I was on an MSPCFO on-boarding call this week with a new client. It was a nice sized company, member of a peer group and had a good amount of managerial oversight (Operations Manager and Finance Manager were on the call). When we showed them the ranking of their clients I heard one of them say “Oh wow!” (might have been “oh my!”, but the point is the same)
How Can the Bottom Segment Help You?
They were looking at our report that ranks the clients based on profitability per hour. We group the clients into five segments and they looked inside the bottom segment. These clients were generating profit at 50% of the level of the next higher segment and an even lower percent of the rest of the MSP’s clients. The reaction to having these clients highlighted to them was a disappointing “Oh wow!”
I quickly repeated the phrase back with a much more positive tone. In one light, the MSP was looking at its clients that are a drag on profitability. The MSP were not thrilled that such clients even existed in their portfolio. Hence, the exclamation.
Looking at Things in a Different Light
I encouraged them to look at it in a different light. The MSP was making money, but wanted to make more. That is why they got started with MSPCFO. In looking at these clients, I encouraged them to see opportunity. The opportunity was to find ways to make those lower margin clients more profitable.
- Could they tighten the SLA to bill more outside of fixed fee dollars?
- Could they implement a price increase if the client was so far below market?
- Was there a project to be sold to improve the client’s systems?
- Should the client be off-boarded?
Focus Where You Can Benefit the Most
There are probably ten more solutions that could be considered, but now they know which clients they should focus on. Rather than trying to fix their whole business to improve margins, they can work on the handful that may have the largest impact. For most of our clients, moving the bottom clients up just one segment, from the lowest of five to the second lowest can result in 5-10 points of additional gross profit. Improving the profitability may not be simple, but at least the MSP can now focus its hard work on the clients that can benefit the most.
Oh Wow, indeed!