How To Increase Your Profits As a Managed Service Provider

By David Sweetman, SAP Business ByDesign for, CRN June 05, 2012

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In addition, systems should contain critical back-office capabilities to manage business:

Account and Report: MSP is a very thin margin, monthly payments driven business. Good management of cash-flow and visibility into all revenue and cost sources is a key success factor. Hence, a comprehensive MSP solution covers all accounting back office functions such as receivables, payables and reporting. In addition, MSPs often procure equipment (such as hardware, software etc.) and contractors for a specific client, as a part of their contract. Ability to track and allocate all expenses (including depreciation of equipment) at the project and client level is also core to MSP business. As a result, project accounting is an important requirement for MSPs.

Manage Skills: The core value proposition of any MSP is that they have the expertise to deliver value at a cost lower than what it would cost the company if they were to do it themselves. Employee skills tracking/ management as well as medium to long term resource planning are core capabilities needed in these systems.

Procure: Since an MSP often purchases material, equipment and resources for a client, integrated procurement capability with client tracking is a core requirement of an MSP business. A software package for an MSP supports such capabilities.

Such software packages are integrated, so information, once entered, is visible to all stakeholders. They also combine the capabilities of Professional Services Automation (PSA), which addresses project management, resource management and billing with the typical ERP capabilities including back office accounting; procurement; human resources; sales and marketing; and analytics to provide a comprehensive solution for running the business of an MSP. As a result, issues such as incorrect billing; transition plans that are not resourced well; support issues that don’t get addressed within the SLA timeframes because they fall through the cracks; and continued poor pricing because management lacks visibility into profitability of a service simply disappear.

These software packages are available from the cloud in a Software-as-a-Service (SaaS) model, so an MSP does not need to buy any hardware or software to run these software solutions. Because they are very cost-effective to implement and are available on a monthly/quarterly subscription fee, they are the right solutions for growing MSPs, because of their thin margins and a very cash flow driven business model. With such solutions in place, MSPs can deliver services in a cost effective manner, meet/exceed contractually committed service levels, continuously improve margins, build a foundation for scaling their business, grow sales pipeline and improve client satisfaction.

Organizations that are either transitioning their business model from a VAR/distributor to a MSP, or are just getting started as a MSP can leverage such solutions to build the operational capabilities they need to succeed and win in this very competitive and cut-throat market.