Have you ever put a price tag on your life’s vision? If you were running a highly successful MSP, what’s the amount of money you’d want to save over the next decade?
Maximizing revenue and personal wealth is probably a big part of the reason you started your MSP in the first place. You wanted to bring in A.T.D.I.Y.P.B.A. (After Tax Dollars In Your Personal Bank Account).
So, it’s important to ask: Are you accumulating the amount of personal wealth you’d hoped to? If not, it’s time to set some objectives for both your personal life and your MSP’s monthly recurring revenue (MRR). Identifying the right goals is your first step toward achieving your dreams.
Building Your A.T.D.I.Y.P.B.A.: What Does It Take?
Your MSP journey takes you a long way before you get to your A.T.D.I.Y.P.B.A. Prior to any money getting into your own pocket, your profits are eaten up by the simple costs of doing business.
As the MSP owner, you’re never the first one to get paid. You work to make the sales and hope that various expenses don’t cut into your bottom line as you pay your people and your bills. To finally achieve your A.T.D.I.Y.P.B.A., you first have to:
- Sell something.
- Deliver it.
- Bill for your services.
- Collect payment from your clients.
- Pay all of your payroll.
- Pay all of your overhead.
- Pay taxes.
- Pay your living expenses.
Whatever is left over after all of that work is your A.T.D.I.Y.P.B.A.
How Do You Determine Your A.T.D.I.Y.P.B.A. Goal?
With a few basic calculations, it’s simple to identify an A.T.D.I.Y.P.B.A. goal for your future. As an example, let’s set a liquid net worth goal of $1.5 million in your personal bank account within the next 10 years. Make sure this goal:
- Excludes the value of your home and MSP. (You have to live somewhere, and you don’t know what your business will be worth in a decade.)
- Takes life events into account. (Some examples include sending children to college, caring for aging parents, purchasing additional homes, etc.)
After establishing your target A.T.D.I.Y.P.B.A., determine the annual post-tax dollars you should accumulate over the next 10 years to reach that goal. If you’re shooting for a total A.T.D.I.Y.P.B.A. of $1.5 million, just divide that number by 10 to get $150,000. This is the amount of money you should be putting into your bank account annually for the next decade.
Don’t forget that you’ll also have to pay taxes. So, how much additional income do you need in order to cover your taxes and still have $150,000 left over? An effective tax rate to use is 35%. (Your rate may be lower or higher based on the state in which you live, but this is a good target rate.)
When you divide $150,000 by 0.65, you get about $230,000. This is the annual amount you need to bring in to cover your taxes and have $150,000 left over to meet your annual A.T.D.I.Y.P.B.A. goal.
How Much MRR Is Needed To Achieve Your Goal?
Once you have your personal financial goal, you have to translate it into an MSP business goal. This step requires three important calculations.
- Start by dividing $230,000 by what your company’s net profit percentage should be. For this example, use 18%. You’ll need to generate an additional $1,275,000 of annual revenue in your MSP to get the $230,000 in your personal funds.
- Now you have a new business goal. It’s important to focus on MRR, as this is the easiest revenue to project and control, and it’s the highest gross margin category of business. Ideally, 70% of your income is recurring revenue, so multiply $1,275,000 by 70%, and you get $892,500 of annual recurring revenue.
- Finally, divide that figure by 12 to get a monthly recurring revenue goal of $75,000.
When you complete the calculations and define the goals for both your personal and professional life, you’re ready to refocus your MSP's efforts to start meeting them.
Want to learn how to generate enough monthly recurring revenue to meet your A.T.D.I.Y.P.B.A. goals? It all starts with packaging and pricing. Watch the free webinar.