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Justin Esgar:
I upgraded our liquid death. I'm now drinking Mango Chainsaw liquid death. The mango liquid death isn't bad. It's weird because you're drinking water and then you have this mango aftertaste taste.
Eric Anthony:
Okay, I get it.
Justin Esgar:
I like a good mango smoothie, which has been this running joke in my family since we went to Mexico two years ago, and there was a smoothie bar and Roman wanted a mango smoothie, took a sip, didn't like it. I drank out of thought. It was the greatest thing I've ever had, and I just drank that for the rest of the week while I was there. I don't drink alcohol a lot. And so we come home and we ended up randomly at a new diner near our house and they had mangoes movies on the menu, so I just kept getting mangoes movies.
Eric Anthony:
Now, see, my mango experience is just growing up, literally. There were a couple of side streets by our house where there was a median in the middle, and that median was entirely populated by mango trees.
Justin Esgar:
Oh, that's cool.
Eric Anthony:
And so you and I are in the same generation where we got kicked out of the house all day and we weren't allowed to come back. We drank out of a faucet and all of those things that they make about
Justin Esgar:
Come back with the sun coming down.
Eric Anthony:
Right. Luckily, growing up in what's probably the northern border of southern Florida, we had plenty of citrus trees and as it happens, mango trees. So yeah.
Justin Esgar:
So you used to ride your bike and grab a mango and just keep on, pretty
Eric Anthony:
Much
Justin Esgar:
Keep on. Yeah,
Eric Anthony:
Pretty much. Or we threw them at each other. We should probably start this episode since we already have the topic up on the screen.
Justin Esgar:
Yeah, let's start it off. What's up everybody? Welcome to the All Things/MSP podcast. I'm your host, Justin Esgar. With me always is my good friend and Cuties and Halo supporter, Mr. Eric Anthony. Don't buy him Pumas or Adidas until we figure out which ones are the non Nazi shoe. And if you don't know what that means, that part didn't get made into the episode. And you'll have to ask one of us at facebook.com/group/all things msp. So today, my friend, we're talking about how likely channel partners are to raise managed service prices in the next six months. This is a post, I believe it's in the group right now.
And the question really comes down to is with the economy the way it is and things happening. Because this episode, no matter when it drops, it'll probably be in 2023, unless you're listening to this in 2025 and listening to our back catalog analog, which means A, we made it really, really well and we're raking in that podcast money. Or B, you have nothing better to do, but listen to old episodes of podcasts or C, this is the only thing that survived a nuclear winter with the academy the way it is in 2023. Should MSPs in general raise their prices between now and the 2024 daylight?
And the answer is, it depends. There's my topic for those who are not watching the YouTube video, Eric didn't answer because he's laughing and dying at the same time. On mute over there. Exactly. He didn't expect that answer from me. So here's my hot take on this. Here's my hot take on raising prices. This shouldn't even be a topic of conversation because this should be already in your contract. You should have in your managed service component of your contract, which is just the services side, not the products you resell like office and Google and whatever in your services side, you should have on your contract a cost of living increase that happens every year for the term of the contract, however many years that may be. And it should be a nominal amount, three to 5%. That's my hot take. I've gone over this with people. Some people think 5% is too high, but what's 5% on $2,000? We're talking about a hundred dollars increase total on $2,000 a month contract, you're going to $2,100. That's not really breaking the bank for new customers. However, I believe in the Gary Vaynerchuk, every new customer gets a new price until you hit your cap model. So Eric, do you know this model? Yeah,
Eric Anthony:
Absolutely. I mean, I'm a huge Gary V fan.
Justin Esgar:
If anybody knows Gary V and wants to have 'em on the All Things/MSP podcast, please absolutely make that happen. For those who don't know what we're talking about, basically every new customer you bring in, your price should go up five bucks and you get to the point where people start turning you away because your price is too high. And that's when you know you've gone too far. And actually, we've done this at Virtua in our hardware division. So as many of you know, we acquired a company last year called Gravity. It was an Apple authorized service provider and an Apple consultant based in Columbia, Missouri. We took the Apple consultancy side, moved it under Virtua and left the hardware side as gravity. And this way we were able to really figure out the money the hardware side was bringing in. Now, there is no money to be made in Apple hardware. I'm telling you this now, it is a loss leader. Is there
Eric Anthony:
Money in any hardware to be made
Justin Esgar:
If you're a C D W? Right?
Eric Anthony:
Well, because you can sell volume for the average M isn't
Justin Esgar:
Right, but you can't do it if you're doing warranty repair. And so we would raise our prices for every incoming customer, like two or $3. And until we got to the point where people stopped coming in, and that was where we realized what our cap was for doing things.
