A very important element of cost planning is to determine the following the number of people you will need to run your business.
One of the most important metrics for a managed services business is FTE (full time equivalent) number of units managed per headcount. Since the cost of offshore personnel is much lower, the number of units managed per FTE (full time equivalent) is usually calculated as three offshore headcounts instead of one.
This metric is meant to reveal underlying efficiency and scalability. It is much easier to determine non-personnel costs as a unit. You can determine the support from third parties, the specific engineering required to support a particular technology, its tools, and other support not available in-house.
In order to understand these specifics, you need to look at examples of how to create a three-year operating plan. For example, if we put together a three-year plan for a managed services business, we can make detailed assumptions about revenue, costs, expenses, and productivity. By elaborating with examples, you will naturally understand the key points that are important for planning. These are important principles that apply regardless of the size of your managed services business.
For example, this managed services business is planning to generate $75 million in revenue in its first year. Currently, this business is growing at about 10%. The top line goal for this business is to make it a $100 million business in three years with a 15% growth rate. In other words, this business case is operating at a gross margin of 30% and EBITDA of just under 10%. Our current goal is to achieve a gross margin of 35% and EBITDA of 15% in the third year. Achieving these growth and profit goals will require careful planning and strong execution.