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Job Benchmarking - Job Matching

 Let the Job “Talk” to Create a Solid Foundation for Selection

by  Dennis Hunter, Consultant

We are all on the lookout for better ways to secure the talent necessary for success.  But we should ask “what talent does a job require for superior performance to be attained”?  Only the JOB has the answer, so let the job talk . . . and listen carefully!!

The patented Job Benchmarking - Job Matching process that our “Success by Selection Assessments” service provides enables our clients to determine the behaviors and motivators required for superior performance.  The process makes it easy to remove common biases often associated with the hiring process.  Instead, factual data based on job requirements provide a solid foundation for selection success of new hires and, later, for coaching.

The SBS Assessments team has applied the patented process provided by TTI, Ltd. --- an internationally recognized organization with a proven track record --- to two jobs common to our clients --- Sales and Technical positions.   The process is a unique and effective solution because it benchmarks specific jobs, not the people in the job.  To do this, we let the job talk through an interactive process and job assessments.

After we identified the two positions we wanted to benchmark, we designated Subject Matter Experts from several client organizations.  SMEs are people within our industry that have a direct connection to either the Sales or Technical jobs and we used their expertise to create the benchmark.  With SMEs input we defined the Key Accountabilities for each job --- the critical goals and key business successes that the job is accountable for.  Then, keeping the KAs in mind, the Subject Matter Experts responded to a job assessment providing their input on performance requirements of the job. The composite input from the SMEs resulted in a job benchmark for the Sales job and another for the Technical job.

With these current Sales and Technical job benchmarks “on the shelf” we can now offer you the opportunity to measure your candidates using the TTI Success Insights™ Report and enable you to directly compare their talents to the talents your peers identified for success in the Sales job or in the Technical job.

Please contact the Taylor Business Group to find out how our Success by Selection Assessment service can help you select the best. You can reach us at (816) 737-3681.

Identifying Top Performing Salespeople

A Salesperson, is not a Salesperson, is not a Salesperson

by Dennis Hunter, Consultant

Successful salespeople are not all the same . . . they have different profiles just as what they sell differs from industry to industry, service to service or product to product. But all too often hiring managers revert to the old standard of “I’ll know a good one when I see one” approach to identifying individuals who are applying for a sales position.  Managers from the old school go with their gut rather than methodically evaluating each candidate to determine their unique Sales Characteristics and Behavioral Selling Style.   This sort of “drive-by” evaluation is risky since a bad sales hire can be extremely costly in terms of training time, lost sales, dissatisfied clients or poor bottom-line revenue generation. There’s a way to avoid these pricey pitfalls.

The Taylor Business Group can provide you with a reliable and validated assessment that is designed to evaluate the characteristics and styles of salespeople. The assessment evaluates an individual’s behavioral style and workplace motivators --- basically “how” they do things and “why” they do the things they do. It contains fifty pages of insights that can be used during the selection process, but also during on-boarding or coaching. In future blogs we can focus on other segments of this comprehensive report, but for now I want to focus on just two aspects of the reports’ insights --- Behavioral Selling Model & Time Wasters.

The Behavioral Selling Model, a scientific, professional selling process is included in the report.  It exposes the level of sales effectiveness the respondent possesses naturally and will depict how they are able to adapt in order to meet perceived on-the-job demands. The amount of difference between the respondents’ adapted and natural styles is significant because the greater the difference, the greater the potential for stress and job dissatisfaction.  The model scores, defines and reveals the respondents’ natural and adapted tendencies in six selling components: Prospecting, First Impressions, Qualifying, Demonstration, Influence and Closing.

To a salesperson, time is money --- both to the company in terms of revenue and to the salesperson in terms of compensation. The Time Wasters section details both causes and solutions for maximizing time and increasing overall sales performance.

Contact the Taylor Business Group to learn more about this comprehensive TTI Success Insights™ Behaviors and Motivators – Sales Version Report and how it can be incorporated into selection
or coaching initiatives for your sales staff.

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Ratio Analysis for Small Businesses

There are a variety of financial ratios that measure the health of a small business. Just as your Income Statement (P&L) and Balance Sheet measures the financial success of your company, so do financial ratios. Understanding these will help you analyze your financial statements.

Lets look at 6 ratios that we use to determine the fiscal health of a company. Goals must be set for specific attainment of these ratios and they should be reviewed as often as Financial Statements (i.e. monthly):

1.  Working Capital Ratio - also known as the Current Ratio:

This ratio measures the company’s near term ability to pay its short term debt obligations due within the next year. It tends to measure the adequacy of working capital to operate the business as well as liquidity.

