistent follow-up will help you ensure standard procedures continue to be adhered to by all team members.
Leadership plays a critical role in setting the tone. The mantra of “do as I say, not as I do” does not support that accountability and can undermine the efficacy of established procedures. MSP leaders must recognize that their own compliance with standard procedures is crucial for gaining the trust and respect of their teams. By actively practicing what they preach, leaders can create an environment where everyone is accountable, and things run smoothly.
4. Lack of strategic account management
Another operational pitfall that MSPs often encounter is spending excessive time and resources on problematic clients while neglecting their most valuable ones. Spending all of your time on the “squeaky wheels” is to the detriment of your better clients—and this can even cause your best clients to leave.
Strategic account management is the solution to this pitfall. Implementing a rating system that considers factors such as fit, profitability, technology stack adherence, and adherence to standard service offerings can help prioritize client management efforts. Let your account managers be your client advocate and spend more time with your best clients, holding regular QBRs (quarterly business reviews) as well as more regular and proactive check-ins. By focusing on providing exceptional service and support to your best clients, you can cultivate long-lasting relationships with them and drive sustainable growth.
5. Failure to set strategy leads to missing goals
Without a clear strategy and well-defined goals, MSPs can lose focus and direction. Setting a clear vision and strategy provides a roadmap for success, while tactical goals translate that strategy into actionable steps. However, a common pitfall is failing to prioritize time and allocate resources to work towards these goals.
MSPs can avoid this pitfall by adopting proven business systems such as an EOS (entrepreneurial operating system), which is a set of simple concepts and tools to achieve a company’s vision. Implementing SMART (specific, measurable, attainable, relevant, time-based) goals ensures that objectives are clear, achievable, and aligned with the overall business strategy. Additionally, regular alignment meetings and progress reviews help maintain accountability, track progress, and keep the team focused on achieving their goals.
6. Waiting until it’s perfect
Perfectionism is a double-edged sword. On one hand, if we implement without enough thought and planning, we cause chaos and confusion, but if we wait until it’s perfect, it never happens. Thus, perfectionism can be a significant hindrance to MSP operations, often leading to missed opportunities and stagnation.
MSPs should embrace an iterative approach, focusing on making continuous improvements rather than waiting for perfection. After all, 80% and implemented is better than 90% on paper. Use this “five phases” approach to help find your happy medium:
- Understand best practices
- Document your way
- Train your team
- Implement and go live
- Inspect and follow through
This final phase often takes the most time, but this is where we learn, tweak, and improve. The goal is not perfection nor “shoot then aim,” but a well thought through change that is “perfectly good.”
Taking it one challenge at a time
By proactively addressing each of the top six operational pitfalls, MSPs can optimize their operations and position themselves for success. Start with any operational issue you’re currently facing and then tackle the rest, one at a time.
Dealing with a particularly problematic pitfall? Take our Pax8 Academy On-Demand course, “The 6 Common Operational Mistakes,” connect with one of our Business Coaches, or join a Peer Group. And you can always visit the Pax8 Academy to explore courses and gain the knowledge you need to surpass any pitfalls you face and continue growing your business. Want to learn more? Schedule a call below to speak to one of our experts.
