Bits & Bytes = DR's & CR's
Bits & Bytes = Debits & Credits is the equation all MSPs need to understand in their discussions with their clients. This equation will differentiate your MSP from others, and help your client justify the spend on your solution or project.
Okay…we probably all knew this. But we mostly don’t do a very good job in articulating or describing the financial impact our solutions have. And while we mostly do a pretty good job in estimating the total spend for our services/projects over a period of time, we are challenged in translating how this spend will also financially impact the client, aside from debiting their checking account.
Our most common approach is to define a Return-on-Investment (ROI) based on simple extrapolations of ‘productivity improvement’. This is where we take a SWAG1 at how much time an individual will save with your solution and multiply by number of employees. While there is some truth in this, most business owners don’t get too excited about this as the numbers are a bit too fuzzy, and the ROI is more difficult to realize given the sunk cost of labor. However, there is an intuitive understanding that investment in technology will bring productivity improvements.
Business owners are mostly interested in how your proposed solutions will 1) help grow their revenue 2) save on operating expenses 3) save on capital expenditures 4) provide measurable productivity improvement. It helps to understand more about the business owner’s priority of these factors when presenting your solution. It also helps to map your solution back to each factor and state how your solution helps to achieve.
For example, when presenting a proposal for migrating the client’s application to the cloud it would be beneficial to understand, from the business owner’s perspective, their goal or financial outcome.
Will your proposed solution enable the client’s sales team to close more sales on the spot and thereby decrease the sales cycle? If so, by what anticipated amount? Or, does the business owner want to avoid re-investing in a technology refresh for their prem-based servers. Again, quantify the amount of capital being saved (including equipment, licensing, financial interest on the value of money, electrical, etc.).
While your solution may impact revenue and expenses on the Profit & Loss statement side of things, it may also impact elements of the client’s Balance Sheet. The Balance Sheet is where most of us get lost, even in our own business (but don’t get me started.)
As another example, if the client is interested in a hosted VoIP solution to replace their traditional PBX phone system in multiple offices, determine how this solution will impact balance sheet items in a positive way. The proposed VoIP solution may help to improve collections (account receivable, working capital), avoid legacy PBX phone system upgrade (fixed assets, long-term liabilities), or save on telco expenses (retained earnings.)
By taking more effort to articulate the ROI in this manner you will set yourself apart from others that are merely quoting a solution. Remember, the win goes to the MSP that is perceived to understand the client’s business best. Talking in debits and credits put you a step ahead of your competition.
About the author: Tommy Wald is an MSP business consultant and author of “The MSP CEO: Your Guide to Building a Successful Business.” Tommy may be reached at Tommy@TWTechVentures.com, or go to www.mspceo.com.
(1) SWAG: Scientific Wild-A** Guess. This is generally regarded as our best guess, based on what we know and using the best numbers we have knowing what we know. (would you trust a SWAG?)