Formula - Current Assets divided by Current Liabilities

Goal - $2 of Current Assets to $1 of Current Liabilities

2.  Quick Ratio - also known as the Acid Test:

This is a much more stringent test of short-term liquidity. Quick assets include cash, short-term investments and accounts receivable (net of allowance for doubtful accounts). It is sometimes expressed as Current Assets – Prepaid Expense & Inventory, though inventory is sometimes included if it can be turned quickly.

Formula - Quick Assets divided by Current Liabilities

Goal – at least $1 of Quick Assets to $1 of Current Liabilities

3.  Debt Ratio:

This ratio shows what percentage of the firm’s assets is financed by debt. Generally, a lower ratio indicates less risk for the firm as the burden of debt repayment and interest is less.

Formula - Total Debt divided by Total Assets

Goal – 100% or less

4.  Sales Days Outstanding:

This measures the average number of days it took to convert accounts receivable into cash and indicates the effectiveness of credit and collection activities. The longer the timeframe used for this calculation, the more accurate it is. The lower the number of days, the faster A/R has been collected and cash has been treated as the king it indeed is.

Formula - Average Accounts Receivable divided by Average Daily Sales

Goal – Less than 35 days

5.  Debt/Equity Ratio:

The lower the percentage the better. This ratio shows what portion of the financing has been provided by creditors’ debt. For long term solvency and stability, enough financing needs to be provided by owners. If the owners do not have enough owners equity or “skin in the game” the business is in a riskier financial position.

It is not uncommon for small business owners of “S” Corps and LLCs to remove too much of the profits from operations leaving the company heavily financed by debt. This is not just riskier for the firm but it also costs more to pay interest and be burdened by debt repayment than to use profits and owners investment to pay creditors.

Formula - Total Liabilities divided by Owners Equity

Goal – As close to 0% as possible

6.  Annualized Return on Assets:

Higher results are better. This ratio measures how effectively a firm generates profits with its available assets. Interest and depreciation expenses are ignored to remove the effects of financial leverage from borrowed funds on profit.

Formula - Net Income plus Interest and Depreciation divided by Total Assets.

Goal – 50% or better

If you follow these ratios, your business will be stabile and viable. All of these ratios are part of the Roadmap to Profitability Financial Dashboard that is available for your use.

More information about the dashboard and our Financial and Accounting Consulting Services can be seen by clicking on the appropriate tab of the TBG website. Or just call us at (816) 737-3681.

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Success by Selection Assessments

by Lowell Wolf, Consultant

Your employees are the most important factor in your success. How do you know if you’re hiring the best person for the job and motivating them for peak performance?

We are excited about the benefits of the new Success by Selection Assessment service we recently adopted and began providing to our clients. The purpose of the SBS Assessment is to assist our clients in making sound hiring decisions based on proven scientific evaluation of a candidate’s behavior and motivation. Aside from the claims a candidate makes about his or her strengths and skills, the SBS Assessment evaluates the candidate’s inner motivation and outwardly exhibited behavior. Research has shown that people sometimes have an inflated viewpoint of their abilities.

Our own experience as management consultants indicates, unfortunately, that too many job interviews conducted by our clients have provided a poor prediction of the candidate’s actual job performance. Customized tests are the best way to accurately predict on-the-job performance. The SBS Assessment service evaluates five crucial mental abilities as well as interpersonal skills, personality traits, and motivators. The 55 page report produced by the SBS Assessment evaluates candidates in two distinct classifications: technical staff and sales staff. The report is used to
compare the candidates predicted behaviors and motivators to a baseline developed in conjunction with carefully selected TBG clients to establish job profiles for a “perfect fit” as indicated by the voluminous test results.

Beyond the hiring process, the SBS Assessment continues to provide value to our clients by defining a road map to follow in communicating, managing, promoting, and developing specific individuals. This improved effectiveness is achieved by relying on a thorough understanding of how that person thinks and behaves, producing an optimum return on invested management time and development resources (training, etc.). The ROI, however, goes
far beyond these metrics. Depending upon numerous variables, a bad hiring decision typically results in a cost to the company of as much as 40% of the employee’s first year salary. In addition to the easily calculated costs of weeks or months of non-productive salary expense, you must add your lost management time and the even greater cost of replacing major client(s) which may be another consequence of the poor performance of the individual. The cost of the SBS Assessment quickly becomes insignificant compared to these costs.

