“I haven’t gotten a single new customer all year.”
That was how my conversation started with a very frustrated owner of an MSP generating close to $3 million a year. Although he was a new member to TMT, he’d been in business for over 10 years. His margins were good, his customers happy—but 100% of his growth was coming from current clients. ZERO organic growth.
“It’s like all the opportunities have dried up, and our ads and methods are just not producing like they were over a year ago,” he told me.
He’s far from alone. Across all B2B channels, the customer acquisition environment has tightened: Paid media costs have stayed high after a sizable jump around the election, peaking in Q1 of this year.
Organic search, or SEO, is sending fewer visitors to websites as AI answers more content queries. Along with that, Google implemented a core algorithm update in June of this year that caused millions of websites that were ranking high in search to “disappear,” cutting off the flow of visitors.
Social media platforms are saturated with advertisers. Plus, various changes in security and spam filtering along with engagement fatigue are continuing to suppress email performance.
And AI is only going to multiply the noise.
It’s Getting More Expensive to Add New Logos
One metric that is skyrocketing illustrates the aggregate effect of all of this: customer acquisition cost, or CAC. Fact is, it’s getting harder to get a marketing message to be delivered and seen by a prospect. Therefore, it’s more expensive to add new logos—even for competent marketers.
The response to the increased difficulty of customer acquisition and declining response rates is to do more. Spend more. Post more. Send more. But this is continuing to increase the noise levels and competition, which is making buyers more “ad blind” and fueling tech companies to find and implement far more superior ways of filtering YOU (and all other marketers) OUT.
For example, the cost of securing an MQL (marketing qualified lead) for MSPs running paid ads on Google and Bing is averaging $2,428.76. At a 33% close rate, that’s $7,286.28 in ad costs to acquire a new customer. At a 25% close rate, that’s $9,715.04. That does not include your SDR cost, sales commission, or the other costs associated with marketing (CRM, website, printed materials, etc.).
According to Paul Cissel, TMT‘s Expert In Residence on MSP financials and exit strategies, best-in-class MSPs are spending north of $27,000 to get a new customer. That’s a fully burdened cost of ALL dollars you spend on marketing and sales, including your staff, CRM, website, etc. I suspect that number is higher.
Given that the average MRR is roughly $2,200 to $2,500, you’re going to go negative for the first six months or more before you see any return. Worse yet, smaller MSPs whose customers may be spending less than $2,500 per month can’t even afford to show up on search or pay for ads because the math just doesn’t work.
Respond, Don’t React
So what are we to do about this?
Well, the key word here is respond, not react. How you respond to the facts of your business, not the facts themselves, is what will determine your success. You can choose to simply see this “as is,” maybe a little aggravated and p.o.’d, but not to the point of grabbing your blankie and sucking your thumb doing nothing.
So gather around, folks. There are measures you can take to reduce risks and make the game more winnable. There are hard “rules” you need to follow if you want any hope of continuing to grow in this economy. But the facts are the facts. We can’t change them. We can only play the hand being dealt to the best of our abilities.
1. Your Message to Market Match MUST Be Exceptionally Interesting
The new currency for marketers is attention.
Many of you reading this remember a time when we only received information via the “big three” news stations: ABC, CBS, and NBC. Newspapers were delivered once a day via paper. And for an hour in the morning and an hour at night, you watched the news. There weren’t 200 stations delivering nonstop news like today, both live AND on demand.
Today, it’s estimated that the average person is exposed to anywhere between 4,000 and 10,000 ads per day. They’re in every social media feed, podcast, TV show, etc.
Add to that the constant screen sucking of your email and various other digital devices. With ubiquitous internet, social media, news, and apps, we’re living in a 24/7/365 connected world. That is creating an environment where your prospect is massively overwhelmed and intensely distracted, caught up in a hundred other conversations, living in constant stress, mentally “fidgeting” because they have a million pressing things pulling on their attention.
It’s not just that they won’t pay attention to a boring, poorly communicated message that doesn’t instantly deliver the answer to “what’s in it for me?” They physically can’t. Their minds are wandering nonstop.
That’s why all sales pros and marketers have to work a lot harder just to get someone to notice them long enough to deliver the pitch. As an MSP, your competition is no longer the other MSP down the street. It’s the millions of more aggressive sales- and marketing-driven companies that are willing to pay more money and put more focus on securing your prospect’s attention.
