I recently logged on to ChannelE2E's Webinar featuring Service Leadership Inc. CEO Paul Dippel. The topic: How much is your business worth? The real metrics.
Paul did a great job explaining the factors that increase the value of an MSP in terms of growing it to seek acquisition. As a former MSP owner who successfully exited, I agree with his findings. In particular, Paul noted that the value of managed services revenue from within an agreement creates more increased value to the business than any other income-generating source within an MSP. That statement was dead-on. T&M work, project and hardware/software sales are transactional and cannot compare to the value of MRR (monthly recurring revenue) from Managed Service Agreements. Those MSAs provide guaranteed, steady cash flow that translates into business value for MSP owners.
My perspective as a former MSP owner who now educates eFolder's partners: Any service or product offering could be included in an agreement if bundled properly and positioned correctly to the client. I have a few salient points for all the MSPs out there that wish to increase their valuation, while also increasing cash flow, improving efficiency, and ultimately take your MSP to the next level of value.
Hardware, Software, Projects: The MRR Shift
An MSP that wishes to maximize their valuation should look to move as much T&M Work, Project, and if well capitalized, even hardware/software sales within the managed service agreement. This an easy conversion to MRR. Using knowledge and analytics of your clients’ past needs can tell you how often major project work is needed over the term of the contract, and it can then be rolled in to the Managed Service Agreement.
Start with project service hours bundled in the agreement but once comfortable include hardware refreshes whenever possible. A trusted client will quickly see the value as they pay over time -- rather than opening their wallets for big-hit product and labor invoices. Your MSP gains the advantage of not having to go through the sales process for each project and your business valuation increases with a larger amount of MRR.
Unlike transactional work, Managed Services leaves room to increase efficiency and profitability through bundling of services, use of tools such as RMM and data protection along with proactive steps to reduce technician hours thereby increasing the profitability of your managed service agreements.
Tom Watson is director of MSP best practices at eFolder. Read more eFolder blogs here.