The SBS Assessment along with their resume and your face-to-face
interview completes the 3 step process of hiring. This process has also been successfully applied in the case of a dysfunctional management team that just can’t figure out how to effectively work with each other. When provided with their individual SBS Assessment reports and some coaching, the team members begin to better understand themselves and to also understand each
other’s motivations and needs. This leads to vastly improved
communication among the team and a more productive business environment.

Please contact the Taylor Business Group to find out how our
Success by Selection Assessment service can help you build or improve your team.

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Centralizing Service Dispatch

by Josh Peterson, Senior Consultant

Centralized Dispatch.  This is my answer to about 400
different IT company questions.

• How can I increase managed services contract profitability? Centralized Dispatch.
• Where are my techs? Centralized Dispatch.
• Why won’t my techs enter their time? Centralized Dispatch.
• Why isn’t my service board clean? Centralized Dispatch.
• How do we get rid of these old tickets? Centralized Dispatch.
• How will I ever not have to be here all day every day? Centralized  Dispatch.
• Why isn’t my Net Promoter Score higher? Centralized Dispatch.

Centralized Dispatch is a model of scheduling engineering resources using one central position as the hub for all clients – engineer interaction.  Clients interact with a dispatcher through phone, email, or some manner of ticketing portal when they have a technical problem. The dispatcher formulates immediate, short term, and long term schedules in order to meet SLA’s, address emergencies, ensure happy clients, and keep engineers billing their time for the maximum amount of time.

This model takes the entire burden off of engineers and clients and places it squarely on the shoulders of the dispatcher.  This is not a new idea.  It is not an unproven idea.  It is what some of the most sophisticated industries in the world utilize to make sure things run smoothly. Let’s take a look.

How do planes come and go at O’Hare in Chicago?  Do the pilots decide what time to take off?  Do the pilots talk to each other and decide who should land next?  Absolutely not, there are air traffic controllers watching every move, directing the pilots on exactly how high to fly, what speed, and when they will land. The pilots have almost zero control over this process and, I can assure you, they don’t want any control over that process. They are pilots, not controllers. They are experts in flying. They love to fly. Why would we rely on them to do anything else?

Well, if some of you were in charge, you probably would have the pilot “self dispatch.”  Why? Because pilots are smart. They shouldn’t have to be micromanaged. They should just look at the list of flights and know what to do next, right?

Who do you make your appointment with at the doctor’s office?  Medical Scheduler.  The doctor follows that schedule every day.

Who controls an NBA player on the court?  Their coach does.  He says run this play, call a time out, come out and rest, get back in and play.  Who decides the NBA game schedule for the season?  Not the players…they just show up and play; give your engineers that same luxury.

Enough analogies, let’s get down to the fundamentals:

1. All engineering requests come to the dispatcher, even help desk requests

2. Clients NEVER call engineers on cell phones

3. Office phones do not round robin to engineers

4.  The dispatcher OWNS the engineers day.  This
person determines who works on what and when and for how long.

5.  The dispatcher is not technical and is not tier one
support.  They are experts in customer service and in utilization allocation.

6.  Tickets will be scheduled out as far into the future as necessary.

7.  The dispatcher SCHEDULES the appointment time with both the client AND the engineer.

8.  Finally, the dispatcher ensures that the ticket status is accurately updated to reflect its real state in the service process.  Is it in progress?  Is it waiting on parts?  Is it complete?  Engineers change the status. Dispatch ensures that it’s accurate.

So that’s the basics. There are a lot of blanks to fill in here and maybe I’ll cover them in another post.  Right now, I just want you to start thinking about what’s working in how you’re allocating your engineer’s time and what could use some improvement.  

Is Centralized Dispatch the answer? I certainly think so.

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Creating Sales Performance through
Compensation - Part 2

by Larry Schulze, Co-founder and Principal Consultant

On my previous blog, I mentioned there were three areas you
must include in your sales compensation plan:

• Salary
• Commissions
• Bonuses

Salaries

For us to determine appropriate salaries, we must first define the sales positions we have within our organization. Do not create just one sales position. Create a hierarchy of positions for the sales person. Create a career ladder for them to climb. Create an opportunity for careers not just a job. We recommend the following structure for our clients’ sales teams:

• Sales Manager
• Account Manage
• Account Executive
• Senior Sales Representative
• Sales Representative
• Inside Sales Representative

The salary and associated gross profit quota will increase as the sales person climbs the ladder. Before they can be considered for the position above them, they must be achieving that quota level for a period of time, say six months. Once they do, they receive the salary associated with that position. By the way, if a sales person does not perform at the quota level for the position they are at for a period of time, again let’s say six months, they get moved down to the level that matches their quota performance.

