The following is from an e-mail sent out to a prospective client that explains the business side to an IT solution without any reference to the technologies themselves.
The Prospect’s Proposal
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First things first. We are not in the business of selling hardware and software. That has never been our focus and never will be. Our business is about creating a tool that enables a business to grow more efficient, and to in effect grow the business. A part of that process is training folks to _use_ the tool in such a way as to bring about the best results.
Another part of that process is the maintenance of all of the tools being used. No IT solution is maintenance free. It never has been and it never will be. Much like a fleet of trucks need to have the oil changed, tires changed, routine inspections, tune-ups, washed to keep rust away, and so on IT infrastructure also involves routine maintenance.
There are regular patching cycles for Microsoft products. For those that we manage we actually install all of the relevant patches and updates on our lab systems to regression test them before releasing them to our clients. If something breaks we will troubleshoot the problem and figure out either how to mitigate the problem, work around it, or not release the patch/update at all.
Now, on to what we really do as far as bringing about an improvement in your business processes by utilizing the tool of IT.
Company’s Revenue
Client Company’s current setup:
- Establish revenue per user
- Gross revenue for the year is approximately $4M (I asked Client for a round number for this explanation).
- Client Company’s number of users is 8.
- Take $4M and divide by 8 and we get $500K per year per user.
- Establish hourly worth of each user.
- $500K per year per user divided by 2080 Hours per year is $240/Hour/User.
- Note that statutory holidays are not deducted.
- $500K per year per user divided by 2080 Hours per year is $240/Hour/User.
So, we now have an dollar figure for the approximate value of each user relative to the gross revenue of the company per year.
Cost of Downtime
What does this tell us? Well, for one thing it gives us a figure that we can use to cost out downtime of the current or future system.
- Raw cost of downtime:
- $240/Hour/User
- Post downtime costs
- $480/Hour/User
- For every hour of downtime it takes at least double that to recover.
- We still need to do the work that would have been done while things were down, plus do the work that needs to be done at that time!
- Does not account for time lost due to data loss (very expensive).
- $480/Hour/User
IT Solution Costs
Now, let’s say we come up with a solution for your company that costs $20K. This is an example number based on some of the previously mentioned needs for Client Company.
- Cost of the solution over its lifetime of 36 months.
- $20K/36 is $555/Month
- Cost of maintaining that solution over its lifetime of 36 months.
- $495/Month
- Total cost of the solution per month (on-site visits not included)
- $1,050/Month
Okay, we now know the overall cost of the solution over its life. From here we need to calculate its cost relative to the number of users.
- Cost of the solution per month:
- $1,050/Month divided by 8 users is $131.25/Month/User
- Hourly breakdown based on an 80 hours worked per month:
- $1.64/Hour/User
We now know the real cost of the solution relative to the revenue generated per user in the company.
How does all of this relate to an IT solution?
IT Solution Revenue Benefits
If our solution plus training can improve your user’s efficiency, that is the time it takes them to do their daily tasks, by 1 hour per week:
- How efficiency is improved:
- User’s ability to search for and find data, content, etc. is vastly improved.
- Applications are easily accessible.
- Fully accessible mobile experience.
- Collaboration abilities both within Outlook and SharePoint.
- Data is encrypted and protected by good backups.
- System instability is no longer a part of their experience.
- Revenue per user per hour from the above calculation:
- $240/Hour/User times 8 users is $1,920.00/Week.
- Net benefit: $96,000/Year
- $240/Hour/User times 8 users is $1,920.00/Week.
Is that $96K a real number? Yes, it is. It is based on the real revenue numbers that each user contributes to in the company.
User Efficiency
It has been our constant experience that users become a lot more productive when they are properly trained on the use of their IT.
It is also our experience that users become a lot more productive when their stress levels around IT equipment disappear. They can concentrate on doing their job instead of fussing with a broken printer, an application that was misbehaving, or any other technology problem. All of those little things cost the company money in lost time.
I hope this explanation helps you to see what it is that we are proposing.
Thanks for your time,
Philip ElderMPECS Inc.
***
The Acronyms
So, what have we addressed in the above note to our prospective client?
- TCO: Total Cost of Ownership
- Our prospect can take those numbers and calculate what the total cost of the solution will be including our management.
- ROI: Return On Investment
- That one hour savings demonstrates very clearly that our solution will pay for itself in under one year!
- Not only that, we go on to explain a lot more time saving techniques that folks will be trained in to further up that ROI.
Most business owners will realize very quickly that they will benefit big time when things are explained to them in this manner.
One of the things we would do would be to have our prospect have a look at the following:
We would also run some demonstrations for remote access and especially for Remote Desktop Services RemoteApps which is still, in our opinion, the killer app for the SBS/SMB space.
No Geek Speak
Note the distinct lack of any mention of the actual technology. Business owners love these conversations because they don’t really care for the tech itself, with the odd exception, while they do care about how the tech will improve their business.
Business owners also care about the downtime, backup, restore, and data protection conversation. We touched upon that with the above, but ultimately talking redundancy with the business owner comes down to essentially working out an insurance policy. The better the insurance, the more expensive the policy.
Philip Elder
MPECS Inc.
Microsoft Small Business Specialists
Co-Author: SBS 2008 Blueprint Book
*Our original iMac was stolen (previous blog post). We now have a new MacBook Pro courtesy of Vlad Mazek, owner of OWN.
