Growth isn’t always easy, it doesn’t matter what kind of business you’re running. Managed Service Providers have the added complication of sustaining growth over a long time.
That’s because MSP’s rely on future revenue when compared with traditional businesses where most of the income is collected upfront.
Like most MSP owners, you got into services because the residual income allows you to build a sustainable business that earns cash flow, which is easy to predict. Also, like most MSP owners, you want more time out of the office doing the things you love.
Perhaps your end-game is to sell for a nice profit or hire an ops manager to do all the work for you. It’s something I hear from MSP owners often, less stress and more fun.
In this article, I will take you through crucial driving factors to growing your MSP. I will start with some interesting stats you need to measure, but you can skip right over those if you want to find out tricks to grow your MSP. To be clear; none of the links or businesses in this article is paid or sponsored.
A 455% increase in eight months seems like a lot, doesn’t it? All you need to do is increase your Monthly Recurring Revenue (MRR) by 4.5 times, and you will achieve this goal. As long as you are willing to make an effort and take the steps below, you will be on your way to more significant growth.
I have worked with many MSP’s that have achieved these results within 6-10 months. Good luck, and enjoy some of my growth hacking strategies for MSP’s.
Getting your numbers right is critical in the MSP world: A healthy MSP should:
- Have a lifetime value more than 3X customer acquisition costs;
- Recover customer acquisition costs within 12 months;
- Focus on offsetting churn using expansion revenue.
Below is more details about the numbers, click on each section to find out more.
One of the essential rates MSP’s need to know, with two types you need to be aware of:
- Customer Churn – number of accounts leaving your business each month as a percentage of your total customer count.
- Revenue Churn – the amount of revenue lost each month by customers leaving as a percentage of your total revenue.
In the early days, tracking churn isn’t useful because if you only have 15 customers and one customer leaves, you will see a significant impact.
Churn compounds over time, for example, a 3% monthly churn rate turns into 31% churn annualised. Meaning you need to replace almost 1/3 of your customers to keep the same revenue when you put inflation into the figure, you need even more!
MRR measures the revenue of all your customers’ generate in a single month. Multiplied by 12 gives you the annual recurring revenue or Run Rate.
ARR = 12 x MRR
Recurring revenue is what makes the MSP model so appealing, and as long as you continue providing value, your customers will keep on paying.
The total revenue generated by a customer over their lifetime. The longer customers stick around, the higher their lifetime value.
Calculating your LTV
LTV = ARPA / Churn
- Average Revenue Per Account (ARPA) – the monthly revenue each customer spends across all your accounts;
- Churn – the average number of months your customers use your services, or you can divide ARPA by the revenue churn rate.
The amount you spend on acquiring a customer which includes sales, marketing and advertising.
Calculating your CAC:
Find the total amount spent on sales and marketing for a given month (include salaries and other related expenses) divided by the number of customers acquired during the same time.
CAC is closely related to the lifetime value from each customer. For an MSP to be viable, you need to make more profit from customers than it costs to acquire them.
I recommend a value of at least three times the amount spent to acquire a customer.
LTV > (3 x CAC)
Recovering your CAC frees up cash you can reinvest into sales and marketing, MSP’s should recover this within twelve months to remain healthy.
As a marketing specialist; I believe this is one of the most important metrics. With the NPS you can quickly survey your customer base and find unhappy customers and about to churn even before they do.
NPS allows you to discover why customers are dissatisfied quickly, you can also use this feedback to improve your service or account management processes.
I once used NPS to recover over $250,000 worth of yearly recurring revenue. It turns out the previous account manager left two accounts unattended, and they fell off the wheel. Luckily we sent out the NPS survey in time.
It’s easy, use a tool like Survey Monkey with the prebuilt survey built-in. NPS should be quick and easy. It’s best if you only ask for the rating, and once the user has given a score, give them an option to supply a reason. Don’t ask for any more details (besides their account information) because it will skew your results.
I use Hubspot, because you can easily track who people are and the clicks so they don’t need to submit any forms.
When is the best time to send an NPS survey? Right after you deliver a project, or your customer has been onboarded.
One of the essential initiatives you can do is change your operational structure, so your business can operate without you. With EOS you can take your life back, and significantly increase your MSP’s valuation
Our most profitable clients have all been on the EOS journey. You will find a new sense of focus and vision within your company. EOS helps develop your culture around high-performance values. You will be able to hire, fire, and reward those to fit your ideal employee.
EOS gives you simple tools to drive your company forward. It doesn’t matter if you have hit the ceiling at; $2M, $5M, $10M or $20M. Having your entire team moving in the same direction is the best way to move your company forward.
To figure out your sales strategy, you should be talking to a well-rounded sales manager. But below is some typical questions you need to know for the MSP business model:
- What is your current recurring revenue?
- How much recurring revenue do you want by the end of the year?
- How many new accounts do you need to achieve these targets, on top of your churn rate?
- How many new leads do you need per month to achieve your targets?
Have you been in business for a while? Or are you just starting?
Newer businesses generally aim for the low hanging fruit, by selling to technical people whereas mature MSP’s can to talk towards more business problems and provide thought leadership to the C-Suite, solving more significant problems.
The technical buyer can be a lot easier to communicate with, and they have shorter sales cycles because they get what you are selling. The downside is there is competition at the entry-level, and it’s often a race to the bottom.
When you start selling to decision-makers in the C-Suite, the sales cycle becomes a lot longer. Your messaging needs to be on point as you’ll need to provide a higher level thought leadership, roadmaps, blueprints, run workshops etc.
The rewards can be worth selling higher up because they treat you as the thought leader, you helped set the strategy, so they buy more from you. Check out infront; they have a very mature model.