We strongly suggest that you create a hierarchy of positions regardless of the number of sales people you have on your team. Hopefully, you will be hiring additional sales people to help you grow your business and it is easier to implement this structure when you have one or two sales people than it is once you have five or six.

One other thing, when you hire a sales person, don’t fall for the temptation of placing them at the top of your hierarchy just so you can meet their salary demands. Make sure they truly belong there. A sales person who is requiring a large salary is a sales person who is generally not confident of their ability to generate commissions. This is a major red flag when interviewing. Be aware!

As we just mentioned above, salaries should be commensurate with the role and quota of the sales person. However, it should not be more than 50% of their total expected income at 100% of quota. To be more effective, we suggest that the salaries be 40% to 45% of the total expected income at 100% of quota. You want your sales people depending upon their success in generating profits to earn them their real income through commissions and bonuses not their salary.

Commissions

Commissions are generally based around gross profit and are paid on a monthly basis. This is very common throughout most of the compensation packages we review. Gross profit should be one of the major key performance indicators of your sales people. Obviously, the more gross profit the sales person generates the better. Or at least it should be if the gross profit is being generated around the products and services indicated in your business plan/corporate objectives.

Here are some other considerations to think about when it comes to gross profit commissions. First, do not pay commissions on the first $10,000 of gross profit. The sales person must pay for themselves before you begin heaping commissions upon them. The first $10,000 pays for their salary. If they do not achieve $10,000 in gross profit, they do not deserve any commissions.

Next, pay different percentages of gross profit in commissions as they generate different levels of gross profit. In other words, create commission accelerators as they produce higher levels of gross profit. The following table is an example:

Gross Profit Level                   Percentage of Gross Profit
$0 -$10,000                                        0%

$10,001 -$15,000                               7.5%

$15,001 -$20,000                               10%

$20,001 -$25,000                               12.5%

$25,001 and up                                   15%

Once the sales person hits a new level, pay them the percentage of gross profit on dollar one. For example, if a sales person generates $16,000 in gross profit for the month, pay them 10% on the entire amount of $16,000 which would generate $1,600 in commissions for the sales person. Utilize accelerators to encourage them to push for a higher gross profit amount each month.

When considering service for commissions, the standard de facto we see is 40% for a gross profit margin. Thus, if a sales person brings in $1,000 of service revenue, they would receive $400 in gross profit credit towards their monthly commissions.

Another tidbit we recommend is to not pay commissions on an annuity basis. The primary example of this in today’s terms is Managed Services. We do not want to create an environment where we have sales people getting commissions this month based upon something they have sold two years ago. At some point in time, they will have created enough monthly annuity commissions to meet their personal objectives and not be as hungry as need be to find new business.

Instead, we recommend you pay in advance. Yes, there is some risk but we believe that the reward is worth the risk. We suggest that you front load the annuity sale and give the sales person credit for the first year’s revenue and gross profit. Take for an example a Managed Services sale that generated $1,000 per month. We would recommend you give the sales person credit for $12,000 in revenue and, at 40%, $4,800 worth of gross profit as part of their gross profit generated for the month. If the account would leave before the year has elapsed, then you can go back and recalculate what the sales person should have received and retrieve the ill-gotten commission from the next commission statement. But, from that point forward, the sales person does not receive any additional commission from that Managed Services agreement. That does not preclude receiving any project or remediation revenues and gross profit from that client. The sales person, as long as they created the opportunities, would receive credit for those new sales.

There is another benefit to front loading annuity sales; the sales person gets a bigger upfront pop then spread out over time. It gets their attention and getting a sales person’s attention is the key to success!

Bonuses

Bonuses are where you can directly tie sales compensation to your corporate objectives. Bonuses can be very powerful incentive directives. One such bonus is Gross Profit Margin. In developing your corporate objectives, gross profit margins should be a primary consideration. Our suggested target for sales people is 25%. That is an overall monthly gross profit level we want sales people to reach considering all product and services sold.

Recall the recommended gross profit margin for services is 40%.  In order for the sales person to hit 25% overall gross profit margin, they must sell a substantial amount of services knowing the lower rate of margin for product. The selling of services must be a corporate objective. This bonus will encourage sales people to sell services to reach this threshold. If they do, we recommend a 2.5% to 5% of the overall gross profit as the bonus. They, of course, must first sell $10,000 worth of gross profit before this bonus can come into effect.

