By: GreatAmerica on August 11th, 2023
What the Best-In-Class Focus on in the Second Half of the Year
Lee Rozeboom, Vice President and Managing Director of Sales at GreatAmerica, and Peter Kujawa, Vice President of Service Leadership, Inc.®, a ConnectWise solution hosted the first of a series of three webinars discussing why the mid-year point (Q3) is an important time for solution providers – and how solution providers can get the most out of this critical time.
To watch the recorded version of this webinar, please visit here:
This blog will capture the ideas presented in the webinar above – so dive in!
It’s halftime – make the most out of the rest of this year!
Since this webinar took place months earlier than this yearly series usually takes place, we had the opportunity to talk about things that we don’t usually have time to cover! So, in this webinar we covered things like:
- Economic uncertainty
- Private equity activity – the good and the bad
- Outside competition
- Compensation models/adjustment
- Decision delays
And much more. Lee set the stage for Peter to talk about what Service Leadership does and he shared that Service Leadership is the leading consultant and benchmarker to TSPs worldwide and aims to help TSP owners and executives build sustainable profitability. Service Leadership was acquired by ConnectWise in 2020 but continues to act as a separate business unit.
Service Leadership is also the publisher of The Service Leadership Index® (S-L Index™), the largest-scale benchmark of TSP financial performance, operational maturity and value creation, worldwide in addition to SLIQ™, a cloud based Operational Maturity Level™ (OML™) progression tool, that guides TSP owners and executives to drive financial improvements by confidentially assessing and driving their OML.
How is the managed services industry doing?
2022 was a strong year for MSPs and it came at the end of two really strong years. This is the best three-year run the managed services industry has had thus far.
Most MSPs rely on a clients’ desire to outsource in order to focus management time on core business. They are likely using managed services to shift financial risk to the MSP, or when their IT needs are changing significantly. This shows no support for the common worry that cloud and/or “commoditization” are depressing the financial results of MSPs. There’s no evidence of profit erosion:
The median grew profitably in 2022, as did the bottom quartile of MSPs. Yes, cloud is supposed to reduce the need for IT support, except it doesn’t in reality.
In looking at 2023, the Best-in-Class (BIC) MSPs had an average Q1 Adjusted EBITDA of 23.6%, while the bottom quartile was at -7.3%. That’s over a 30% difference from the average BIC to the bottom quartile. This means 31% of MSPs lost money in Q1. So, if you are in this 31% you need to fix your business model right now in Q3. Service Leaderships data shows the solution provider industry isn’t in a recession… yet. But could easily enter one.
Average MSP: revenue mix and growth
In the chart below – the numbers along the tip show the average MSPs revenue vs. Q2-2021. Most of 2021, excluding some supply chain issues, was not affected by COVID in the managed services industry, and revenue has normalized. The current year-over-year growth is 21.23%, which is a positive indicator for the industry.
It’s important to note, that every market has BIC, median, and bottom ¼ profitability performers. It is not where you are, which client segment you serve, what you do, or how big or small you are; it’s how you run your business that makes the difference in performance.
It’s about how you do it, your management skill. That is what makes the difference in financial performance and management skill is learnable.
Third quarter of the year – act NOW!
Over half the year is gone, and your ability to impact budget year results is dwindling rapidly, so time is not on your side. It is time to make the tough calls and hard decisions you have been avoiding. Schedule a special call with your management team to look at your results, and really distill a sense of urgency in making decisions so that the company achieves its full year plan – let’s discuss how.
Five strongest revenue growth levers to keep on budget
Here are the five things you should be focusing on in the last half of this year:
- Increase prices
- Get referrals
- Grow faster
Retain so you don’t have to replace your customers! It costs 5x less to retain a customer than to bring in a new customer.
Ask for referrals. The BIC solicit referrals during the Quarterly Business Review (QBR) process and have marketing manage the referral process as an additional lead source. Make sure you build in “Ask for a referral” in all your QBRs.
Cross-sell your current customers to maximize your share of the wallet. Dial in now to make sure your customers are buying most of what you have to sell.
You should also be increasing prices. Increase prices fairly and regularly, not occasionally and desperately. Look at your pricing across the board and address it, if you haven’t recently.
You can grow faster by seeking and appealing to customers who are also growing. Managed services pricing should be driven based on the number of users that you have in the environment. If you can find customers to sell to who are also growing, their numbers of users will grow and you will see natural organic growth without having to onboard or add new customers.
Difficult decisions in Q3
There are probably a handful of hard decisions that you know you should be making – but have been pushing off. The longer you wait on these decisions, the more they drain from your business.
In terms of personnel – reflect on if there are any positions to eliminate and think about who are the underperforming employees. Can you delay any backfills to later in the year or Q1? And how about marketing programs – are they working? Do you need more investment or change? Q3 is a good time to examine your marketing spend.
Effectively use QBRs. Use QBRs in Q3 to set up project business for the rest of the year – and make sure you aren’t changing your budget. The mindset at this time should shift from “how to achieve” to “we will achieve.”
What if your business is already successful?
This is great! But be careful. Focus on maintaining first half momentum in the second half of the year – don’t slow down now! This is your chance to double down on marketing and sales. Continue to focus on the tough decisions that you may be avoiding – don’t lose this success by looking through rose-colored glasses.
There is plenty of time to keep pushing your business to be the best – as long as you use the rest of this time wisely. These decisions are important, but one thing we emphasize is do not change compensation plans mid-year. This will lead to more problems than solutions. Look out for your team. A good way to set your team up for success is by providing more ways for your customer to buy – make it easy!
How your customer buys matters
Cash sales lead to price-focused, noisy customers. Avoid this from the beginning by offering monthly payments. Encourage customers to use tomorrow’s inflated dollars for today’s purchase – and have this conversation early on!
Often times how a customer buys isn’t brought up until the end of the sales cycle – which makes the sales cycle longer. Make the most out of technology financing by asking how your customer wants to buy in the discovery stage to avoid re-quoting, security risks and stalling from the financial decision maker.
Make the complex simple. GreatAmerica has a wide variety of integrations for you to use in order to make sales faster – and less complex.
Sign up for the next webinar below and make sure to take the OML quiz beforehand!
GreatAmerica is the largest independent, family-owned national commercial equipment finance company in the U.S. and is dedicated to helping manufacturers, vendors, and dealers be more successful and keep their customers for a lifetime. GreatAmerica was established in Cedar Rapids, Iowa in 1992 and now has offices in Iowa, Georgia, Minnesota, and Illinois. In addition to financing, GreatAmerica offers innovative non-financial services to help our customers grow.