“Understanding your bands of clients and how many hours it takes for you to service in an average month gives you what the average rate is,” Bonds explains. The insights this analysis reveals can be surprising – and sometimes concerning.
Consider this real-world example Bonds shared: The MSP discovered their $750/month clients were generating the same effective rate ($250 per hour) as their $5,000/month clients. Meanwhile, their $1,350/month clients had their lowest effective hourly rate, and their $3,000/month clients were only generating $115 per hour. These findings challenge common assumptions about larger clients automatically being more profitable.
What’s often overlooked in this analysis is how payment processing efficiency affects overall resource utilization. Even within the same revenue band, clients can have vastly different administrative overhead costs based on their payment patterns and methods. A $3,000/month client requiring manual invoicing, payment processing, and frequent payment follow-up might consume significantly more administrative resources than a similar-sized client using automated payment systems. This additional overhead reduces the effective profitability of the account.
The Truth About Resource Utilization
Resource utilization in MSPs often follows unexpected patterns. A technical team typically includes Tier 1 help desk support, Tier 2 advanced technical support, Tier 3 systems engineering for complex issues, and Tier 4 advanced engineering and architecture. Many MSPs also maintain specialized roles for security, project management, and virtual CIO services.
Your utilization analysis might reveal that higher-revenue clients aren’t necessarily using your technical resources more efficiently. Sometimes, they consume disproportionate amounts of high-tier resources for basic tasks, driving down your effective hourly rate. This misalignment often occurs because MSPs lack visibility into how different client segments utilize each technical tier.
Understanding Your Financial Framework
Modern MSP accounting requires a crucial distinction: “billable” labor should be treated as a cost of goods sold (COGS) rather than an expense. This classification matters even in all-you-can-eat service models where you’re not explicitly billing for time. Billable resources include technical support time, systems administration, documentation work, inventory management, and project implementation. Non-billable activities encompass administrative functions, sales activities, accounting, and office management.
This differentiation isn’t just accounting semantics – it directly impacts how you measure service delivery costs and profitability across revenue bands. By properly categorizing your labor costs, you gain clearer insights into the true profitability of each client segment and service offering.
Payment processing efficiency plays a crucial role in this financial framework. MSPs using modern payment portals significantly reduce the administrative overhead needed for invoicing and collections. When clients can self-service their payment needs through automated systems, MSPs often find they can reallocate administrative staff to higher-value activities. This shift not only improves operational efficiency but also reduces the non-billable labor costs associated with payment processing and follow-up.
Technical Tier Analysis
“Based on this, we needed 2.33 tier 1 techs and 1.99 tier two techs and 0.5 tier three,” Bonds explains. This granular analysis reveals a common challenge: how do you handle fractional resource needs?
Three primary approaches exist for managing fractional resource requirements. First, strategic overstaffing involves hiring full resources and utilizing excess capacity for proactive work. For example, when needing 2.33 Tier 1 techs, hiring three provides bandwidth for documentation improvements, training, and special projects.
The second approach leverages outsourcing partnerships. MSPs can use managed NOC services for overflow, partner with other providers for shared resources, or employ help desk services for after-hours coverage. This flexibility helps manage variable workloads without committing to full-time resources.
The third method involves cross-training higher tiers. When analysis shows you need half a Tier 3 engineer, hire the full resource but utilize their excess capacity for Tier 1/2 overflow and process improvement. This approach maximizes the value of higher-skilled resources while improving overall service delivery.
Signs of Resource Misalignment
Resource misalignment manifests in several ways. Watch for higher-tier resources consistently handling basic tasks, which indicates poor resource allocation. Monitor for frequent ticket reassignment between tiers, suggesting unclear escalation paths or capacity issues. Pay attention to extended resolution times, often indicating improper initial routing or resource constraints.
Performance metrics reveal deeper insights about resource alignment. Track first-call resolution rates by tier, time spent per ticket type, and escalation frequency. Monitor cost per ticket by tier and revenue per technical resource. These metrics help identify whether your current resource allocation matches client needs and service commitments.
Pay special attention to administrative resource drain from payment-related tasks. Many MSPs discover that significant staff time is spent on payment follow-up, manual invoice processing, and reconciliation. This often indicates a need for payment automation rather than additional administrative hiring. When analyzing resource misalignment, include metrics on time spent on payment processing, collection activities, and invoice-related client communications.
