Small Business Can Mean Big Fortunes for MSPs. A Blueprint to a 25K MRR.
by Chad Pavel
With any business, one of the most dangerous words is Guessing.
- Guessing where your next sale will come from
- Guessing if you will get that big customer check in
- Guessing when you will reach $25,000 in MRR
- Guessing if your backups are failing or working properly
Guessing is the one biggest causes of stress in any business owner’s life. The thing that keeps you up the most at night. That pain in your gut when things feel dire. That cold night sweat when you have a $15,000 payroll check to cut tomorrow and $10,000 in the bank.
One way to ease this pain, remove the guesswork, and sometimes get your 6–8 hours of sleep is to charge for IT services on a profitable, flat-rate monthly basis.
Time & materials work can be quite lucrative, and you should keep it going, but only if that work does not detract valuable resources and is profitable in the end.
More on that in a future post…but here are the metrics a $25,000/mo. recurring revenue MSP business that requires minimal ongoing selling, billing and paperwork.
Recurring is key
If done efficiently, you can get to $25,000/mo. with one or two staff, pay yourself 6 figures, and have the peace of mind of knowing that the money is coming in at the first of each month.
Better yet, you may be able to step back from managing tickets and allow your trained staff to handle the daily grinding and leave you free to market, network, and enjoy your life.
Starting with the revenue, the below shows you how securing 10 small clients over the next 12 months can earn you a healthy 6 figure IT consulting business that grows in value over time.
- Clients range from 20–30 seats
- Charge $100 per seat per month
- Obtain larger clients as time goes on
- 1 new sale per month
Some things you can do to offer better quality, make yourself more profitable and increase revenue over time:
- Add billings for each new user (e.g. a new hire is an additional $125/mo.)
- Increase your base price 5–10% each year
- Require new clients to buy your preferred products rather than taking over their obsolete equipment
- Require hardware refresh every 3 years
- Give amazing amounts of value and transparency
- Ask for referrals
Start with the basics
The goal and definition of a profitable business is to deliver a product that generates more revenue than expenses.
Set goals and build your base
Most business owners should be thinking about how to maximize profits, build steady healthy cashflow and minimize risk.
But they start with the basics, find a repeatable system, and can scale this system to a larger business, and consistently operate with excellence, customer service, and profitable business decisions.
Miguel Cabrera, the current MLB batting champion doesn’t just wake up and hit a .350 batting average every day. He practices. Takes batting practice every day. Listens to his coach. Records his swing on video. Makes adjustments. Some days goes 0 for 5 and other days hits 5 for 5. Daily consistent action and improvement.
Every huge company started small. While we all want to see ourselves at the helm of a MSP Mentor top 50 company, the true success starts with building a customer base of raving fans who rely on us to grow their businesses alongside us. For most people, a growing cash flow positive business is great.
Start with the principles
If you are transitioning from a break/fix or time & materials operation to a monthly recurring MSP business, start with the basics.
- Build a loyal customer base
- Give them every reason to consult with you each week
- Induce clients through honesty, integrity, and true interest in their business to refer you to their friends
- Be real with yourself. Let the numbers and customers tell you things. Learn and improve.
Building a solid base of raving fans will pay dividends in the near future. Start each day operating on your principles and values and the business will come: Here’s a quote from PayPal co-Founder and serial entrepreneur Peter Thiel.
You don’t need a massive business to be considered successful. Success is building a sustainable business that delivers awesome product and has raving fans. And a small IT consultancy can help you build your personal wealth just as quickly as building a large organization.
Don’t beat yourself if you don’t have a big office and 100 clients. That isn’t required to be successful.
Reinvest your profits for long term wealth
Most business are just fine being small. And if you are building a great company, delivering great service, and generating referrals from wild fans of your service, the rest will take care of itself, and the money will come.
I’m a finance guy by training, so I enjoy studying the power of compounding interest and building wealth. One example I’d like to highlight is how even a $25,000/mo. business can help you build substantial wealth. Take $25,000 of annual cash flow and invest it each year in modest investments (properties, stocks, bonds, etc.). A 8% annual return results in over $350,000 in net worth at the end of 10 years. Not bad, right? That is more wealth than most American families have.
Start small. Keep it simple. Hold true to your values every day. The money is gravy.
About the author: Chad runs the Channelflow.net blog. He is also a Channel Sales Executive for Datto