The other bonus type we suggest is a “spiff” type of bonus. These spiffs must relate to your corporate objectives and are not much different than the spiffs offered by different manufacturers. What are your focuses identified in your business plan/corporate objectives. Is it VoIP? Is it Managed Services, printing services or a vertical software solution? Whatever they are, choose the top three or four and pay a separate dollar spiff each time they meet the objective. As an example, if you are focusing on Managed Services, for each Managed Service sale made in excess of $1,000 per month, offer an additional $350 spiff. This is in addition to the commissions the sales person earns.

This will focus the sales person on the products and services you have targeted for your business. We recommend no more than three spiffs being offered at any time. Remember, we want them to focus. We also recommend that you change the items being spiffed every three to six months. This will keep your bonus plan fresh and your sales people on their toes.

One last consideration before you put these three compensation components into effect is that your business’s financial resources are a major determining factor on the compensation plan you create for each position. By creating a budget, you will know what your financial resources are and the performance level required justifying the compensation. Base your pay plan around that. Do not pay more than you can afford and that can be produced.

We strongly suggest you create a commission calculator to determine the effectiveness of your compensation plan. Develop your plan so that the total compensation paid including salaries, commissions and bonuses provides around 70% of every gross profit to you and 30% to your sales people. These percentages will be especially applicable once the sales person is in excess of $10,000 in gross profit.

For our clients, there is a commission calculator along with job descriptions for each position mentioned above found in our Resource Center (login is in the upper right hand corner of this website).

But most importantly, write your compensation plan that adheres to the two reasons for creating compensation plans. Create a plan that will guide your sales people to help you become more successful!

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Creating Sales Performance through
Compensation - Part One

If you would look at your sales compensation plans, could you say that those plans reinforce the goals and objectives of your business or are they simply a pay plan? This is a very important question to ask in determining the effectiveness of your compensation plans.

Let’s begin by defining why we have compensation plans. There are two reasons:

1. To pay people fairly for the work that they are doing
2. To implement the objectives of the organization

When most of us develop our sales compensation plans, we focus primarily on the first point above but do not spend much effort on the second point.

We must pay our people fairly for the results they generate. Generally, this is directly related to the revenues and profits they create. If the sales person cannot generate the profits needed to provide a reasonable “Return on Investment” on what you pay them, then the compensation plan is not fair to the employer. If the compensation plan is not competitive for the results the
sales person generates, it is not fair to the sales person. Compensation plans must be a win-win for both the employer and the sales person.

One primary benchmark we use to determine fairness is the one third/two thirds rule. When developing your compensation plan, ensure that one third of every gross profit dollar goes to the sales person (in total compensation) and two thirds goes to the company. We have developed a commission calculator found in our Resource Center that will assist you in analyzing the balance of your plan.

The second reason for compensation plans is the most overlooked. Most compensation plans we see being used have nothing to do with corporate objectives. The unfortunate fact is that most Solution Providers don’t have written corporate objectives to base compensation plans around and that is simply because most Solution Providers do not have business plans.

A properly written business plan will have stated corporate
objectives, sales objectives and service objectives. Once those objectives are defined then you can wrap your compensation plans around them. When you do, you enable your sales people the opportunity to help you meet the objectives that you have created. Let them help you meet your objectives!

My next blog will discuss the three compensation components you must have in every compensation plan:

1. Salaries
2. Commissions
3. Bonuses

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Determining Managed Services Pricing

By Josh Peterson, Senior Consultant

Introduction

Pricing managed services is not a science, it’s not an art. It’s simply viewing information in front of you and making a decision based on the facts.  There are over twenty calculators available to you from your vendors, your competition, your friends, and yes even some that you’ve made yourself.  And guess what?  They are all right, even if they spit out different answers.  The caveat is that they are all right for the person making the calculator and what their approach was going to be.

 I like to compare pricing managed services to launching a website.  It would seem natural that imitating a successful website would be the right answer.  If Coca-Cola has the best website for sodas and if I’m going to start any beverage company I might as well do what Coke is doing?  Wrong!  Coke developed a strategy based on their target market and their product offering to come up with the most appealing design and function.  If I imitate that for my little company it’s going to seem “off” somehow because it doesn’t match my internal vision for my company.  Same is true of pricing managed services.   If I take a vendor’s calculator and start plugging in numbers they will be “off” somehow.  The reason is because I don’t understand how and why the person who drew the short straw of creating the calculator came up with his formulas.

As MSPs, VARs, and IT Solution Providers you get hit from every conceivable angle with a vendor trying to simplify your life and give you a formula on exactly what to do.  Well, I’m here to tell you that in our experience, no cookie cutter spreadsheet is going to get you where you need to be.  It’s going to take some hard work, some number crunching, and some data collection on top of having some financial goals of where you want your company to land.

