Four ways to plan for MSP growth in challenging times

At our N‑able Empower event held in Las Vegas last month, our CEO John Pagliuca spoke to more than 400 of our MSP partners about the fact that he while doesn’t believe anything is recession proof, he does believe that the MSP industry is recession resilient.  

Whether an economic downturn is on the horizon or not for our industry, MSPs should be using this period as an opportunity to reflect on how their business is currently performing and making plans for how they can incrementally improve it over the next 12 months and beyond. Hoping that your MSP business will survive a recession is not a strategy for success, but proactively taking the necessary steps to create a recession-resilient practice, is what every MSP should be striving for during these uncertain times.   

In this blog, I’m going to outline four ways MSPs can help make their business recession-resilient.

1. Understand your metrics

Do you have a set of key performance indicators (KPIs) that you have set for your business that you continually track to monitor your performance against? Do you benchmark your business year over year to see how your MSP is progressing? Only by setting a baseline and measuring your improvements against that baseline will you get the empirical evidence needed to accurately and honestly assess how your business is really fairing and where improvements will need to be made. 

One of the most important metrics your MSP should be tracking is its ‘Burn Rate’.  An MSP’s Burn Rate is the amount of money you need to cover all of your operating expenses and overhead costs over a certain period—usually a month. At a minimum, the goal is to achieve a Burn Rate of at least 1—meaning that the recurring revenue generated by your managed services line of business is sufficiently covering all of your operating expenses and overheads. Once you’ve met this goal, then every dollar earned after that automatically goes right to your bottom line. Unfortunately, when you are below your Burn Rate (i.e. you are less than 1), it means that you are not generating enough recurring revenue to cover your expenses, and you are relying on the non-recurring revenue to pay your bills just to breakeven.  

Every MSP should know where they stand with respect to their Burn Rate, because this will help you set your priorities and drive the decisions that are needed to improve this metric. And there are only two ways in which an MSP can work to improve their Burn Rate (if it is less than 1): Improve your monthly recurring revenues, and/or become more efficient to help reduce costs.  

2. Prioritize the standardization of your technology stack and leverage automation to control costs

To help make your MSP recession-resilient, you need to do what you can to control your costs.  

Supporting multiple toolsets that seemingly accomplish the same set of tasks and accomplishes mostly similar outcomes, does not make sense, and will work against you by driving up your costs. Having your team manage four different AV products, or three different backup products can have a profoundly negative effect on your overall operational efficiency and can impact your buying power. When I was in sales, I would often have partners ask what kind of deal they could get on things like a 10-15 users AV license. They would then be disappointed when I told them that I couldn’t really do anything in terms of getting them ‘a deal’, without some sort of significant volume, and that wasn’t considered a volume deal. When I explored the request a bit more, I would often find that they were managing several other AV solutions within their tech stack, and the level of users was a big deal for them. They often failed to see that they were eroding their own buying power by spreading their AV purchases across multiple different vendors. When you give up your buying power because you are dealing with a number of different vendors, you end up hurting your own profitability. Whereas, if you consolidate and standardize on just one product with one vendor, you can have those discussions around deals because of the increased volume achieved by combining all of the other software solutions together.

In addition, by prioritizing the standardization of your technology stack across your customer-base, you are creating centers of excellence in regard to your technicians. This will also help to control costs, as they will then only need to be trained on, support, and be proficient in one suite of tools and not multiple toolsets.  

You should also ensure your team is leveraging your toolsets’ automation capabilities because when you have your technicians performing tasks that could easily be handled via automation, you are incurring additional, unnecessary costs that will end up negatively impacting your profitability. 

For an automation efficiency example, N‑central RMM features scripting that allows you to automate more and help your technicians become more productive. Click here to find out more.

If a recession does materialize, and revenues are impacted, working to control your software and labor costs now via standardization and automation will help to minimize the impact on your MSP.  

3. Maximize the amount of recurring revenue you are generating from your existing clients

In addition to controlling your costs, working to increase the share of wallet you have with your existing clients should also be made a priority. Winning and signing on net new clients is desirable, but if we are heading into a possible recession, then you want to ensure you are strengthening the ties you have with your existing clients by continually upselling and crossing to them.  

A useful thing to do to help with this exercise is to create a Services Whitespace Matrix. This is where you list out all your customers and all the services they are buying from you. It will help you identify where your sales opportunities are with your existing customers, by highlighting what services they are currently NOT buying from, and letting you know where you are leaving money on the table. This can then provide direction and help you to focus on which clients your MSP should be proactively engaging with now to get those missing services added onto their monthly contract. Maximizing the amount of recurring revenue you are generating from your existing clients now, will help to make those clients ‘stickier’ to your MSP and will help put you in a better position to whether the storm. 

4. Monitor the alignment of your marketing and sales strategy to boost their overall effectiveness and to better support your lead gen efforts 

If a recession is looming, this is not the time to slash your MSP marketing and sales budgets; but rather, evaluate them to make sure that they are properly aligned to support each other. Continue with your email marketing strategy, direct mail strategy, or educational webinar/seminar strategy, but be sure to have your Sales Development Representative (SDR) follow up immediately afterwards with a proactive, outbound calling program to help commercialize your marketing efforts. Marketing alone can only do so much and would be greatly enhanced by supplementing those efforts with a follow-up call conducted by your appointment setter/cold caller.  

John also shared during his opening address that as N‑able starts to plan for 2023, MSPs should be doing the same: “We’re looking at our forecasts, we’re making sure that we can understand how we’re going to grow the business… are you doing that? Are you building your financial plan? Do you understand your growth algorithm? In a down cycle, how can I grow my business?”

As you work through your own 2023 business planning exercises, I encourage you to attend my upcoming Boot Camp “Cracking the Code to Growing Your MSP Business” on November 1, 2022.  

In this webinar, I will be taking MSPs through the importance of developing a roadmap for their business and reviewing specific steps that you can implement to improve your practice, make it more recession-resilient, all while planning for growth.  There is still time to register and you don’t need to be an N‑able partner to attend. Our head nerd boot camps are open to any MSP Business owner who is interested in spending time working on their business instead of in their business.

Stefanie Hammond is Head Sales and Marketing Nerd at N‑able. You can follow her on LinkedIn and on Twitter at @sales_mktg_nerd.