Quick calculation formula for vCIO opportunities

Posted by Denes Purnhauser on Feb 5, 2016 5:55:36 AM

In vCIO, MSP vCIO, MSP, Virtual CIO, CIO

quick vCIO calculationThe other day I made some calculation with a client about vCIO services. Fortunately it is very easy to calculate your opportunity in creating a profitable and scalable vCIO service offering.

We’ve simplified things for faster calculation, but it’s good to clearly understand what’s at stake. We see three categories in which we can lose or earn money.

1. Cost of Free Advice

The cost of free advice is the lost revenue opportunity resulting from the inability to charge our clients. It can be anything from casually chatting about their plans to putting together project proposals and so on. You know when it’s happening...

Cost of free advice = [Number of clients] x [Average Free Advice in Hours per month] x [Hourly Rate]

For example a small size managed services provider with 20 MSP contracts spending an hour per account giving free advice (yes you spend way more than that), with a $200 hourly rates leaves $48,000 on the table. I know you may not be charging $200 now, but creating a separate service and do value selling can do the work. Just today a client in California sold a $3.000 MRR vCIO to a School District over phone. The competition offered $150/hours rate but he won the deal with $225/hours internal calculation with value based pricing. :-)

2. Cost of unproductive work

The second category is about your IT management, quarterly business reviews, manual daunting document creation, planning, project management, consultation, vendor management and more role. The cost arises from doing these tasks ineffeciently, without processes, templates or even an automation tool, spending more time than you can spare. You’re pushing your tech to be productive, buying all the RMM, PSA, you name it, but the highest paid individuals have nothing to leverage...

Cost of unproductive work = [MSP contracts] x [Hours we may save] x [Hourly Rate]

We will be very conservative here. Let’s say we may save 25% of the time of our vCIO resource today, which we all know is a fragment of the opportunity. Let’s calculate one hour per virtual CIO per account per week: this means the savings will be one hour per month. It leaves another $48,000 on the table. Processes, best practices tools all helps to drive the fat out of the current processes.

3. Cost of opportunities

The third category is all about the opportunities. Based on our experience, prospective clients of more than 20 seats are open for what the virtual CIO has to offer. If the starting service fee is not more than 20% of what they’re paying for the managed services, it’s an easy sell.

Opportunity cost = [MSP Contracts with 20+ seats] x 1.2 x [Upsell effectivity]

Let’s say our MSP has 10 contracts with more than 20 seats. The average MRR contract for them is $3500. In the next year 7 of them will be transferred to a very new vCIO offering, which will generate $4900 additional MRR for the seven clients, or $58,000 new revenue per year. Imagine what can be accomplished if we sell just a basic package for 25 of these companies! Converting existing clients is not that difficult if we know the tricks. Usually an annual IT strategy planning process can create the business case. If the plan is well done, it is obvious somebody needs to manage the execution...

Sum up the numbers

[Opportunity] = Cost of free advice + cost of unproductive work + opportunity cost

$154,000 per year is the toll our MSP is paying for the lack of vCIO pricing, packaging and basic processes.

If your numbers are high, you can be happy because the opportunities are huge. If you have a smaller client base and you see a smaller figure, don’t be discouraged. Your competition that’s undeserving of their clients is an easy target for you to go upstream and serve larger clients.

Now do your math and see which is your greatest potential ROI!

Let’s share, what is your number?

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