As we get started, please consider the following so you can decide how you need to be pricing your offering:

1. What is my current SERVICE DEPARTMENT GROSS PROFITABILITY?
2. What was my SERVICE DEPARTMENT GROSS PROFITABILITY before I started offering managed services?
3. What is my current NET OPERATING PROFIT?
4. What was my NET OPERATING PROFIT before I started offering managed services?
5. What is my target for CONTRACT GROSS PROFITABILITY?
6. What is my target EFFECTIVE HOURLY RATE?

We are going to address each of these items directly or indirectly throughout this exercise. 

Let’s get started!

Gather your data

Step 1

You need YOUR numbers to have the best results when you price your managed services offerings!  Below are the numbers you need

1. How much did my top 20 clients by revenue spend with me last year on services?
2. What is that total dollar amount?
3. How smoothly was the money spent; break it down by month.
4. How many total employees did that support?
5. How many workstations did that support?
6. How many services did that support?
7. What was my gross profit on those top 20 clients?
8. How many hours did I spend on those top 20 clients?
9. What was my effective hourly rate?
10. How many tickets did these top 20 clients generate?

You can gather this information from your PSA application and your accounting package in pretty short order. 

Step 2

Start making a spread sheet.  Make columns for the items above.  Play with the numbers a little bit.  Become very familiar with patterns.  When you see spikes in the data, figure out why and research the anomalies.

Step 3

Learn your top 20 client’s top line revenue.  This is the hard step but one of the most important.  Since they are your top 20 clients, we can safely deduce that they are your target client.  Therefore you want more like them.  Once you learn their revenue you can apply a rule of thumb that most firms will spend 4.5% of their revenue on IT.  Put that information into your spreadsheet as well and see how their spending with you compares.  Do additional research using resources like Gartner Group, CIO Magazine, and specific industry publications to get actual data on what they spend.  4.5% is a rule of thumb and we all know what rules of thumb are best for…measuring thumbs!

Time to make some choices with what model you will use!

Device Model of Pricing

Using the numbers you researched and collected, you can begin seeing what you might need to charge per specific device.  Simply divide the total service revenue by the number of devices your clients have.  You can get very granular by calculating on a per client basis.  You can also divide just by the number of servers or just by the number of workstations.  

If you’re saying to yourself that this will only help us maintain the same revenue, you are correct!  However, you must remember that increasing top line revenue is only half the story.  Through your Remote Monitoring & Management tool you will gain many efficiencies thus leading to less engineering hours and subsequently greater GROSS PROFIT which is really the name of the game here.

PROs of this model

• Easy to calculate how much a client will spend with you
• Easy to scale up or down with client’s budget
• Can you name others?

CONs of this model

• Many MSP’s report that it is cumbersome to audit new and removed machines from network regardless of monitoring and PSA tools
• Somewhat difficult to separate MOVES, ADDs, and CHANGES from included work
• Most common method of pricing therefore a competitive discussion becomes easy for client to commoditize the service
• Can you name others?

Pricing this way is perfectly acceptable.  It’s like the saying in the 90’s regarding computer sales; “You’ll never get fired for buying an IBM.”  Likewise, you’ll never go too far wrong pricing this way!

Let’s look at an alternative

Per Person Model of Pricing

This is not a new model by any means but it is gaining some very interesting discussion and adoption among top level MSP’s around the world. 

Calculating is similar to above.  Take the total service revenue and divide by total number of employees that were supported.  You do have that information right? 

At this time, the Taylor Business Group is making the recommendation that our clients utilize this method of pricing.  Read the pros and cons and see if you agree?  If not, TERRIFIC, you’re a critical thinker and you made an informed decision.

PROs

• As in the per device model it is easy to calculate
• Easy to scale with your client’s business expansion and contraction
• Keeps the discussion centered around PEOPLE and the true cost of an employee overhead (Now that sounds like a business discussion!  We need more of that in our industry when we talk to our clients.)
• All but eliminates the Moves, Adds, and Changes discussion as it relates to the NETWORK.  Our clients report that more project work comes their way using this model since it is people focused, not device focused.
• Allows for “type of employee” pricing.  For example, we all know of a client or two that has a VIP that needs help at home with the kid’s computer or the in-home network.  Go ahead and come up with a pricing for those services.  Nice value add; you’re going to end up doing the work anyway, why not charge for it up front?
• Can you name others?

