Some customers are giant, flaming a-holes. An MSP from Texarkana told me he refused to install a server for a law firm over a weekend while the divorce attorney who owned the firm was getting his “couch fees” from a female client. The attorney fired him and refused to pay for work that was already done. The MSP sued him and WON. But not every story like this has a happy ending.
MSPs suffer abuse from their clients in many ways, from rudeness and outrageous demands to nonpayment and even frivolous lawsuits. And if you’re actually attempting to GROW your MSP and add more clients, this is for sure: Some of them will be flaming a-holes that need to be fired. Or, they’ll hang around and suck up resources, stress you out, and tank your profitability. No one is immune. If you’re not proactively filtering these people OUT, they’ll accumulate under your roof and multiply like cockroaches.
Your MSP’s Value And Profitability Rise And Fall On The Quality Of Your Clients
If you understand the Pareto Principle, you already know that roughly 80% of your revenue and profits are coming from 20% of your clients. We call these 20% “HVCs,” or high-value clients. However, here’s something you have not likely thought about: it’s very likely that 80% of your stress, problems, and costs are coming from the BOTTOM 20% of your clients.
The question is, what are you doing about THEM?
Most MSPs just tolerate their behavior. They permit these clients to dismiss their advice, pay late, complain about everything, and refuse to appropriately invest in IT and security. You might not like it and you may grumble about them under your breath. But the simple fact of the matter is this: You get what you tolerate.
ONLY keep those clients who meet your strict criteria for an HVC, firing and repelling EVERYONE else.
This is very simple to understand intellectually, but from an emotional standpoint, it’s extremely difficult for MSPs to implement. But if you actually pay attention to this advice and act on it, you will profit from it in multiple ways, including but certainly not limited to financial reward.
That’s because a high-value client is not just someone who pays you a lot of money—although that certainly IS one of their characteristics. They also represent a significant amount of profit, follow your advice, and are easy to service (because they follow your advice). Importantly, they are genuinely appreciative of you and your staff, are very reasonable in their expectations, and pay on time. Many will also be deep wells for referrals. And ultimately, they should give you energy and inspiration, not suck the ever-living soul out of you.
Way too many MSPs make the mistake of clinging to low-money, unprofitable, wrong-fit clients. They pay the price in multiple ways. There are several factors driving this. The biggest one is these MSPs don’t have a sufficient marketing plan and sales team in place to create a steady flow of fresh, new clients and opportunities to REPLACE the problem children they have. They’re stagnant.
RELATED: Stop Wasting Time And Money On Unqualified Prospects!
Why MSPs Stay “Stuck” With Wrong-Fit, Low-Margin Clients
An Obsession With Growth And Gross Over Quality And Profits
If you’re not too picky about who you take on as a client, it’s relatively easy to get growth. But it can cost you in profits, retention, and equity valuation, not to mention having to deal with a high level of churn, staff burnout, and a bad reputation that will come from these crap-heads posting negative reviews about you online.
Over two years ago, TMT moved to two- and three-year membership agreements. We eliminated our money-back guarantee that we had used for years. We also implemented stricter requirements for smaller MSPs to join our membership. ALL of this was done to get rid of those MSPs who wanted to “try” marketing or “see if it works.” Those are not good clients for us, and these changes have increased the quality of member we’re now getting. That’s because when they enroll, they’re more committed to implementing a long-term plan for success in marketing and sales, not a wishy-washy, half-a**ed attempt at growth.
Imagine having a client demand they get to “trial” you for a couple of months and reserve the right to fire you at a moment’s notice. That’s great for them, but YOU have to staff your organization to handle their account. YOU have to purchase software licenses to support that client that aren’t always month-to-month. YOU have to onboard them, which is very labor-intensive and difficult, particularly if they have a terrible environment that is lacking critical IT infrastructure. Finally, YOU have to take the risk of doing all that work without the benefit of long-term recurring revenue.
Before you make the decision that this arrangement is OK, really think it through. IS that the “best” client for you? Is that even reasonable and fair?
An Extremely Flawed Sales Process
There are two parts to this. First, if you don’t set the proper expectations for new clients on what is required of THEM and how they should behave, you’re set up to FAIL before you even get started.
Based on my experience, very few MSPs have a well-documented onboarding process. And only about 13% of the MSPs out there are doing regular QBRs (quarterly business reviews) with all of their managed clients. And very few are putting together any type of annual budget and a plan for upgrades and investments. Why are these important? Because if you properly sell the client that “this is the way you work with us so we can get you the best possible outcome,” and you get them to buy into that premise, they will be far more lucrative and productive for you (not to mention they’ll get a better result, less risk, more uptime, etc.).
