Back in 2008 I was employed by Citigroup. To put it simply, that was a colorful year to work for Citi. It was a crazy time, very much not in a good way. We really thought the financial world would stop spinning on its axis. When things actually turned, we began getting interesting emails from management.
Some Interesting Correspondence
Email #1: No more Starbucks coffee from the kitchen.
This was not such a big deal since at the time I was in my soda drinking phase of life. Even now as a coffee drinker, I don’t care so much for Starbucks.
Email #2: We can now purchase boxed lunches from the previously exclusive executive dining room. For $11.50, you can get a sandwich, a piece of fruit and a beverage. We were told it was a good value.
This email came from Jack Lew, Clinton’s budget director and Obama’s Chief of Staff and now Secretary of the Treasury. (During the Bush years, several senior democrats worked at Citi.) I cannot tell you how much I wished I saved that email.
Email #3: Before replacing the toner in a printer, please consider shaking it vigorously to extend the life.
Is That the Biggest Problem We Can Find?
At this point, we all just had to smile. They really thought fixing Citi was about shaking the toner? Listen, I am all for reducing waste, but seriously????? One of the largest financial institutions in the world, one that was truly too big to fail, was going to right the ship by shaking the toner? I wanted to sit someone down and calmly explain that our use of toner and choice of where to buy lunch was not the problem. The problem was that the traders on the fixed income desk just lost $4 billion.
Don’t get me wrong, it is never a good idea to waste. If you think you can save get more value from your toner, then by all means shake it before putting a new one. That said, perhaps you should spend more time putting a leash on the people who can move your profitability by billions than the people who can save one to two hundred thousand dollars worldwide.
Are You Cutting Costs and Seeing Little Improvement?
Why do I tell this story? After speaking to a few hundred MSPs this year, I have found that some may still be shaking the toner. When you go to your peer group meeting and your profit margin is at 7% and your peer group is at 12% what are you doing? Are you cutting costs to the bone to add a little to the bottom line? Are you concentrating so heavily on new sales that you are not seeing what is right in front of you?
Did you consider that it might make more sense to only work on the handful of clients who are responsible for dragging down your margins?
When You're Able to Rank Your Clients
MSPCFO have found that when you rank your clients by contribution per hour (gross profit per engineer hour) something interesting becomes apparent when you do a simple math exercise. Take the bottom fifth of clients and calculate how much more contribution you would get if you were to make their profitability as good as the second to last grouping. We have found that this could create 4-8 points of margin for you. No kidding! Just by trying to figure out what is not working with those clients you can get all the improvement you are looking for. Getting that improvement will take some work and research, but shouldn’t you try that first?
Be smart about the toner and all office supplies. Let your employees drink their premium coffee. But know that good reporting will allow you to understand where your problems are and then you can fix the business in a way that will actually grow MSP Profit Margins.
