Which customers are making you money?

    Written by HarmonyPSA on 2019-01-21 Last updated 2019-09-04 - 2 minute read

There is a great (apocryphal) story about the company who invented the plastic Rawlplug, a very successful business.

When the CEO was interviewed by a business magazine in the 1970s about his stock control processes, he just pointed to a red line on the warehouse wall, saying,

“When I can see the line from my office I order more plugs”.  

Profitability for his business was a simple calculation of sales margin coupled with having enough stock in hand to deal with the variability in periodic demand: his red line on the wall.

In many respects, the traditional break/fix managed service provider has a similarly simple model. Profitability revolves around technician utilisation, a whole business brought down to a single figure. If you are regularly hitting 70%+ hire another technician, drop below 60%, let someone go. Stay in the band and you know you are making a decent profit. Margin on sale of equipment helps of course, but billable percentage is really the single figure you care about.

And, providing they pay their bills, this is irrespective of which customer provides the business.

This is why the early PSA systems on the market focussed so heavily on utilisation, work (ticket) allocation, the role of a dispatcher etc. When your primary source of income is billing ad-hoc time, the product you use to control must be very strong in delivering those views and metrics.

But now the world has changed.

Today managed service providers are increasingly moving away from break/fix into service contracts that provide a predictable and regular income from each customer. As this revenue is irrespective of ticket volumes, profitability modelling becomes far more complex.

Success with AYCE (All You Can Eat) service contracts comes from preventing issues occurring in the first place.

MSPs today are increasingly selling an insurance policy, not a fire service.

Suddenly, billable ratios are irrelevant and the performance of each customer at a contract level matters a lot. Pick up a needy customer, one that is always breaking their environments, and your standard price model goes out of the window. Now, customer engagement requires much more care. It needs a survey and on-boarding process that delivers standardisation and upgrading to latest patch levels before the fixed price service risk makes sense.

It also requires reliable and accurate real-time customer and contract level profitability, delivered directly by the PSA.

So, whenever you might be concerned that your pricing is off for a particular customer, you need the evidence provided by these views available on-demand. Then you can have a sensible re-negotiation, or even exit the customer, without concerns over noise in the data.

But while knowing granular profitability is vital, it is also not sufficient.

Improving profitability on AYCE contracts is about avoidance of issues, not fast resolution. Avoidance in turn is about spending time on prevention, and so gaining an understanding of the % of your technicians’ time that is spent on pro-active not reactive work is key.

Success and growth in a service contract world requires a more sophisticated and flexible PSA tool than break/fix demanded. This is really what is required from the next-generation of PSA.  

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About the Author: Harmony Business Systems Ltd (HBS) is the company behind HarmonyPSA, the most complete cloud PSA software on the market. Developed with functionality to cater for even the most complex needs of MSPs, VARs, ISVs and Professional Services organisations, HarmonyPSA truly is the next generation of PSA systems. Follow HarmonyPSA on , LinkedIn or Website

Tags: Business, contract profitability, profitability, profitability analysis, Customer, Contract and Project Profitability, Managed Services Providers


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