Eric Anthony:
And what was that cap?
Justin Esgar:
I think we went from a hundred dollars to $145 an hour or so. Okay,
Eric Anthony:
This is labor rate for warranty or labor
Justin Esgar:
Rate for out of warranty, labor rate for out of warranty work. And remember, it's Columbia, Missouri.
Eric Anthony:
So one of the things I want to point out with these numbers is, number one, to your point, 16% of the people who responded said that they will raise prices for new clients but not existing contracts. I have a problem with that, just like you have a problem with that because you need annual price increases because everything increases in price. Now, specific to this year, obviously with inflation just going through the roof recently, you have a problem because if you haven't been raising your prices all along, you're probably in dire straits because you need to raise them more than you normally would. And that's where people get themselves into problems. If you're not raising it every year when you get to a year, that's bad. You're the one who's going to take it on the chin, not the client.
Justin Esgar:
And you can't even go to the client and say like, Hey, listen, the economy is not doing so good, I'm going to raise your rates. They're not going to want you to do that.
Eric Anthony:
Right? Because it's going bad for them too.
Justin Esgar:
Exactly. The problem here is that, and you'll bleep me rolls downstream, right?
Eric Anthony:
Not only will I bleep you for that, I will put the emoji over your face.
Justin Esgar:
Oh, that'd be so cute. As much as all of our data goes off to Jeff Bezos's computer and Amazon, all of the bad pricing, it all goes downstream. And I've always questioned if I have to lower my rates to work with my clients because they're lowering their rates to work with their clients and they're lowering their rates to work with their people and so on and so, so forth. Where does that end? And again, somehow or other, I ended up back in Jeff Bezos's computer. But yeah, this has to be part of your normal procedure. I think the idea of not raising for existing customers is a bad idea. I think you should be raising them for everybody. I think you have to think about it not as one specific thing. This is what I was talking about at the beginning, is that it's not one thing.
It's not raising your rates period. It's raising your rates for existing customers. It's raising your rates for new customers. And those are two separate things. They probably most likely will be two separate rates. No reason why a new customer who's coming in, if you're charging, I'm making up numbers here, 1 35 a machine or a user, there's no reason why a new customer coming in doesn't. They don't know that. So make it 1 50, 1 60, 1 75. I think the going rate, the average going rate, from what I've heard, and the few people I've talked to about this is somewhere between 1 75, 180 5 per computer or per device. And we can get into the per computer, per device, sorry, per device or per user thing later. But the going rate, and that's even in the areas of the United States where it's not New York City because the price of bread from Amazon is the same price no matter where you live, the price of M S P services should be the same no matter where you live. That's kind of where I stand on it.
Eric Anthony:
So the other number that I wanted to point out here is that between the highly likely and the likely of they're going to raise rates, it's 56%. And I can guarantee you that your top MSPs are in that 56%. Now, the other thing that I wanted to mention here is because one of the reasons you raise rates is because you are periodically changing things out in your stack and adding things to your stack. So what are your thoughts on having a certain percentage already in your price to account for those things?
Justin Esgar:
That's just cost of business. When you're coming in with your price, you need to figure out your cogs, cost of goods sold. You need to know what you're spending. Let's talk per license. In this case, per license for M D M is what? Five bucks for Malwarebytes, it's a dollar for email backup, it's $2. Your total price all in, let's say it's 20, 25 bucks. The rest of this is how much your value is as a service provider and doing the service work, your actual work work, you have to assume all of your vendors are going to raise their prices by at least 10%, right? And so if you account for that, you can't raise your entire, you can't go from, I mean you probably could, but you can't really go from one 50 to 1 65 in a single soup go up that 10% amount. That's a little issue. And now that I'm saying it out loud, maybe not so much, but if you're at 200 to go to two 20 maybe, I don't know. But you need to account for that and your cost of goods sold. I think in a restaurant it's supposed to be 33% of the menu item. So as long as your cost of good sold is less than 33%, I think you'll be okay in regards to profit. As long as you are not trying to value yourself at a $250 an hour rate person and you're only pulling in one 30,
Eric Anthony:
And that sounds about right, 33% would leave you with 66% of a gross profit margin. And I think most people will agree 55 to 75% range as a gross profit margin on managed services.
Justin Esgar:
I'm waiting for the people who are going to leave comments going, no, it's 67% because 67 minus 33 is a hundred.
Eric Anthony:
It's a range of people.
Justin Esgar:
It's 33% repeating. By the way, that's what we're talking about. Yeah, no, no, you, you're a hundred percent correct or a hundred percent correct. Right? That 50 to 70% range. I think that's good for the people who responded to this with, we don't sell managed services. What is that 15%? Who are you? What are you doing? Right?