In this environment, you CAN’T be weak with your messaging or off with your message. The No. 1 sin right now is being off target, spraying and praying. The No. 2 sin is being BORING.
The sales rep who finally gets to the decision-maker on the phone or face to face in person better be exceptional at delivering a powerful, well-thought-out, concise statement that really hits home for that prospect. Otherwise, the prospect will instantly dismiss you, and you may never get the chance for a second try.
2. Go OFFLINE to Get Customers
This is not a welcome message for many MSP owners who, like me, prefer to hide in the shadows and work behind a computer entirely on my own where human interaction is minimized. I hate leaving the cave.
But the simple truth is digital is too crowded. The cost of getting and staying on top is unsustainable for most. It’s estimated that only 0.4% or less of your Facebook audience will see your organic posts. LinkedIn is slightly better, but not by much. YouTube optimizes for what the person is already watching, so very little “new” is introduced, and over 2.6 million new videos are being posted daily.
And email? Well, it’s still the workhorse of B2B marketing, but you’re competing with over 120+ emails a DAY in addition to aggressive spam filters.
To be clear, I’m not suggesting you don’t post on social or use digital. What I’m saying is that if you are not incorporating offline marketing into the mix, you’re not going to be able to sustain the cost of digital-only marketing to get customers. By offline I mean:
- Phone prospecting (coupled with direct mail and personalized email, not spam)
- Networking events and associations
- Trade shows and sponsored events (like an executive golf event)
- Referrals
- Strategic partners and joint ventures
- Canvassing
I think the tsunami of AI-generated “stuff” is going to create an environment where more people will only do business with people they know are real. Trust-based marketing, a concept I’ve taught for years, is becoming ever more important as people get faked and phished with AI-generated bots.
3. Go Upstream and Target a Higher-Value, Higher-Paying Client
Elon Musk was quoted as saying, “It’s OK to have all your eggs in one basket … as long as you control what happens to that basket.”
His philosophy is evident in all the companies he runs. For Tesla, he niched the company to only selling electric vehicles (specialization principle) and then invested heavily into building his own battery-manufacturing capabilities, including the Gigafactory, to gain control over production costs. He’s taken steps to secure his own lithium supply, forming strong partnerships with miners and building his own lithium refinery.
All of this has enabled him to lead the industry in electric vehicles, allowing Tesla to charge more than other manufacturers selling their own EVs and outselling them over all other automakers. In addition, because he holds the “power” of being able to deliver a unique and superior EV, he then can charge higher prices and generate more profit and appeal to HIS target market, which is upper-middle-class empty nesters with a household income of $150K+.
RELATED: How to Command Above-Average Fees without Suppressing New Client Acquisition
You Must Shift to High-Value Clients
Many MSPs have no such “power” to charge premium fees or to raise prices right now without the fear of high churn–and it’s not due entirely to a slow economy or high competition. It’s because they are delivering commodity services to commodity buyers who don’t value what they do and/or aren’t discerning when it comes to who they trust with their IT.
Read that last sentence again, because it’s a whopper.
When CAC goes up, it’s critical that you shift your approach to the attraction, development, and retention of high-value clients, not just “more” leads and “more” clients. Otherwise, you’ll end up being unable to invest appropriately to get them.
As I already pointed out, if a customer costs you $27,000 to acquire, you need to look for someone who represents $100,000 in ARR and projects, or you’ll be unable to get the ROI necessary.
For that reason, I am urging my clients to focus their efforts and investments on places we know have more “high-value” clients–or what I call HVCs–and to be far more meticulous in list cleaning and qualification so that we don’t waste marketing dollars targeting someone who can’t be a great client for us long-term. YOU SHOULD TOO.
In fact, every business and marketing decision you make should START with the “who,” not the “what.” Who do we want to attract? Who has an unmet need they will cheerfully pay to solve? Who has a flexible wallet? Who will be a great long-term client for us to develop?
Cultivated, Not Found
Make your choice with careful consideration. You can choose to attract, develop, and retain HVCs, who are more discerning, financially stronger, and more sophisticated than those who make their decisions based mostly on price. Or you can take a shotgun approach to marketing and take whoever shows up.
To this point, you also need a strategy for DEVELOPING more HVCs from your existing customer base. This is the secret most businesses never understand: HVCs must be cultivated, not just found.
RELATED: The One Secret Profitable MSPs Use To Grow Without Adding Sales and Marketing Costs