Signs of Resource Misalignment
Resource misalignment manifests in several ways. Watch for higher-tier resources consistently handling basic tasks, which indicates poor resource allocation. Monitor for frequent ticket reassignment between tiers, suggesting unclear escalation paths or capacity issues. Pay attention to extended resolution times, often indicating improper initial routing or resource constraints.
Performance metrics reveal deeper insights about resource alignment. Track first-call resolution rates by tier, time spent per ticket type, and escalation frequency. Monitor cost per ticket by tier and revenue per technical resource. These metrics help identify whether your current resource allocation matches client needs and service commitments.
Pay special attention to administrative resource drain from payment-related tasks. Many MSPs discover that significant staff time is spent on payment follow-up, manual invoice processing, and reconciliation. This often indicates a need for payment automation rather than additional administrative hiring. When analyzing resource misalignment, include metrics on time spent on payment processing, collection activities, and invoice-related client communications.
Service Hour Tracking Essentials
Effective service hour tracking requires monitoring multiple dimensions simultaneously. Track total hours per client, breaking them down by technical tier involvement. Document the frequency of escalations and the types of service requests each client generates. This data reveals patterns in how different client segments utilize your technical resources.
For each technical tier, monitor utilization rates, time spent on different client segments, and knowledge transfer effectiveness. Look for patterns in how work flows between tiers and identify opportunities for efficiency improvements. This analysis often reveals surprising insights about which clients and issues consume the most high-tier resources.
Implementation Strategy
Bonds shares a cautionary tale about implementation: “We had one client who got a really big contract and they were so excited that it doubled their business overnight, which was huge, but they didn’t know what they would need to staff it, so they overhired. And that leads to chaos, it leads to cash drain, and ultimately put them in a financial hardship.”
For established MSPs, begin with a comprehensive audit of your current technical tier structure and service data. Document existing resource allocation patterns and map client demands to technical tiers. Track service hours meticulously, calculating tier-specific utilization rates and identifying resource bottlenecks.
New MSPs should focus on building strong foundations. Define clear technical tier structures and establish service delivery standards by tier. Create initial resource allocation plans based on projected workload, and implement tier-specific tracking from day one. Monitor patterns in resource usage and document common issues by tier.
Growth Planning and Resource Projection
“Sometimes business owners will say, no, my team has capacity. We can add 50 percent more revenue without ever adding a body,” Bonds notes. “Well, if you don’t really model it out, how do you know that? It’s a gut. Guts are really good until they’re not.”
Successful growth planning requires detailed resource projections. Calculate the full financial impact of each staffing option, including salary, benefits, training costs, and productivity impacts. Consider client satisfaction implications and service quality metrics. Project future resource needs based on growth targets and current utilization patterns.
Key metrics to monitor for growth planning:
- Average time spent per client by revenue band
- Resource utilization rates by technical tier
- Escalation frequencies and patterns
- Client satisfaction scores by service tier
- Revenue per technical resource
- First-call resolution rates
- Time to resolution by issue type
- After-hours support requirements
- Administrative time spent on payment processing
- Payment-related support ticket volume
- Days sales outstanding (DSO) by payment method
- Collection effort hours per revenue band
Optimizing Client Mix
Your analysis might reveal opportunities to optimize your client mix for better resource utilization. Some clients might consistently consume resources in line with their revenue, while others require disproportionate support. Use this data to inform both growth strategies and client retention efforts.
Consider creating standardized service delivery processes for different client segments based on their typical resource utilization patterns. This approach helps maintain profitability while ensuring consistent service quality across all revenue bands.
Payment efficiency should factor into your client optimization strategy. Clients using automated payment portals typically require less administrative support and have more predictable payment patterns. When analyzing client profitability, factor in the administrative costs associated with different payment methods. Consider standardizing on modern payment platforms to reduce administrative overhead across all client segments.
Conclusion
Resource allocation optimization demands careful analysis and continuous adjustment. As Bonds emphasizes, don’t rely on gut feelings about capacity or assumptions about client value. Let data drive your decisions about hiring, resource allocation, and client targeting.
Remember that the most profitable clients aren’t always the ones paying the highest monthly fees. Take time to analyze your resource allocation patterns, track meaningful metrics, and adjust your strategy based on actual utilization data. Consider how payment automation can reduce administrative overhead and improve resource utilization across all client segments. By optimizing both technical resource allocation and payment processing efficiency, you can build a more profitable, sustainable MSP business model.
