Let’s talk about profitability. For many MSP leaders, profitability is an elusive goal — and, sometimes, it’s not even a goal.
I meet MSPs every month that have been in business for several years and have never had annual profitability above 12 to 14 percent after a true owner salary. I always say that “you get what you tolerate.” If you’re happy with that kind of profitability, based on the risk and effort that you put into the business for a 12 percent return, it’s your choice.
Again, I want to be clear that it is a choice.
Profit is a decision. Dan Tomaszewski, Executive Vice President of Channel at Kaseya, and I interviewed several of our peer members on a webinar recently. We discussed this very topic, and one of our members quoted me when I said that you can make 70 percent gross margin decisions in your business, or you can make 40 percent gross margin decisions, but you can’t do both.
Here’s the first issue. If you don’t know your cost drivers, and you don’t know what 70 percent looks like, you can’t make profitable decisions. You’ve taken your choice away. In other words, profit is a choice if you understand it.
If you’re a business owner, your salary is what you earn for doing your job in the business. The profit you make after salary is your return on investment or return on effort, and there’s no reason why every MSP should not run at a true profit of more than 20 percent. It just means you either don’t know how to get there, or you’re unable to execute. Both are fixable.
Profit builds culture. It allows you to take better care of your team and your customers. Profit is a decision.