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There are really only four ways that you can increase your profitability as a business.
One is you grow. Meaning you add more new customers.
And you’ve got to make sure that the price point you add them at is profitable because you don’t want to add more customers to an unprofitable business at the same price point if the price point isn’t priced correctly. So, one is you grow.
Another way you could do this is by cutting costs, which is not my favorite way of doing things.
But, usually, that’s what people do. Like the pandemic hit, everybody cuts costs. Everybody stops doing marketing, everybody lays off staff, everybody halts their membership. They do these things that cut costs. And it’s a very, very bad idea. If you look at companies over the years who have survived recessions, the ones that always die are the ones who try to survive it by cutting costs. So, it’s a bad idea. I’m not saying you shouldn’t cut costs. I’m saying that as an overall strategy to profitability, it’s generally a bad idea, but it belongs on the list.
The third thing you can do is you can raise your prices across the board.
Because when you raise prices, that goes right to the bottom line. And yes, there’s some risk because you might lose some customers. But, typically, I find that when most MSPs raise their prices, if they lose any customers, it’s always the cheapskates they want to get rid of anyways. And they don’t lose anywhere near as many as they thought, and they instantly become more profitable. So, raising prices instantly makes you more profitable.
And you probably don’t have to raise them across the board.
In most cases, what I find with MSPs is they have some profitable customers that can be left alone, and then they have some that are really unprofitable, and they desperately need to raise the prices. So, you might want to take a nuanced approach and raise prices that way. Another thing you can do, I’ve just had one of my clients do this. He went back to the managed services clients that he thought could use a price raise. And he put together an advanced cyber security protection and bundled that in with a price increase. So instead of saying, “Hey, we’re going to raise your prices,” they said, “Hey, we’re adding in these tools, and we are going to deliver a more robust cybersecurity solution to you as a managed services client of ours. So, here’s the new price.” And they all bought it. And that was a way he raised rates while also providing more value. So that’s a good strategy when it comes to increasing prices.
And then the fourth way to raise profitability is you fix service delivery.
Because if your service department is a chaotic mess and your technicians are only 50% utilized, which means 50% are billable hours or billable, we want it more like 70%, 75%, or 80%. That’s another thing because it could be keystone cops. They’re running around bumping into each other—no systems and processes.
Now the reality is you might need all four. You might need to add some more profitable clients, maybe cut some costs, raise your prices, and fix service delivery. But those are the four ways to do it. And your job as the CEO is to figure out: out of those four things—grow, cut costs, raise prices or fix service delivery—what do you need to do to become more profitable.
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