The Unsung Heroes of MSP Profitability: Level One Techs

“We don’t hire L1 technicians.”

I’ve heard this phrase uttered many times as I’ve discussed with MSP leaders how they staff their teams. Usually, they say it with resolve and a hint of pride. As if low-end employees are for low-end organizations, and they’ve figured out what their competitors haven’t. It’s a

cause for real concern as we evaluate prospects for our recruiting services. They may not be a fit for us.

I cringe every time I hear the phrase. What they think they’re saying is ‘We only use high-end people because we’re a high-end company. Hiring us is like hiring an elite special forces team who will always get the job done right.’

What I actually hear is ‘We’re an operationally immature company that hasn’t embraced standardization and process and will always struggle with profitability.’

Service Leadership data bears out the following:

·       Every time work is done by an L2 resource instead of an L1 resource, the labor cost is 25-30% more.

·       Every time work is done by an L3 resource instead of an L2 resource, the labor cost is 25-30% more.

·       Every time work is done by an L3 resource instead of an L1 resource, the labor cost is over 50% more.

Therefore, it makes sense to ‘push work down’ at every opportunity, and to establish and enforce technology standards and service processes that facilitate this.

A key job deliverable of every leader on the service delivery side of the house is to continually ask:

·       What are our senior people doing that could be accomplished by more junior resources?

·       What can we do to make it happen?

I recently spoke to one MSP that was comprised of a husband-and-wife team and two long-term, beloved technical employees who were both making well into six figures annually. They were struggling to stay in business. When you understand the available data, it makes total sense. Every time they roll out a new PC, they lose money. Their labor cost on that common task is nearly 2.5x what it could and should be. That’s an extreme example, but it illustrates a dynamic that is present in all but the most mature MSPs: overpaying for certain tasks to be done.

At industry average utilization and billing rates, billable resources cease to be profitable at around $80k in annual compensation. At best-in-class utilization/billing rates, they cease to be profitable at around $130k in annual compensation (see pg. 115/116 of the SLI Comp Report).

Highly compensated MSP employees on the service and operations side of the house have two primary objectives:

1.       Empower the people around them and beneath them

2.       Drive organizational maturity (standardization, process, automation)

No matter how you slice it, it’s harder to make money when a greater percentage of client work is done by more expensive resources. MSP managers and high-level technical resources need to be focused on this fact and deliberately driving standardization, documentation, and process so that a greater percentage of service work can be accomplished by more junior staff. Mature MSPs will have senior resources who recognize this, embrace it, and drive organizational maturity.

Immature MSPs will have managers who focus on the urgent needs of the moment and senior technical resources who focus solely on “getting work done” rather than driving efficiency and empowering those around them to get the work done.

If you are not hiring smart, hardworking Level One techs who fit your culture, it’s a red flag in terms of MSP maturity. Will automation and AI lessen the need for these kinds of resources in the future? Yes. But an organization that isn’t mature enough to leverage L1 resources to increase profitability isn’t ready to use automation and AI to increase profitability either. A paradigm shift is needed.