There are some business models that rely solely upon increasing your workforce and making a margin on what you pay each employee. For example, your cost for each employee (including all on-costs) might total $55 per hour. Your chargeable hours for a month might total 65% so the effective cost of your staff is $85 per hour. If you charge out your technicians at $100 per hour you are making a gross profit of $15 per hour. If you achieve your 65% charge out for this technician for a year, you should charge out about 1250 hours for the year per technician for a gross profit of $19K per employee. Remember this $19K is gross profit for your business. You have received $125K gross income and you, as the business owner, only get to keep about $19K of this. This is assuming that the employee has performed most work correctly and there have been no major mistakes and all your clients have paid their bills on time. The $19K GP means that you haven’t covered your basic expenses of running the business yet. The way to make this business model more profitable is to employ more staff. Theoretically, you keep adding employees, keep up the 1250 billable hours for each employee and each employee adds another $19K to your GP.
This is a typical labour focused business model and one that many parts of the IT industry still operate under.
I have a different view of the best way to grow a business in the IT industry. A linear relationship between employees and profitability is a tough gig given the expectations of a modern employee and the tough conditions imposed on employers.
I have a view that works on charging a fixed fee for the work you will perform and then creating internal efficiencies in the way those services are delivered. Readers of this column will already be aware of my preference for fixed prices for service work and for SLAs and this ties in exactly with the concept I am discussing here.
The crucial component is how to create efficiencies in the delivery of services. In a word – technology. We work in the technology industry so surely there are some superior technology solutions to help us. All modern Managed Services providers should have an automation tool as a compulsory tool in their weaponry. With an automation tool, additional end points can be added by clients (either existing or new) which generates additional income yet the expenses associated with that income are minimal. You may pay a minimal fee to your automation tool provider for each end-point or you may pay for your licenses in blocks but either way the cost per end-point should be so small that your profitability rises exponentially with increased numbers of computers under management.
The additional bonus is that you take away the ‘grunt’ work from your employees. The typical technician likes to be challenged by difficult work and a variety of different work. I have never met a good technician who is happy to perform the same old repetitive work that an automation tool can handle standing on its head. If you can offer stimulating work to your employees, they are more likely to stay and improve their skills. Not only do you have a more profitable business model but you have a more engaged and educated workforce.
If you aren’t using an automation tool, put that at the top of your to-do list. And if you are using an automation tool, make sure you are extracting the absolute most you can from it.
Tell me your preferred automation tool at [email protected].