Archives For recurring revenue

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It’s Easy to Leave A Channels Event, Distributor Conference, or Mastermind Group feeling good about your MSP business. After all, your business is producing a profit.

You’ve been in business for 20 years or more. And you’ve managed to weather several economic downturns over the past couple of decades.

Don’t get too comfortable…

The high-tech business is a fickle thing…there are economic downturns (recessions, depressions, or whatever you want to call them…) and then there’s commoditization. The latter is your greater enemy.

Like medical and grocery sales, people need their computer. The high-tech business (servers, storage, data center, etc.) has been a high growth industry since I entered the business world out of college. It just has…perhaps it always will…tech is the lifeblood of most businesses today.  We can’t work without it.

However, It commoditizes.

Building Sustainability Into Your Business

This week I’m attending a marketing conference in Cleveland OH. Over 1200 small business owners packed into an auditorium listening to some of the greatest entrepreneurial minds in world.

This morning’s session focused on sustainability.

As the speaker unfolded over an hour’s worth of strategies, the MSP business  came to mind…a business that relies on long term customer retention.

MSP sales are not transactional. In fact, if your clients only stayed a month or two, your cost of sales would eat your business alive. You really need them to stay.

Historically, retention in the MSP business is 5 years (average). Yours might be more or less, but you should know your number. The goal is to increase it. If you could add just one year to your average (assume you have 100 clients signed on), that’s 1200 months of MRR (Monthly Recurring Revenue) added to your business in that one single act. Or think of it as signing a 1200 year contract with your next client!

5 Things You Should Be Doing To Create Sustainable MSP Business…

Build Evergreen Assets.  If you’re taking care of your customer, you’re probably meeting quarterly to review their IT. Hopefully you’re also giving them guidance. During the initial sale you also had to review their business and create some sort of proposal.

However, building everything from scratch is destined to fail. The cost of customization is high, and the likelihood of messing up is high too…Better to productize your offerings…here’s how.

First, you should be selling packaged offerings. There’s your core MSP offering, and then there are add-ons (like riders on an insurance policy).  However, when you buy a car, those extras are often bundled into packages. The electronics package with the stereo upgrades. By doing this the dealer eliminates the headache of creating a completing customized quote.

In this case you need at least one (but probably more) security package…one that can be added to their existing MSP agreement (if someone else holds that contract), or attached to yours (now or later).

There’s also a maturity model…if you were to create a maturity roadmap for security, when your new customer joined your program, you would figure out where they are right now, and begin taking them through your 24 step program…certain mail pieces, meetings, assessments, and sales efforts would be made along the way – all predetermined.

Building Identity. Customer loyalty is also a key to sustainability. Not everyone will be loyal, but the hotel and airline industries, as well as Amazon and Starbucks, have all proven that people will join the club if you sell it the right way.

It turns out identity (the people group, brand, or team I identify with) will drive my behavior faster than just about anything else. I’m a lifetime platinum member of Marriott…when it’s time for coffee, I’m waiting in line at Starbucks in the airport, even though there’s a coffee shop right across the hall with no wait. Why?

I’m part of the club. I identify myself as a Starbucks customer, I stay at Marriott unless there just isn’t one…and I’m not the only one.  If you’re sitting there telling yourself you don’t do that, remember, you’re not you’re own customer…you want to sell to people who will sign on with a brand and stay.

Sell to The Right People. There is a people group out there worth your time…but there are also people not worth selling to.

Your job is to identify the people group you work well with, and go after them. I was talking to a very successful entrepreneur this week – he told me he sells to men, age 45 – 60, ambitious, hard working, leaners, who are already in business. He also noted it’s best if they are married, politically conservative, etc. You might think he’s too narrow. Yet he’s made millions (plural) of dollars in personal income annually over the past decade.

Signing the wrong people onto a business that demands retention is a recipe for failure.

When identifying your perfect customer (the customer avatar) you’ll want to know how they think…the more you know what’s on their mind, the better.

Today’s speaker said it like this…”Know what they are thinking about every day as they leave the office…know what they talk about around the dinner table each evening…and if they wake up at night worrying about stuff, you should know it.”

In the End They Need Hope. Dave Ramsey does one of the best jobs of selling hope.  He tells his team, when you pack up a book or CD to ship out, it’s not a book, it’s a package of hope.

With MSP; remember, most small businesses are frustrated with computers. They don’t understand them, they don’t really trust them, and when it comes to security, they’ll do just about anything to avoid thinking about it.  Security issues just create more stress…

Want To Build The Sustainable MSP Business?

Stop trying to copy the models presented by MSP cloud offerings around you. They don’t know how to sell to the SMB market. They know how to sell to you…I’m talking about the SolarWinds, Continuums, and nAbles of the world…

Be radical…start thinking about what a small business really needs…what would remove all the IT stress from their world.  And then start providing it to your ideal customer avatar.  Add one year to your average, and then continue to journey. It’s the road to MRR growth…And it’s sustainable.

© 2017, David Stelzl

P.S. Do you have my Security Assessment Report Template…Designed to move prospects into your program quickly?

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Traditional thinking says that more sales will lead to a higher income.  Here is one more example demonstrating the deception in this type of thinking.  I frequently come across sales people working for smaller VARs, selling into small mom & pop companies.  These customers don’t spend much, so the deals are smaller, yet the VAR model was built on high-involvement sales; making calls onsite, taking people out to lunch, and perhaps performing demos or providing evaluations of the products being represented.  The problem is, they are transactional, and so volume becomes a focus.

So let’s say each deal is priced in the neighborhood of $1500 (which is typical),  and most of the deals are product install.  For argument sake, we’ll say the product is two-thirds of the deal, with a half  day install.

Total Deal Price: $1500

Margin: $350 (Assuming ten points on product and the balance on services)

Income based on 10% payout: $35

(and all if this assumes that the rep priced the services correctly and didn’t go over)

So how many of these transactions do you need to make a reasonable income?  With a 30K base, you would have to do about 166 of these each month to make 100K annually!  You can extrapolate from there, but the point is, you don’t want more deals, you want larger deals, recurring deals, and margin-rich deals.  Stop selling transactions and start solving big problems.

In a recent discussion I had with a young entrepreneur, he asked, “But can this company afford the larger project?”  Great question!  If it’s central to his Twenty Million Dollar business, he can.  If it’s just some new cool technology, he can’t.  So once again, you have to ask, “What problems am I solving, and how much are they worth?”

© 2010, David Stelzl

P.S.: Happy New Year Everyone!

Tina, my seven children, Jack the dog, and I all wish you a happy new year.  I’ve become famous in my home for reminding everyone that, as we start the new year, we are all back to zero – unless you’ve taken the time to build various forms of recurring revenue!  Regardless, it’s time to pull out your plan for 2009 – the one you were hopefully working on through the month of December.  For those of you who did not…all is not lost.  This morning’s Podcast post http://dstelzl.podbean.com/ starts a three part series on planning – a simple format to walk you through three short 15 minute sessions to plan your year.  Make sure you have something in writing – while laborious details are not so critical, concrete vision, goals, and plans are.  You won’t need weeks of work on this, but you do need some time to think through last year, last quarter, recent news, trends, and futures for 2009.  Since you are going to spend the entire year working, you might as well start with a realistic plan in place.