Your Gross Margin Is Misreported and Misunderstood
with Daniel Welling, Fractional finance director, The MSP Finance Team. Management accounting and finance direction for managed service providers (MSPs), after 12 years running his own information technology (IT) services business
Daniel Welling ran an IT services business for 12 years, took it to around £1m a year in recurring revenue with 200 customers and 15 to 20 staff, then sold it. He now runs The MSP Finance Team, which means he spends his days inside other people's books. The benchmarks he gives are blunt: best in class blended gross margin sits in the 40% bracket, and most MSPs are somewhere between the early 20s and the mid 30s.
We also get into why so many owners think they are doing better than that. They never load their own delivery time into cost of sales, they pay themselves mostly in dividends, and dividends never touch the profit and loss statement, so the real cost of delivery is masked by the owner's own work ethic. Then the arithmetic nobody does out loud: a properly delegated client win can cost £20,000 to £30,000. The back half is California, where the commercial side worked and delivery broke.
What we cover
- Starting an IT services business in 2002, before the term MSP existed
- The three finance mistakes he sees most, starting with cash basis reporting instead of accrual
- Why one blended gross margin line hides everything that matters
- Labour-loaded gross margin, and the dividend problem that makes UK owners misread their own business
- How the UK 40% benchmark compares with the US, where the numbers run higher
- What a new client actually costs to win, and what that does to a sales and marketing budget
- Taking a UK MSP into America, and the difference between the commercial side working and delivery failing
- The Master MSP model: delegated delivery, cost that turns on only when revenue does
What's inside
- 00:00 Cold open
- 00:30 Welcome, and who Daniel is
- 01:00 Starting in 2002, before anyone said MSP
- 05:14 From running an MSP to running the numbers
- 09:34 The three finance mistakes he sees most
- 14:25 Why one blended gross margin hides the truth
- 15:50 Labour-loaded margin: why salaries belong in cost of sales
- 18:02 The 90% gross margin that isn't real
- 18:48 UK and US margin benchmarks compared
- 22:03 What to spend on sales and marketing
- 23:26 What a new client actually costs to win
- 26:26 Taking a UK MSP into America
- 29:43 Follow-the-sun, and the deal that collapsed
- 32:35 Flying home thinking he had cracked it
- 33:43 The Master MSP model and delegated delivery
- 38:13 Engineer, salesperson, leader, shareholder
- 39:54 Taking the finance business to the US
- 44:08 Where to find Daniel
The guest
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