CONs

• Determining what and how many devices can be associated with a user.  Can you truly support an iPhone or an iPad?
• Determining how you will true up with head count. 
• Can you name others?

Validate Your Decision

Congratulations!  You’ve followed the steps to pricing, your marketing and sales engine are humming and you’re taking on new clients as quick as you can get the contracts in front of them.  Now what?  This is the REST OF THE STORY. 

I sit with well over a hundred owners and managers every year and when I ask them the contract gross profitability I can count on 95 of them looking at me with a deer in the headlight expression.  No sooner is the question out of my mouth when they have the “AHA” moment.  They can’t believe that they have no idea.  I don’t need to cajole them, teach them, or convince them.  It is so obvious but they aren’t taught that in most of the calculators I’ve seen.  THIS IS THE MOST IMPORTANT DECISION MAKING TOOL AT YOUR DISPOSAL! 

Here’s the formula for calculating:

Gross Profit = Revenue – Cost of Services Sold

Gross Profit %  = Gross Profit/Revenue *100

Here’s an example:

ABC Managed Services Provider sells a contract for $2,000 per month.  They pay their RMM $6.00 per license and they use 15 licenses.  Joe the engineer’s unburdened cost is $32 per hour.  Joe was the only engineer to work on this client this month and he put in 14 hours.  What is our Gross Profit %?

Revenue = $2,000

Licenses - $6 * 15 = $90

Labor = $32 * 14 = $448

Gross Profit = $2000 – ($90 + $448) = $2,000 - $538 = $1462

Gross Profit % = $1462/$2000 = .731 * 100 = 73%

Target = 65%

In this example we passed the Gross Profit test since we are making 73% on that contract. 

Moving Forward

• Make a time budget for each contract based on your own contract gross profit goals.
• Make sure your dispatcher and service manager understand the budget and how to achieve it.
• Measure your contract profitability weekly and monthly.
• Evaluate why you ARE or ARE NOT meeting that profit goal.
• Adjust service delivery if necessary.
• Adjust pricing strategy if necessary.

Taylored Comments

Geeks Managing Sales People

by John Christophersen, Senior Consultant

One of the most confounding challenges facing IT VAR owners is how to hire and manage salespeople. It’s kind of funny trying to picture a first-class geek – you know, a real Poindexter - reigning in a ‘Gordon Gekko’… The problem is, there are three compelling personality traits most of us look for when we want to hire a sales person:  we want the three P’s – Personable, Persuasive & Persistent. These qualities are great when they’re in front of our clients, but not so handy when they are explaining why they missed quota this month!

Most of us have heard a myriad of ‘reasons’ (excuses) for missing their numbers – the economy, our prices, we aren’t a good fit, they already have a provider, they prefer brand X, I didn’t have time, I had to write a proposal, they need three quotes, they don’t have budget, perhaps next quarter… I could go on, but you get the point. Many of our new hires’ last good close was you!

So, what can we do about it? First, you must manage the activities, not the person. This is even more important in sales than any other position for a couple of reasons. One, they are likely to have a completely different personality than you – I’ve heard hundreds of business owners say they just don’t get sales people. Two, if you don’t manage their activity they are quite likely to fail.

 The first thing you need to do is figure out how much activity is required for success. To do this, work backwards from a defined number. Let’s say that $80,000/year or $6,667 per month would be reasonable total compensation for a sales position in your area. Next we’ll say that you’ve settled on $2,500/month in salary (This is our standard for a Senior Sales Rep). That leaves $4,200/month needed from commissions. For those of you with calculators - yes, I rounded up: a good habit when figuring sales needs…

Now to keep it simple, I’ll use a 10% commission on Gross Profit (GP). Let’s say that a fairly standard deal in your firm is $20,000 with a 25% GP. That leaves $5,000 in GP giving us $500 in commission for that opportunity. Divide the $4,200 commission goal by $500, and you get 9.4 – round up again to 10 deals per month or 2 deals per week (another round up, as there are 4 1/3 weeks per month…). 

Two deals a week are likely to require 4 proposals per week – you can get close rates closer to 75%, but that calls for a better proposal process - something we’ll cover another time. So, how many appointments to get a proposal? Let’s assume 3 appointments per day will get us there – some will be second and third appointments, so we’ll guess that at least one new appointment per day will be required to hit our number. How many cold calls to get that appointment? Probably 10-25, depending on the skills of the caller. So, if your sales person didn’t hit quota this month, the real question to ask is this – DID YOU MAKE 25 COLD CALLS PER DAY THIS MONTH???

