As I’ve often said, top line is for vanity, bottom line is for sanity. But how much do MSPs really make? To answer this question, we conducted an income survey of the readers of MSP Success Magazine to find out what people were taking home. Roughly 480 people took the survey detailing their annual revenue, predominant business model and personal income.
To start, I isolated the data on those who were an MSP and the OWNER of the business, removing the small minority of respondents who were VPs and other executives of MSPs, or running non-MSP companies. The data collected on those individuals is outlined below by group.
$5 Million+ Revenue
Of those who were identified as owners leading managed services companies generating at least $5 million in revenue (3% of the total respondents), ALL were earning at least $200,000 a year, with the average earning between $300,000 and $400,000 annually. A solid 25% of this group reported earning $500,000+ a year in personal income, and 17% reported making over $1 million. Based on IRS income tax data, individuals who make more than $380,354 per year are in the top 1% of income earners in the US, making this an elite group.
What’s encouraging about this is that owning an IT services business gives you a much higher chance of being a high-income earner than the average person walking around.
$1 Million – $5 Million Revenue
Nearly half of the respondents to our survey (46%) were in the $1 million to $5 million range in top-line revenue. Candidly, this is not a good representation of the industry as a whole, given 80% of the MSPs and IT services firms out there are generating less than $1 million in revenue. I suspect this is skewed higher due to the fact we tend to work with companies that are in this range of revenue or higher.
In this group, 44% were taking home between $100,000 and $200,000 a year, making that the average earning for this group. A small 7% minority of this group were taking home $400,000 or more per year, and the bottom 17% were making less than $100,000.
Under $1 Million In Revenue
Combined, those doing between $500,000 and $1 million in revenue were the largest group who responded to this survey (51%). Twenty-six percent (26%) of respondents said they were generating less than $500,000 a year in revenue. These were also the lowest income earners, with 53% of that group earning under $70,000 a year, 24% earning $70,000 to $100,000, and 23% earning $100,000 to $200,000 a year in personal income.
The group generating $500,000 to $1 million in revenue fared better, with only 10% earning less than $70,000 a year, and the majority (50%) earning between $100,000 and $200,000 per year. A small percentage (5%) reported earning over $200,000 a year.
The Key Differences Between The Top 1% And Everyone Else
Naturally, the question most ask is “What do the top 1% of this industry do differently than the bottom half?” What secrets do they know that no one else knows? What special or unique advantages do they have over everyone else?
It’s natural to think they have some special advantage, but the actual, hard truth is they are selling essentially the same services, to the same marketplace, utilizing the same vendors and hiring from the same pool of talent. Last time I checked, they still only get 24 hours in a day and 7 days in a week. They also have to deal with the same barricades and challenges to growth that everyone else does – market conditions, competition, finding and retaining good employees, cash flow, marketing, etc. So what is it?
This is the question I’ve dedicated the last 2 decades to uncovering – specifically, how do the top 1% and 4% of our industry achieve their success? To that end (and not directly related to this survey), I’ve conducted over 100 candid, personal interviews with CEOs of IT services firms who are in the top 1% of income earners.
Some were brief conversations at an event over a cup of coffee and some rather intense 2-hour-plus “grill” sessions where I left no stone unturned, no questions unasked – with over 100 CEOs of IT services businesses that are generating from north of $10 million in gross sales to as high as $400 million. All had at least 10% to 25% EBITA and consistent, rapid upward growth. All but a small few started their business from nothing…a garage or a basement…with zero cash, customers or advantages.
Throughout these interviews, I found commonalities that all shared. Not the ones you might think; for example, some were NOT selling managed services or were just entering into that service model. Many were in small towns of under half a million people, while others were in big cities with heavy competition, and everything in between. Markets served ranged from general small business to banking, medical, construction, manufacturing and more. Some didn’t specialize by industry vertical, but by solution delivery (Office 365 migrations, for example).
Many had opposing points of view about how to market their business, how to structure their service offering and even on pricing – HOWEVER, there were, in fact, over a dozen common characteristics I’ve discovered from these interviews that were CONSISTENT across the board. In this report I’m going to discuss the three vital ones that show up time and time again as areas that thwart growth and profitability.
Factor #1: Building Your “A” Team
Do you remember the TV show The A-Team? I might be showing my age here, but this was a very popular series in the ’80s about an ex-military team that was framed and sent to prison. They escaped and banded together to form a “heroes for hire” group, calling themselves the A-Team.
If you’re familiar with the show, you know that each person was an expert at something. Hannibal, their leader, was an expert at strategic planning and disguises. Face was the team’s con artist. BA (a.k.a. “Bad Attitude”) was the team’s mechanic. Murdock was a certified lunatic they sprung from a mental hospital for his expertise as a pilot. Independently, they were random misfits, but working together they pulled off the impossible – which brings me to my point.
One of the single most common characteristics all successful 5% formula CEOs cited as a reason for their success was their ability to find, hire and keep their own “A-Team.” Having a highly competent team you can TRUST to follow your lead FREES YOU to invest your time into improving your business and conduct market- and customer-facing activities to drive your company forward.