Eric Anthony:
Well, there's still a lot of people out there doing break fix.
Justin Esgar:
Yeah, but you should still be raising your rates. I think the problem is the question should say how likely? Well, it's really about channel partners, but it should be how likely are you no matter what you do. And also even if you're break fix, even if you're break fix the second you sell any sort of monthly recurring tool to a client, you're an M S P, you might be using a break fix time and materials pay per hour model, but the second you slap an R M M tool on there just so that way you can monitor that computer. I hate to break it to you. You're an M S P. Welcome to the family. Coffee and donuts are in the back.
The one I don't get is the unlikely we will keep prices the same. No plans to raise. There's 12% of you that are answering this. If you're in that 12% and it is end of summer 2024, please lemme know you're still in business. I'm not trying to find the right words that you don't have to bleep me. Again, I'm not trying to be that kind of person. The only reason I think anyone can answer that is that you're overcharging already and you've reached the maximum dollar amount. People are willing to pay for your area. And so that I can understand. But if you are not that person, if you're not the only game in town and you're not charging two 50 ahead, there is zero reason for you to keep your prices the same. In fact, we're already, we're recording this. It's the end of August and we're in talks about what our 2024 plans are.
We actually, not that we didn't raise prices from 2022 to 2023, we actually built our price model out towards the end of 20 20, 22. So our 20 22, 20 23 pricing was very similar because we went through our cogs and we trimmed the fat and did all these things. But we're already planning what our 2024 looks like because we sell, other than managed services as a per device, we also sell network management and we're selling that for hella cheap. And that's got to change for 2024. So mark, my word, if you're listening to me, Jonathan, we're moving up from $20 in AP to $25 in AP next year.
Eric Anthony:
Well, and I mean, you made a really good point just then, and that is things change. Things that you don't control, change vendors change pricing. You have to change an item in your stack because a vendor got bought out by an evil overlord, whatever it is, things that you don't control. And so you have to constantly be looking at your pricings and by constantly, I would say probably every six months. Now, you may not change pricing, you may not raise pricing every six months, but you need to look at it so that what's changed to know if your profit margins are still in line with what you defined. Here's the larger thing for me. I had some discussions with some people about this week, some pretty, he heated discussions about if you're in this and you're only making 150, 200 grand a year owning an M S P, what the hell are you doing?
Justin Esgar:
Yeah,
Eric Anthony:
I'm sorry. Go work for somebody else and make more than that.
Justin Esgar:
I actually, oh God, I'm so glad you brought this up because I went to an event last week and I was talking to somebody who was doing the presentation and I had a follow-up call with them and they got me riled up a little bit to the point where I was like, oh, we should totally be doing that. But then I realized that this particular person is had an M S P and was specifically doing M S P in the healthcare industry. So his numbers are way bigger. Like you got to be taking those three 400 person companies on. I was like, you find me a 400 person Mac company that doesn't have internal support, whatever. It doesn't matter. Point is during his presentation, he had a slide up and the slide was what he considered the five pillars of growth for an M S P startup getting there, whatever, all the way to, you're a player.
And the player column was like, you're doing multimillion high seven digit numbers, but the startup, and this is what got me. I've been in business for 15 years and according to this guy's chart, I'm a startup because of how much we make per year. And if you're only bringing in $200,000, you're not even on the chart. His startup was like, you're bringing in a million dollars in annual revenue and you have five to 10 employees and you have 50 customers that you take care of that are all small to medium business. I'm not going to say, what are you doing? If you're making 150 to $200,000 a year and you're content with that and you're making a living and you're able to put food on your plate and you're happy and you don't want that much work, fine, I'm fine with that. But you shouldn't even be listening to this podcast.
But if you want to grow with what this is all about and you want to be doing what this guy's doing is he made 30, 40, 50 million in a year. In a year, we're talking about crazy money here. You can't be resting on laurels like this and you can't be doing this. And yes, then your point is, if you're making 150 to $200,000 a year, stop running M S B also, and again, I'm going to get into a trouble for saying this, but so many MSPs, I know you only became an MSP because you're good at technology, you're not good at business, be better at business. This is a business question. This isn't a technology question. Are you going to raise your rates? Everybody wants to keep customers. Everybody wants to be the best. Everybody wants. My customers love me. They'll never leave me. They're going to leave you. So you need to make up for that. You need to be able to handle that. Sorry, I my gears about that.
Eric Anthony:
I get it right now. First of all, I want to apologize for all of the lifestyle MSPs that I just offended because
Justin Esgar:
Oh, what about me? Are you going to apologize for me, za?