If the answer is no, stop listening to the reasons – you’ve already found it! Most sales people would like to argue this point, but there it is. Hold firm and you’re likely to see success! At least 80% of the ‘didn’t make quota’ conversations I’ve had can be traced directly to a lack of initial activity. If they are calling and not having success, you’ll need to drill into why, but not until they have demonstrated the effort it takes to succeed. Another advantage to you is that now you can implement MBWA – Management By Walking Around. If the hours are between 9 and 11:30 am, or 1:30 and 4:00 pm and your sales person is in the office, they should be on the phone. Have them write proposals and do research outside those hours.

Of course, your actual numbers may vary – comp plans frequently pay more than 10%, you might include a margin kicker for exceeding a GP target percentage, etc. The plan should be analyzed to insure that total comp, that is salary plus commissions and bonuses, does not exceed 33% of the GP – the company needs to retain two-thirds or greater of the gross profit to be successful. You’ll need to examine your own data for average sale size, average GP, close rates, etc. And don’t expect to get it 100% right out of the gates – be willing to adjust for changes – including those that success brings!

Good luck, and let us know if we can help.

Taylored Comments

Reviewing Agreements

by Lowell Wolf, Consultant

When was the last time you reviewed your agreements?

The contracts/agreements used in your business should be reviewed at least once a year.  Similar to your smoke detector batteries at home, keeping your agreements up-to-date protects one of the most important assets of your life – your business!  The need for review, of course, becomes even more important when there is a change to the basic structure of your company or you begin to enter new lines of business.  And then the politicians, either in your state legislature or in Washington, D.C., may come up with another well-meaning law that can catch you off-guard.

Of course you have several contracts you use in your business . . .  Right?  Well, one or two basic agreements just aren’t enough to protect your ASS(ets) anymore.  The primary purposes of contracts are to:

• Clearly articulate the basic terms under which you agree to do business with a client, vendor, etc.
• Place responsibility for issues or losses which may arise out of the relationship (e.g., failure to deliver or otherwise perform)
• Establish an image of professionalism for your business 

One of the biggest “show stopping” issues an IT Provider faces every day is the possibility of losing or damaging a client’s data.  You must, at a minimum, use a contract that covers every situation in which you may access your client’s data.  The contract should, generally, make the client responsible for backing up their data.  You should be able to avoid liability for the consequences of lost customer data except in the most extreme case of intentional harm or gross negligence. 

It’s hard to imagine any component of a client’s hardware or software that doesn’t have some connection with their data.  Even a UPS that hasn’t had its battery replaced in two years could be the cause of significant data loss.  Consequently, whenever you offer a service to your client, whether it takes the form of help desk support, firewall maintenance, spam filtering, server monitoring, etc., loss of data must be the subject of at least a paragraph of the respective agreement. 

We’ve seen many IT Providers begin offering some form of managed service without covering the terms and conditions of that service in an agreement.  We hear that “they’ll get around to it first chance they get.”   Then a “huge” business opportunity appears and the contract gets pushed back again, and again.  Not only that, we’ve seen managed service programs evolve over a couple of years without any change to the managed service agreement.  You may have twelve MSP clients under twelve different forms of service arrangements.  You must think through your MSP business model and the associated agreement rather than allowing it to evolve haphazardly. This in turn will allow a smoother sales effort and will tremendously reduce the amount of time it takes to invoice all of the different managed service permutations that have been created over time regardless of the PSA business system you use. 

Onto the next subject of people who perform work for you:  employees and contractors.   This area of law can be complex and courts are often sympatheic to employees claiming unfair treatment.   If a case is brought against your firm, defending your actions and practices can be very expensive. 

There are a few basic agreements all employers should use: 

• An Employment Agreement can protect you from the angry sales rep that takes your customer list with him.
•  A Sexual Harassment Policy can become an important defense when a disgruntled employee has a grudge against you and makes a complaint to the Equal Employment Opportunity Commission.   Did you know that it costs the ex-employee nothing to file a complaint yet you would be well-advised to retain legal counsel when the EEOC comes to investigate the complaint?  The cost of preparing the Policy is small change compared to the hours of legal time you’ll be billed for.
• Contractor agreements can help keep the IRS at bay. You are on thin ice if you don’t understand the subtle distinctions between employees and independent contractors. The IRS can be ruthless if you are not following their rules of process when using contractors 

Fortunately, bad things don’t often happen to good people.  But I think we’ve all learned the lesson that life, after all, is not always fair.  These are just a few of the agreements you should be reviewing in your business. Be prepared.  Cross the t’s and dot the i’s.  You’ll sleep much better.