The Bigger Picture of Profitability
Profitability isn’t just about making money – it’s a sign of how healthy and sustainable your business is.
To build a strong, long-lasting business, you need more than just revenue growth. True profitability requires a well-rounded approach, which includes smart planning, improving daily operations, building a strong company culture, and making decisions based on data.
In this guide, we’ll walk through easy-to-apply strategies you can use to boost profitability and create a business that can grow over time.
Contents:
Get Your Guide - How MSPs Can Boost Profits Without Raising Prices
Section 1: Planning and Operational Gains
Intentional Planning: Setting the Stage
- "Profitability doesn’t just happen; it’s the result of intentional planning" - Darren Strong, Founder of Scalable.
Darren believes one of the most important steps to profitability is starting the year with a clear plan. “It’s pointless to go into the financial year and be three months in before telling your team what you need them to succeed in,” Darren explains. “By that time, you’re already behind. The key is to think about what the next year is going to look like before your current year ends.”
To reach profitability, it’s crucial to set ambitious yet realistic goals and ensure everyone on your team is working towards them. Your plan should cover budgeting, resource allocation, risk management, and backup plans.
Here’s how to do it:
- Start Early: Think about your goals and strategies at least three months before the new financial year begins. This allows you to align your team and set clear expectations from day one.
- Set Clear Goals: Define what success looks like for your business. Make sure your whole team understands and is working towards the same targets.
You can read more about this in our ‘Kicking Off The Year Right’ blog.
The Rule of 78: A Simple Yet Powerful Tool for MRR Growth
A highlight of the podcast is Darren’s introduction of the Rule of 78, a powerful tool for tracking Monthly Recurring Revenue (MRR) growth. The concept is simple: if you add a fixed amount of MRR each month, by the end of the year, your total MRR will be 78 times that amount.
For example, if you start with £2,000 and add £2,000 each month, you’ll reach £156,000 in MRR by the end of the year.
But be careful!
If you wait too long to kick off your growth plans, catching up can become a major challenge and those numbers quickly become unachievable. Regularly check your progress towards these goals also to avoid last-minute scrambles.
You can also download your free template here for your own customisation.
Download Your Free MRR Tracker
A Journey-Driven Approach to Profitability: Thinking Long-Term
Tim Bowers brings a different perspective to the table, emphasising that profitability is a long-term journey, not just a quick destination. He believes it’s something that evolves over time with continuous effort.
- "Profitability, for us, is a journey rather than a destination. It's about making long-term plans, especially when it comes to culture change, which can take years to manifest in the bottom line." - Tim Bowers, CEO of HaloPSA.
Instead of focusing only on short-term profits, Tim suggests MSPs balance immediate financial goals with long-term strategies. For example, improving company culture may take time, but it can lead to better employee retention and stronger client relationships – both of which are key to lasting profitability.
Operational Gains: The Hidden Drivers of Profitability
The podcast also delves into the often-overlooked area of operational efficiencies. Both Darren and Tim agree that streamlining operations can lead to significant profitability gains, sometimes without any changes to pricing or revenue.
“We follow a process called Lean Six Sigma, which comes from car manufacturing,” Darren says. “It’s all about eliminating waste – whether that’s time wasted in meetings that could be emails or duplicated efforts that don’t add value.”
Tim agrees, sharing that at HaloPSA, they keep meetings to a minimum and promote quick, direct communication.
“We don’t really have meetings at Halo. I probably have one, maybe two a month, and only if absolutely necessary,” Tim reveals. “It’s more effective to grab the person you need to talk to and make a quick decision.”
This efficiency mindset also applies to managing internal tools. Darren warns that while MSPs love new tools, it’s important to assess if they really add value.
- "Every MSP owner loves a new shiny toy, but often what they're delivering is only 5-10% of what they really need. It’s essential to keep the internal technology stack lean and effective." - Darren Strong.
Section 2: Technology, Team and Taking Action
Technology and Data: The Backbone of Informed Decision-Making
Technology and data are essential for making your business more profitable. Darren highlights how important it is to stay on top of both the tools you use for customers and the systems you use internally.
Tracking how well each service performs helps you see what’s making money and what’s not. This way, you can focus on improving what works and fixing or dropping what doesn’t.
- "We often see MSPs who know the overall profitability of their business but have no idea about the profitability of individual services. Understanding the profitability at the service level allows you to tweak and optimise those offerings, leading to better overall results." - Darren Strong.
“You don’t need to track everything on day one,” Tim advises. “Start small, maybe with a single service, and gradually build from there. The key is to start tracking and then refine your process over time.”
Even if it feels overwhelming, tracking the profitability of just one service can give you valuable insights. Over time, you can expand this process to other areas, helping you fine-tune services, adjust pricing, and boost overall profits.
Empowering Your Team: A Cultural Shift Towards Profitability
Darren and Tim stress the importance of empowering the whole team to take ownership of profitability. It’s not just up to the leadership – everyone in the company should be working toward the same goal.
“We do a monthly all-hands meeting where we share our financials with the team and explain what these numbers mean,” Darren says. “This transparency helps everyone understand their impact on the business and aligns the team around common goals.”
Tim agrees, pointing out that when employees understand how their actions affect profitability, they feel more connected and motivated.
“If the team doesn’t understand the costs and profitability, they’ll feel like just a cog in the machine,” Tim observes. “But when they know how their actions contribute to the bottom line, they’re more motivated to drive the business forward.”
When employees know how their efforts affect the bottom line, they make smarter decisions. This culture of ownership leads to new ideas, continuous improvement, better financial results and ultimately, a stronger workplace.
Start Somewhere, Start Now
The key takeaway from this is the importance of starting somewhere.
Whether it’s implementing the Rule of 78, streamlining operations, or building a strong company culture, profitability begins with that first step.
As Darren and Tim emphasise, you don’t need to have everything perfect from day one – what’s crucial is that you start.
- "In six months, you can add to it. In a year, you can add more, at some point, you’ll have a solid data set that can truly drive your business forward." - Tim Bowers.
Watch the full podcast here
Get Your FREE Guide - How MSPs Can Boost Profits Without Raising Prices
Unlock the potential for greater profits without raising your prices! This guide provides straightforward strategies to enhance your profitability.
By implementing these tips, you can create a healthier, more profitable business.
- Discover how to set clear goals and align your team for success from day one.
- Learn how to streamline your operations, cut waste, and maximise your resources.
- Plan to build ownership within your team, so everyone contributes to the bottom line.
