Is your MSP scraping by on razor-thin margins? It’s time to stop settling for being a T.E.C.H. (tedious, exhausting, chaotic, and hard) with helpers. You might feel trapped by a limited budget and mired in your MSP’s stagnant growth, but there is a way out. There is a path to becoming a R.E.A.L. (rewarding, easy, attractive, and lucrative) entrepreneur, scaling up your MSP, and creating a future of financial freedom for yourself.
Here’s some strategies Will Nobles, CEO of Vector Choice Technologies, used to take a quantum leap to an $18 million MSP.
Where You Are Now—And Why You Should Want More
A business that doesn’t make money is risky to own, unable to serve its customers and employees, unstable, unsellable, and exhausting to run, Nobles says. If these qualities describe your experience running an MSP, it’s time to make a change.
Running a truly profitable MSP means being able to pay yourself a true owner’s salary: $100,000 a year, for MSPs at $1M or less. That number increases with your MSP’s growth.
It also means building a valuable asset that you’ll be able to sell one day, bringing you the financial freedom to retire comfortably, settle any debt, and make any big purchases you’ve been planning.
To get there, at minimum, your business should:
- Provide enough recurring growth margin to cover 100% of your operating expenses and salaries.
- Generate at least 10% (ideally, 20%) pre-tax net profit, after you’re paid a fair market salary.
- Have at least 15% year-over-year growth.
- Provide your best employees with upward career growth and earning potential, in order to keep them.
- Have diversified revenue streams; no one client should represent more than 10% of your total revenue.
In addition, you should be completely debt-free in your personal finances and have saved at least one year’s income and three to six months of operating capital.
Where Do You Want to Be?
Start by setting a BHAG—a Big Hairy Audacious Goal. Calculate your financial freedom number so you know what to shoot for (annual income x 25, divided by .76 for income tax).
Once you have these numbers, start planning backwards. Track your current metrics and calculate how many campaigns and new clients you need per year to hit your numbers by the time you want to sell.
Critical metrics to track and set annual goals for include:
- Revenue
- Gross margins on services, software, and hardware
- EBITDA (bottom-line profit after your fair market salary)
- MRR (recurring revenue, not including projects)
- MRR clients
- Average MRR (total MRR divided by total MRR clients)
- Total active clients (all clients, even non-MRR ones)
It’s also best to set goals on the number of raw leads, qualified leads, FTAs, and new clients you hope to get each year.
Bringing It All Together: How to Get There
When scaling up your MSP, your most important goal is profitability. After paying yourself a fair market salary (and don’t skimp on this, because buyers will factor it in when hiring your replacement anyways), your EBITDA should be at least 10-20%.
To drive profitability:
- Keep client churn below 10% annually. The exception to this rule is if you are losing low-paying clients because your prices are too high for them, and replacing them with higher-paying, more profitable ones. “If you’re at the right price, you’re going to lose a few [clients],” says Nobles. “I will lose a client over price every day. I hate losing clients over service.”
- Grow MRR to 70% or more of your revenue.
- Strive for 15-18% year-over-year, organic growth. If you’re acquiring other MSPs like Nobles, track your M&A-related growth separately. In those instances, you should be growing organically through sales and marketing, as well as through acquisitions.
Want More Advice from Nobles?
Hear more insider secrets and expert level advice from Nobles at his free two-day virtual event, MSP Quantum Leap, on April 2-3.
If you’re serious about scaling up your MSP into a high-velocity, high-profit business, grab your seat at Quantum Leap now and get ready to launch your MSP’s growth into the stratosphere.
