Cloud Margins: Why Modern MSPs Must Become Chefs

Cloud Margins: Why Modern MSPs Must Become Chefs

Follow my logic here.

A close friend of mine, Bob, is a chef/partner at a very successful chain of three fairly high-end restaurants. He has been in the restaurant business his entire career. For years now, I've sat at the bar of one of his restaurants, chatting about the similarities of his business and today's technology/cloud business.

Here's one of the big similarities: To keep his business viable and grow it every day, Bob must deliver "delicious, high-value and high-margin" meals to his customers on a consistent basis.

To do this Bob needs to:

1. Take individual food items and ingredients and combine them into "delicious" meals based on his expertise and his customer's (e.g., persona's) tastes. How about a great piece of swordfish, some rice pilaf, some great asparagus, and all the spices required to take it "over the top"? And to start, how about some oysters and a Caesar salad? What Bob can't do is say, "Here's a piece of swordfish." Customers want a meal, not just a piece of fish.

Mr/Mrs/Ms. Modern MSP, is your selling point cloud XaaS only, like Office 365 standalone? Or are you bundling Office 365 with some other high-value XaaS and your high-value managed services to make a "delicious meal" for your customers?

2. The next thing Bob must do is ensure his delicious meals are giving him the margin needed to make money and build a business. Bob takes every single (I mean every single!) food item cost and the associated costs of services for that meal, and puts them into his "food costs" spreadsheet. Bob then sets prices based on what he believes his customers will pay, and the margin he needs to make to have a profitable business. Bob knows that his customers will pay good money for his delicious meals (not just pieces of fish), and if he manages his costs appropriately he will get nice margins.

Mr/Mrs/Ms. Modern MSP, how are your cloud margins? Do you really know all of your cloud costs? Do you understand that your margins are in the high-value bundles and most especially in your managed services?

3. At least for this blog, the last thing Bob is constantly doing is measuring and modeling his business. When Bob started his first restaurant (then his second and third) he needed to make many assumptions, including the price and margin each meal would deliver to his customers, how many customers he could expect each week, etc. Also extremely important was his costs for getting customers in the door. If Bob's meals were not providing enough margin, and/or he couldn't get enough customers in the door cost-effectively, the spreadsheet would say "you don't have a viable business model!" And if his meals weren't delicious - game over!

Mr/Mrs/Ms. Modern MSP, what's your plan to build your recurring revenue cloud business? Do you have one? What's it say? Are you being realistic in your assumptions?

Start modeling your restaurant...I mean, your Modern MSP business!

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