Here’s a COMMONALITY of those struggling to grow and make money: they attempt to do EVERYTHING themselves. To that end, they’re part-time CEO, part-time tech, part-time salesperson, part-time office manager, part-time accountant, part-time HR, part-time customer service, etc. Is it any wonder they can’t get ahead? They simply cannot get it all done, so they fail on multiple fronts.
Read This Next Paragraph Carefully
WITHOUT that “A-Team” in place, you’re forced to constantly spend your time firefighting, fixing problems, correcting mistakes and watching over their every move to prevent all hell from breaking loose. You become fearful of growth because you know your current “B” team (or “C” or “D” team) is certainly going to screw it up, putting MORE work on YOU. Every day is filled with anxiety and drama. Your culture sinks. Employees start taking advantage of you, showing up late or not at all, making excuses, pissing off customers, not following any of your processes, even though you’ve told them a million times how something should be done. You’re constantly amazed at how they overlook the OBVIOUS. They hide their mistakes, blame others for them or simply don’t CARE if they’re making them. Then, to add insult to injury, they take work hours – hours you are PAYING them to deliver productive work – to infect the few good employees you have with their bad attitudes and personally undo all the hard work and effort you’ve put into building your business. And you TOLERATE IT because, as dysfunctional as they are, you NEED them to get work done and you don’t know where in the hell you’re going to find their replacement.
If I just described YOU, I know you’re spending 95% of your day watching over, correcting and cleaning up the messes they’re making – and you can’t drive a car forward safely if you’re constantly having to take your eyes off the road to lean back over the seat to keep a bunch of rowdy kids from killing each other. It’s more than a distraction – it’s a DANGER TO YOU. You’ll crash because you’re too damned distracted to focus on what you should be focused on: driving the car forward.
Factor #2: A “Wealth” Mindset
“All I want is my fair share.” Have you ever heard someone say that? Have YOU ever said or thought that about YOUR business and your “fair share” of the customers, market share or money to be made in this business? How about this: have you ever lowered your price for a prospect simply because it felt like a lot of money to ask for? Or have you ever felt intimidated – even nervous – quoting a big “expensive” project? Or perhaps you heard of another IT firm charging two or three times what you’re charging and thought, “My customers would never pay that,” chalking it up to an exaggeration on their part or some other unknown factor that “allows” them to charge as much as they do.
If you want to know why many IT firms struggle with selling their services at a price point that would allow them a healthy profit margin – and why they are inept at asking prospects for money (selling) – I’ve just revealed it. Most CEOs have a grossly dysfunctional and irrational relationship with money. They’ve had it drilled into their heads since they were little that “money is the root of all evil” and have heard terms such as “filthy rich” repeated over and over. Movies frequently depict corporations and the CEOs running them as GREEDY villains. The Hunger Games. Robin Hood. The Lego Movie. A Christmas Carol (Scrooge). I often find myself cringing, as I watch movies with my 7 and 10 year old girls, at the less-than-subliminal messages about rich people being evil in DISNEY movies.
There are a LOT of MSPs who have the same problem: they feel very uncomfortable asking for, handling or making “large sums” of money, which is a repellant to money and wealth. I put “large sums” in quotes because that is different for everyone. Some people start feeling uncomfortable asking for $150 per hour or quoting a $10,000+ per month service because THEY wouldn’t be able to pay that, or simply feel that’s “a lot of money.” Others may have much lower thresholds.
Much like a thermostat in a room, there’s a “money” setting everyone has where they feel comfortable. If they generate LESS, the heaters kick on and they’ll start marketing, selling, etc. But the MINUTE they hit their comfort zone in income or fees, they start lowering their rates, giving discounts, doing work for free or any number of things that crush their ability to grow and be profitable. We see this show up when selling our products and come across the objection “That’s too much money.” My favorite question is “Compared to what?”
Now, here’s a REALLY important question for YOU: What’s your thermostat set to?
5% Formula Factor #3: Sufficient Deal Flow
One of my long term clients who grew a very successful MSP generating over $10 million in revenue summed his success up in one statement when talking to a group of smaller, struggling MSPs: “You want to know the real difference between my company and yours, and why I’ve been able to grow it to $10 million and you haven’t? My phone rings.”
Think about that for a moment. How much different would your business be if you could count on your phone to ring, every single week – if not every single day – with quality prospects inquiring about hiring you? How confident would you feel investing in resources, people and tools you desperately need, knowing the sales and profits would be there to fund it? How tolerant would you be of your cheap, whiny, slow-or-no-paying clients if you knew your phone would be ringing with brand-new prospects eager to outsource their IT support to you? How much confidence would you feel in raising your rates – or sticking to them! – if a prospect wanted you to give them “a break” or discount your fees?
Imagine being able to make enough profit to pay off your debts, store up cash reserves AND easily pay yourself a fat salary… What kind of impact would that have on your stress levels? Your ability to make business decisions from a place of control, security and power instead of scarcity and fear? THAT is what having sufficient “deal flow” can do for you. It IS the fuel, the lifeblood and the juice that feeds your business and keeps it healthy and profitable.
Yet the VAST majority of MSPs will admit that marketing – which makes the phone ring – is the activity they most neglect. It doesn’t take a genius to see the correlation.