How to Use the MSP Margin Calculator
Most of the time, MSPs will base pricing on nice, round numbers and hold fast to those numbers. $120/seat, $150/seat, what have you. The problem is once you add more and more services to your stack, your margins get smaller and smaller. Sometimes you need to take a solid look at your costs before you can come up with a price at all. Maybe you're not even looking to provide a per user price, but you want a price to cover the whole office. That's where this calculator helps.
So Here's the Idea
“I charge $120/user and I know what my costs are because each user gets Office and AV and…” But do they? Each user gets Office and antispam, but each PC gets AV and MBAM, right?. What if you have more users than PCs? What if you have some full time user and some part time users, and there's some number of PCs that's not related to either? What if you have that one special user who needs everything included in their cost, but the rest of the peons just need the standard package? That's what this calculator is about. It's about breaking your per client cost down into units, and costing them out from there.
Your cost is made of of multiples of certain “units”. Each unit is something that gets services/software/hardware/etc.
Each of these units (User, PC, Server, VM, Site) has a list of costs that apply to that unit and not others. These costs are the services/software/hardware/etc that you provide on a monthly basis for that unit. Users get Office and email, PCs get Anti-virus, VMs get OSes, Sites get routers and wifi, that kind of thing. You can also have different subtypes of units. Maybe you have 12 users, but two of them are interns and only need email, so you have a Type 1 User that gets everything, and a Type 2 User that only gets email. Maybe you have 10 PCs total, but 3 of them are laptops and only they require an extra VPN license. If you don't split those sub units out, then you're either charging too much or too little because you don't have a true count of how many of the PCs need the VPN license.
By splitting up your cost centers into Units, and potentially sub units, you get a really granular look at your costs, while still being able to scale up units easily.
Remember, so far we're only talking about costs. How you price it is up to you. You can charge the same for an User 1 as you do a User 2, or don't, it's your call, but we're not discussing that yet. We're only collecting our costs.
“But I don't price per computer, I price per user”. Yeah, that's fine. However your costs are based on numbers of users and computers separately. So you figure out your costs per unit, make sure you get a certain margin (not markup) on that unit, then add them all up to get the price you charge. Feel free to divide it up on a per user/server/site basis from there if you want.
Preparing Your Environment
IMPORTANT NOTE: These sheets leverage a good bit of Google Sheets-specific functionality, so if you try to convert to Excel, you're on your own.
Your Master Cost List
This is the first thing you want to do. If you don't have costs for your line items, you can't build your units. We're going to make your Master Cost List so that you don't have to edit every copy of the sheet if you get new pricing. You can update in one place and then it'll update all the other sheets at once. Another use is if you move from one pricing tier to another, you can edit your item cost once and it's reflected across all sheets.
- Click here for the Master MSP Costs sheet
- Copy that sheet to your own Google Drive storage
- Take a look at the URL of your copy of that sheet. There's a key in the URL (see below) that is unique to that sheet. Copy it, we'll need it later.
Adding your Costs
The costs in the master list are Dummy Demo Costs. You'll need to replace them with your own costs from your own vendors. Enter and edit the costs on your copy of the sheet.
If you have a cost that is not monthly, there are two things you can do
- If it's a yearly cost like an annual UTM license, enter =YourCost/12 into the cost column to get your monthly cost, or divide it by 12 yourself. If it's a 3 year UTM license cost bought up front, divide by 36. I'm sure you get it by now. Since this cost is annual and occurs every year, it's very simple to convert it to a monthly cost.
- If you're providing hardware like a server or UTM and you want to recoup that cost over the life of the term, then add “HaaS” (quotes or no quotes, doesn't matter) to the Description of the item and enter your full one time cost and the sheet will automatically divide that one time cost into a monthly cost based on the length of the term
Making Your Own Master Copy of the Sheet
In order to make any changes to the sheet, you'll need to have your own copy.
- Click here to open the master copy, then save a copy to your own Google Drive for editing
- In your copy of the sheet, go to the Costs tab and click on A2
Setting Up Your Units
Now that you have your costs, it's time to build your units. The sheet comes pre populated with most of the units you'll need. Feel free to rename and edit as you'd like. If you like the units as is, then let's start building them out. We're going to build your “default stack”, the one set of services/software/hardware that you'd like to include for most clients. This will be the base that you customize from.
- Use the tabs on the bottom of the sheet to move between units.
- In the Item column, start typing the name of an item and it will search as you type
- Select the item you want by clicking on it or using the arrow keys and pressing Enter
- The cost is automatically copied from the Cost tab. Cool, right?
