Written by Tom Watson
- Did you know “it costs five times as much to attract a new customers, than to keep an existing one?”
- Read on to learn more about shifting your business to a managed service agreement model.
When making the move to providing managed service agreements or shifting your business to be more reliant on this model, it is always best to start with your existing clients.
Existing clients have already bought into your business model. Both you and the client have gained an understanding of each other’s business practices and established some degree of loyalty within the relationship. Having worked together in the past, clients are open to negotiation and expanding that relationship, which typically benefits both parties. Take advantage of these up-sell and contract opportunities as your best first move for increasing profitability.
It costs five times as much to attract a new customer, than to keep an existing one. The probability of selling to an existing customer is 60-70%, while the probability of selling to a new prospect is 5-20%.”
According to: Invesp conversion rate optimization company, “Customer Acquisition vs. Retention Costs.”
As the former owner of an MSP, I made the choice to move to a Managed Service Agreement (MSA) business model. I came up with a system to figure out which of my existing clients would be a good fit under the Managed Services practice I planned to build.
At the time I had been in business for eight years and like many IT service providers, I had a couple of clients under contracts. These were contracts I had bought from another company whose owner was retiring.
The contracts were profitable and served as a model for break-fix clients who I wanted to transition to MSAs. In looking through my existing client base I quickly matched up clients that were similar to the ones I had under contract.
Next, I identified clients with the following attributes:
- $1500 per month average spend across service, backups, email and antivirus.
- 10 or more employees.
- Client for at least 12 months.
- Pay their bills on-time.
- Above average profitability under current break-fix arrangement.
- Loyalty: solid relationship with owner, no indications they were using other IT services or shopping around.
Finally I had narrowed my existing clients to those who were best suited and qualified for an MSA.
This list is certainly subject to interpretation and editing based on your business and clients. I urge anyone looking to make this move to come up with your own baseline criteria that best targets the clients who will benefit from an MSA.
For a deeper dive into the subject of identifying and assessing which of your current clients should move to an MSA, join Piers Mummery and Tom Watson on April 17 for MSP Ignition! From Break-fix to Managed Service Agreement: Targeting Existing Clients
Tom Watson is Axcient’s VP of MSP Best Practices and a former MSP owner who successfully exited after 15 years. Tom joined the Axcient team in 2017 and creates content for the #MSPignition and best practices program working directly with partners to help them grow and increase profitability.