Ambition Mission

At the TS2 event today in West Palm Beach, several attendees were scribbling furiously when we went through a scenario to help convert a break/fix customer to a managed services contract.  Here is the example, and it’s just one of many methods to help the client make that jump… Susie = Office Manager & IT designee; Joe = Business Owner, last year Joe spent $4,000 on his IT support and now we are proposing a full service, comprehensive managed services offering for $1,000/mo.  It is an $8,000 increase in what he paid last year.  Or is it?

Salesperson: “Joe, how many hours per day does Susie spend working on IT problems?”

Joe: “I wouldn’t say it’s every day, but probably about 2 or 3 hours per week.”

Salesperson: “and how much do you pay Susie?”

Joe: “$40,000 per year.”

40,000 x 1.35 = $54,000 (35% is for payroll taxes, heath benefits, etc… that reflect costs of having an employee), $54,000 divided by 52 weeks in a year and then divided by 40 hours in a week is just about $26/hr.  Susie spends 2.5 hrs per week times 52 weeks = 130 hours.  130 x $26 = $3,380.  (do math with customer)

Salesperson: “So Joe, it costs you (the company) $26/hr for every hour that Susie works and based on the time she typically spends on IT issues, it actually cost you $7,380 for IT support last year, because we’ll have to add the $3,380 to the $4,000 that shows up on your P&L.”

Joe: “Wow!”

Salesperson: “it get’s better.  What’s your company revenue and how many total employees do you have?”

Joe: “$20 million with 20 employees.”

Salesperson: “So, it is fair to say that since everyone’s roll is vital to the success of the company, each employee is effectively responsible for $100,000 in revenue for the company.”

“$100,000 divided by 52 weeks, divided by 40 hours = just about $48/hr - that’s what Susie makes your company for every hour she works, which is great because she only costs you $26/hr.”

“but since she was working on IT issues for 130 hours, the company lost $6,240 in revenue.  Add that to the total we had before, and IT support last year ACTUALLY cost your company close to $14,000!” 

Joe: “Holy *&%!” 

Salesperson: “and I’m not even adding in the amount of time Susie spent managing vendors, other employees downtime when Susie was “fixing” their issues, etc… so you see, the $1,000/mo is ACTUALLY saving you money.  Plus you’ll have less downtime, more reliability, more productivity, more efficiency - and you get all of Susie back!  It will be like you just hired a PT person.”

Joe: “I’ll take it!”

P.S.  I have always done this type of analysis “on the fly” with a prospect as if it something I just thought of doing with them at that time.  That technique has always proved very effective for me.  If you like to have it more formalized and structured, then Erick Simpson and MSPU developed a fantastic Excel Spreadsheet that helps illustrate this point and more for presentation to the client.  The spreadsheet is available on the CD-Rom of his first book and as a member of MSPU.

This entry was posted on Friday, November 9th, 2007 at 2:33 am and is filed under Traveling Seminars. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.