- If you want to quickly enable/disable an item, click on the 1 on the left and toggle from 1 to 0 (1 = Enabled, 0 = Disabled)
- If you want to get rid of a line item, click on the Item name in B and clear it with Backspace or Delete and it will clear the price too
- You can see a running total of your line items in F1
- Do this for all the Units you want to calculate in your total cost
In Column F, you can define how much time you expect to spend servicing each unit per month. This column is measured in Hours, so 0.10 mean 6 minutes per unit per month. If you're touching computers or users for much more than that a month, you'll want to edit this column to reflect that. (Or better yet, take a good look at how you're delivering your services and try to bring that labor cost down)
Define your Labor Cost in B18. This is what it costs you to provide an hour of labor for a client. This is not your hourly rate. If you have a 1099 contractor, put their hourly rate there. If you have a salaried employee, figure out what it costs you to pay them for an hour of work. You can base that on salary alone, salary + benefits, salary + office costs. It's up to you how much of your tech's cost you want to reflect in the client's cost vs the margin.
Here's the meat of it. Too often, you'll try to make a price first and then figure out your margin later. With this calculator, we set our desired margin and it gives us a price based on our costs. You see why we did all the cost work before?
We're going to aim for 70% margin on everything. That's pretty aggressive, but if you believe in yourself anything is possible. If you're a one man shop and you don't have a ton of overhead, you can probably get by on 50% margin at a minimum but remember that it's tougher to increase price than it is to have it to begin with.
If you're offering a service for “free”, like a “BDR is included with the service” free, then maybe you don't need 70% on that item. Margin can be adjusted per Unit in column K as you desire.
If you have any equipment that you're providing on a HaaS basis, the term length in B19 is where you'll enter the number of months that the calculator will divide the total cost of the equipment by.
Remember that if you recoup your cost over a one year term, then next year you either remove the HaaS equipment from the cost, or just continue to collect and enjoy higher margins while socking away that money for hardware replacement, your call.
Now you're done! You have your Master Margin Calculator, and your Master Cost List. Great! Let's set up a new client.
Costing a Client
Copy Your Sheet for Each New Client
At this point we have a master sheet that contains your costs and base units. When you want to calculate a cost for a new client, you should make a copy of the sheet, rename it for the client, and work on that one. That way, you have a record of what you included/priced for the client on Day 1 and can refer to it in the future.
Working now on a copy of the sheet, we can start counting our units. On the “Main” tab, simply count out how many of each unit type are included in your offering. A host with 2 VMs on it would be 1 Server and 2 VMs, for example.
If you need to change your stack for this client, you'd do that now by going tab by tab and adding/removing/disabling line items as needed to build your whole stack for this office. For example, you might not normally include a File Sync & Share solution in your stack, but if this office gets it on a per user basis, then add that line item to your User unit. Maybe you don't do PC backup for most clients, but this office is 100% laptops with no server, so you throw in a BDR and Veeam Endpoint Backup for every computer, so you add that to the Computer and BDR tabs.
Since this is a copy of the sheet unique to this client, feel free to edit all the labels. Here are some examples for User types
- Front office , Back Office
- On Site, Remote
- Staff, Interns
Totals & Prices
As you fill out the Unit #s, you'll see a few different numbers update.
- Total Unit Cost: Column D, D16
- This is the total cost of each unit that you're providing
- Total Labor Hours: Column F, F16
- This is the total hours per month that you're expecting to spend on this client. Go over those hours and you're cutting into your margins.
- Total Cost: J, J16
- Unit Cost + Labor Cost
- Total Monthly Price: Column L, L16
- This is the Cost from J with the Margin applied
- The total in L16 is the one price for the whole office. All users, computers, etc plus their labor and margins are figured in here. This is what your check should say every month, regardless of how you divide and package it up for the client.
There are a few extra figures here as well
- Daily, Weekly, Monthly, Yearly figures for Cost, Margin, and Price: B22:D25
- Sample price breakdowns for “Price per User”, “Price per User plus Servers”, “Price per User plus Servers plus Site”: B27-29
- If you want to give them one price per user and go up and down from there, go for it. If you want to spread it out with a separate charge for servers and sites, you can do that too. These are example breakdowns. Go nuts.
- Hourly Rates: B31-32
- This is a favorite of mine. Divided by either the IRS Average Work Hours per Month, or the total hours per year, you can compare this figure to what they might pay an entry level tech if you're trying to shut down the “We could just hire someone for that price” objection.
Now that you're done, your prices might seem really high, especially on a per user basis. Maybe you're just not charging enough now, ever think of that? Either way, if you want to change your prices, you can, but in order to do that, you have to change the margins. You can't just charge less and expect to get the same margins. I'm going to make you cut yourself to reduce your price. Edit the margins in column K and watch your price change. Also watch food leave children's mouths. You know, your call.
I hope that this calculator helps you out in some way. If you have any questions about its use, please feel free to pop in to the #sales channel in the MSPs R Us Discord at http://msp.zone