RELATED: 8 Tips For Successful Customer Onboarding
The other flaw in the sales process is to not weed out the bad clients early on. When you don’t have a strategically designed sales process, you end up with clients who have wildly inaccurate expectations, fee and contract concessions, and other misalignments that come back to bite you later. Selling is NOT just getting the contract. A great sales process gets the deal done at the right price, with the right terms and the right expectations.
Tied closely to this is the fact that many MSPs lack proper marketing systems and therefore have very few leads (opportunities) coming in, which makes them desperate to take anyone who waves a dollar and fogs a mirror.
ZERO Thought, Strategy, Or Definition Of What A GREAT Client Is
Most MSPs just take ’em all and sort the mess out later. I’ve repeatedly harped on the importance of really understanding your target market and ideal client avatar. This is not just demographics, like number of employees, revenue, industry, and zip code. It’s also psychographics—the attitudes, aspirations, beliefs, and biases a customer has, often represented by what they buy, the events they attend, the publications they read, and definitely their attitude toward IT, security, and productivity.
For example, an HVC for me is someone who has HONEST ambition. They want to grow their business, they like to learn, and they are willing to invest in coaching and consulting (obviously). But how do we use that in marketing to find them?
First, the majority of articles and content I produce have the common themes of hard work, avoiding shortcuts, and owning your position as an entrepreneur, rallying against being a “tech.” (See the last dozen rants.) What are the common themes you see? That is all done with extreme intention to attract MSPs who have the right psychographic profile and REPEL those who don’t. If you are producing content, you want to do it strategically, selling the “advocated positions” you want your ideal clients to embrace so that you ATTRACT HVCs.
In fact, TMT’s motto—“Keep It R.E.A.L.”—says it all: You want a R.E.A.L. business that is Rewarding, Easy, Attractive, and Lucrative vs. a T.E.C.H. business that is Tedious, Exhausting, Chaotic, and Hard. We are constantly promoting success stories of our clients who have made the transformation from a TECH with helpers to a REAL entrepreneur, embracing their responsibility of being a sales-driven CEO. That’s ALL intentional. Those MSPs who want an easy button or who despise the entire process of sales and selling do not find us an attractive option.
Second, where you find the client is extremely important. In my business, an MSP acquired at an event like IT Connect is a far more valuable and profitable client for us than those acquired through social media marketing. That’s because the very fact that they’re at an event like IT Connect means: 1) they are willing to travel to events (which is important since part of our deliverable involves traveling to events); 2) they are willing to invest in their learning; 3) they have ambition to grow; and 4) they tend to be larger in size (smaller MSPs tend to avoid events because they “can’t afford” to go).
MSPs will find that clients secured through a strategic partnership with an insurance professional that sells cyber liability as well as crime and ransomware protections are FAR more lucrative than the average client they’re getting through other marketing, including referrals. ALL of this requires a more sophisticated approach to marketing and a strategic approach to sales and business development, but once you get it, your business will be exponentially more valuable and profitable.
Emotional Baggage Over Raising Prices And Insisting On High Standards For Clients
This can show up as fear that you can’t replace the money they represent, or a fear of simply confronting their bad behavior. Or guilt for making demands. Or insecurities about your authority to “make demands” and set standards.
A theory I’ve long believed to be true but cannot statistically prove is this: The LEAST desirable customers are the easiest and cheapest to get but are difficult to retain and monetize. Conversely, the MOST desirable customers are the most expensive and difficult to get initially but are VERY easy to retain and monetize.
This means, of course, getting the RIGHT customers is going to be an expensive, difficult path to walk, requiring investment, solid strategy, consistent execution, careful thought, and playing the long game. Given that most MSPs are extremely lazy about marketing and simply won’t give up their addiction to easy buttons, they are going to suffer with trying to support a growing scrap heap of low-money, pain-in-the-a$$ customers.
How To Start Finding And Developing More High-Value Clients
My advice is this: First, make sure you define what an HVC is for you. Yes, they should be financially lucrative, but they should also have a need that is right within your wheelhouse to solve. They should represent long-term value and stability. And last but not least, they should be enjoyable to work with.
If you’re unsure who that is, do a deep dive into your BEST customers to find commonalities of source, demographics, and psychographics. Invest time into defining what a great customer is and figuring out the size of market (haystack) you’ll have to start sorting through to find the select few golden needles. It will also require a much more targeted marketing message and media approach to ensure you’re not aiming too broadly, which may require marketing media such as direct mail, telemarketing, and sponsored trade shows and events (not cheap) as well as strategic partnerships and referral partners, which can be relatively difficult to establish.
Few are ever willing to make this shift in mindset and approach, much less do the work involved. Most choose to run faster and harder, eyes shut. The key word here is CHOOSE.
You do choose your customers, whether strategically or sloppily, thoughtfully or thoughtlessly. Choose wisely.