Productising your offerings into easy to sell and repeatable solutions will make life easier. Many MSP’s are scared of locking down their offerings because they fear missing out on sales. However, if you specialise in Security, EMS, Desktop Support, or even products like Microsoft or Citrix, you will succeed – depending on your location, of course.
Join your vendor’s marketing and sales programs. A couple of good ones to mention: Microsoft’s CED and GTM programmes, and Citrix has their MarketingIQ and SalesIQ, which are gold. Even if you aren’t selling Citrix’s solutions, they have built some of the best ready to use thought leadership I have seen.
Each vendor should have their portal and depend on their level of maturity; you can find ready-built solutions which are easy to sell.
What makes you different from the other MSP’s? Your goal is to create a compelling story that’s wrapped around a well-planned Customer Value Proposition (CVP) or Unique Selling Point (USP).
To craft a well-rounded CVP, you need to get to know your customer well, we provide CVP services, and if you want to figure out yourself, check out our blog for more. Below are a few starting points to get to know your customers:
- Who is your ideal customer?
- What industry are they in?
- How many seats do they have?
- Are you selling to technical buyers or decisions makers?
- Are there any typical saboteurs in the organisations you sell to?
- What is your customer trying to get done? [link]
- What are their pains from getting their job done? [link]
- What are their gains for getting their job done? [link]
- How do your services solve their pains?
- How do your services create their gains?
We have some articles on this which will help.
You may not realise it, but you may already have one. Your website is one of your greatest lead generation assets.
I once worked with a customer who would often send potential customers to their website and never hear from them again. And all it took was a fancy new website with little change to the key messages to start bringing in leads.
Where to start with your new website? There is a myriad of companies who can build websites for you; I recommend you to work with a company who gets your services and solutions. Freelancers are okay, but they don’t always get the IT Service space.
Did you know your customers spend 57% of their buyers journey researching and judging you online?
If your website doesn’t do your business any justice, then you need to focus on it.
Once you have built a fantastic website, you need to get people to it. Then you can convert them into leads.
The next part is tricky, some people in the industry consider Paid Search (Google Ads) to be the best option, whereas many others look towards getting free traffic from Google via Search Engine Optimisation (SEO) or Social.
Great if you are starting and can get expensive if not managed correctly. You need to have your paid campaigns set up for conversion. Otherwise, you may end up taking sales calls for Xbox. Read my blog on getting the most from Google Ads.
A vital part of online conversion, this is the type of advertising that follows you around the internet with those pesky ads. It’s easier to convert people who have exposure to your brand.
Free Search Traffic
I have always been a big fan of SEO; it takes at least six months to work well. SEO is the long term plan, and I firmly believe that any company needs to invest in proper SEO to bring in free traffic.
Excellent when used in the right way. Social media is as a vanity measure; you should focus on using it as a tool to build culture as well as generate leads. An easy step is to get on to LinkedIn; connect with your Partners and Customers there.
Everyone thinks a sales manager is going to bring in all the new business, while this isn’t always true, there are a few things you need to realise:
- The business should generate leads first – your sales manager is the one who takes the customer over the line.
- They need to look like your customers – If you are after the top end of town, then they should dress and act like it, and look trustful. You are selling relationships.
- CEO’s make your company look small – If the owner of the business is the main salesperson, they make the business look small, and this is a turn off for most customers.
This old pricing theory is still relevant today; “Good-better-best” still works as good today as it used to. Providing options simplifies your offering, reduces confusion and implies we respect customers enough to give them choices.
When working out your G-B-B strategy, keep in mind:
- Keep your offer simple;
- Provide a clear comparison and a path to upgrade;
- Be strategic about numbers you use – avoid numbers that end in a 9, 5 or 0;
- Test, test, test!
Are you connecting with as many partners as you are with customers? Your partners are one of the most significant referral streams that you may not have tapped into.
One of our most successful clients has a fantastic relationship with Microsoft; they attend their events and network with their channel managers. It works so well for them; they are spoon-fed leads.
Connect on social media
One of the best things you can do is to get onto LinkedIn and connect with your partners there. Don’t harass them, start softly to get to know them, engage with their content and even share content they may like.
Get in touch with your customers as well, try and find ways to get them on social or even create a monthly newsletter that is not just about your product and sales. Check out the 411 strategy; it’s a perfect guide to sending content that people like.
Connect at events
In-person events are a great way to meet partners and other MSP leaders in the same boat as you. A few of my favourite events are below – don’t forget to bring your business cards.
Make sure your website is looking tight. Create some offers that people want. Don’t forget that your visitors are judging your website as a sign of your success;
If your website isn’t excellent, use a landing page generator like unbounce;
Take your customer on a journey by explaining your Why, How and What. Tell your customers what they are getting and explain what it will be like to work with you. The Proposal is one of your most critical tools, so make it look amazing!
Do your proposals look a bit rough? Don’t worry; you can get easy to use templates with a service like Proposify;
Build a fantastic Value Prop; this starts with your customer. We are all about value proposition design, so check out our blog for more on this;
People buy from people they trust; referrals help conversions considerably. After you deliver a successful project or on-board a new customer, ask them for their feedback. Use this feedback in your sales and marketing material. Adding it to your ‘About’ page on your website is the perfect spot.
There is a lot of content in this article. Let’s cut to the chase, below are my top recommendations for growing your MSP.
- Empower your employees with EOS;
- Understand who your customers are with a value proposition that differentiates your business;
- Optimise your website for conversion and drive traffic to it;
- Build an amazing product. Focus on the business problemss; not the technology;
- Hire a sales gun;
- Sell Good, Better, Best;
- Create an amazing proposal template that delights;
- Connect with your partners and channel managers.