Eric Anthony:
Because you can apologize for yourself. You're a big boy. I'm sorry. But if you're happy doing it, and that's a key point, right? If you're happy doing it, I'm not telling you you're doing anything wrong. Because if you're happy, you're doing life well, okay, but there's a lot of stress. There's a lot of which I just had to bleep myself and put the emoji over my face to deal with for that amount of money per year when you could certainly go and get a decent IT admin job that you can turn off at five or 6:00 PM and live a nice life.
Justin Esgar:
I mean, let's look at it this way. Make $150,000 a year and you're charging, let's say $150 a machine. That's a thousand endpoints you got to manage. That's a lot, right? I want to make sure I got my math right. Hundred 50,000 divided by one 50 is a thousand endpoints, right? That's a lot to manage.
Eric Anthony:
Well, keep in mind that it's not just that though. 70% is going to be managed services. About 30% is still going to be project work. And if you are the only one doing the work, it's going to be fairly profitable.
Justin Esgar:
I know where my math is wrong. I forgot to divide it by 12 first. Yeah, I always do that. So it's 12 500 divided by one 50. It's 83 machines. That makes a lot more sense. It's a hundred machines. You have to be taking care of a hundred machines,
Eric Anthony:
Which isn't bad.
Justin Esgar:
Which isn't bad. Yeah, I knew my, which isn't
Eric Anthony:
Bad and certainly can be done by one person. So if you're running a one person shop and you're making the money you want to make, but again, remember 150,000, I'm not talking about 150,000 revenue. I'm talking about 150,000 owner compensation. And on top of that, if you're not doing at least $50,000 in profit off the business as well so that you get to a total of 200, I think it's just not worth doing personally.
Justin Esgar:
So let's think about it this way, right? $150,000 at 66% because we'd said 33% for COGS is 99,000 a year. Okay, 99. Remember, you're still taking care of that same a hundred computers, 99,000 a year. Let's do times another, what is it? 60% after taxes is $60,000. But for a hundred computers, you're going to bring home $60,000. You're not a $150,000 company, you're a $60,000 company. So if you want to bring home 150 K, you got to double to two and a half that. So now we're talking about 250 computers still doable by one person, but the cogs go up, the headaches go up, and if you're bringing on 250 computers for every new computer you bring on, your problems don't double. They exponentially go up.
Eric Anthony:
So I think we've brought this conversation to a very interesting place because I think that no matter what you're doing, you need to know how much money you want to make. You have personal expenses, and if you want to have an M S P, whether it's a lifestyle or M S P or you want to grow it, it takes a certain amount of cash to do that. So my question to Joe m s P is, do you know you know what that number is? Do you know what your annual revenue number has to be in order to take home a certain salary and reinvest back into the business to get the business to where you want it to be? Now, if that's zero because you're happy with exactly the level of business that you're at, fine, it's just your salary. But if you don't know that number, how are you making sure that you maintain that number? And that goes back to the pricing.
Justin Esgar:
Well also keep in mind entropy, right? Clients leave clients, clients die, do whatever. If you know what that number is, and you don't have to share the number, if you know what that number is when this episode goes live in the all things M Ms. P Facebook group, go ahead, comment below with, yes, I know that number. No, I don't know that number. Or, I'm happy running a lifestyle business. We won't make fun of you, we promise. But we want to know because we want to know. We want to know what the audience is really up to, right? Because it's one thing to read information on a poll, it's another thing to get that realtime information. So tell us in the comments below, preferably in the Facebook group, if you see this on YouTube, head over facebook.com/group/all exhibits and just say, yes, I know how much I need to be making annually to take home what I want as a salary.
No, I don't know what I need to be making or I don't care. I'm happy where I am and I want to see what the results are of that. We'll come back to this in a couple of weeks because those people who write, no, you should be heading over to atsb.link/podcast and coming on the show so we can talk to you about your business. Those who are saying yes, keep on keeping on and those who that are content where they are good, be content. Learn a new thing or two, but raise your prices because you have to do that. And I think that's where we're going to end it today.
Eric Anthony:
I think that's a good place to end it
Justin Esgar:
Today. I tied it up with a nice little bow. Thank you all for listening to the All Things MSP podcast. I am Justin. Don't forget to check out facebook.com/groups/all things msp youtube.com/at all things MSP like and subscribe. Hit the notify bell, do all the bells and whistles you need to do. Listen on all your favorite podcast apps. That's where we're at. I'm Justin, that's Eric. That's it for us. Bye.
Speaker 3:
And now that you've watched that mess of a podcast, don't forget to watch one of these and go ahead and click that subscribe button so you get to watch more. Yeah, just go ahead and do it. Click the button and then watch one of the other videos I'm watching. I.