Quick Answer: MSPs can drive predictable growth by raising prices annually instead of locking in flat multi-year contracts, saying no to discount requests, focusing on a niche Ideal Client Profile and investing more of their gross margin back into marketing. Reformed IT co-founder Joe Burns shared these strategies at the GTIA UK&I Community Forum in Manchester, where he outlined a five-stage prospecting model that moves leads from unaware to engaged.
Too many MSPs worry that if they increase their prices regularly, customers will leave and go elsewhere, but it is not a black-and-white certainty. Speaking at the GTIA UK&I Community Forum in Manchester, Joe Burns, co-founder of Reformed IT, explained how he had sold one business (Pyranet) for a seven-figure sum in 2016, and co-founded Reformed IT with two colleagues.
“In the last five years of Pyranet we had a CAGR of 24.3%, but if you overlay the growth we have had in Reformed IT there is a much more aggressive growth curve at just over 30%,” he said. “The current average growth rate of an MSP is sitting at 11.4%. What is interesting is that 60% of MSPs are growing below this average number and almost a quarter are not growing at all and are either stagnant or shrinking in size.”
Burns said MSPs traditionally have three ways to grow their businesses:
- Sell additional services to new clients
- Increase pricing of existing services to existing clients
- Sell existing services to new clients
But he said there are other ways to grow that many MSP bosses haven’t even considered, and shared some tips that he has used in his business to propel growth.
Regular Price Increases
A key strategy for Burns’ business is increasing prices for existing customers on a regular basis.
“After standing in a room [at an event] and hearing that three-year price increases or locking customers into a three-year contract term was ‘stupid’, I looked at our contracts when I got back to the office and put in place an annualised increase,” he said. “It is very clear to customers in the contracts that while it is a multi-year contract, there is going to be an increase every year. We went for 7%.”
When it came to the first renewal, Burns said, the client mentioned the annualised increase and my answer to him was: “In our industry we want to continue to deliver the best quality of service that we can. The cost of employing technical skills is rising every year and we only want the best people in our team to enable us to give the best possible service. The customer said, ‘that makes sense’ and signed off. We have had no kickback from him or any other of our clients, and we have been doing this for three years now.”
No Discounts
Burns also said that MSPs should stand firm against clients that ask for a discount. “If a prospect asks you to discount your service, it is the best buying signal that you’re ever going to get. The only reason most people ask for a discount is because they want to close a deal. When asking for a discount, the buyer is actually saying ‘I’m ready to buy’. Why on earth would you then turn around and give them a discount? My advice is always if anyone asks for a discount, you say no,” he said. “We know what we are worth, we know our service quality and what we deliver, and that is our price. It is the same price that everybody else pays.”
Stay Focused or Niche
Burns also advises fellow MSP bosses to ‘think like marketeers’ and understand what your Ideal Client Profile (ICP) is. “If you understand the demographic of your ideal client, you can talk their language and it is easy to find them,” he explained. “When you start to become laser-focused, it is so much easier to find them. We focus on specific verticals because we can talk their language and can talk about specific pain points and challenges.”
Use ‘Warm’ Contacts
Too many MSPs are relying on word of mouth to grow their businesses, Burns said. “You need to have a way of generating more leads,” he urged. “Even if you started an MSP tomorrow, from scratch, there are people in your contacts book that are probably employed by someone or running a business. You will know a lot of people—these are your warm leads. Have a conversation about what you can offer them and what value you can bring to them.”
Maximise Content Marketing
Building an audience through content marketing, social media posts, videos, etc. is a great way of getting noticed, Burns said. “If you can start to build an audience, you end up with a bigger number of people who become warm outreach. Once you have established a relationship, you’re a known person in their network and it is easier to start a conversation with them.”
Learn the Five Stages of Prospecting
According to Burns, the five stages of prospecting are:
- Unaware or cold: They don’t know you exist
- Passive: They know who you are, but don’t understand or require your service at this stage
- Curious: They have a requirement that they think you can help them with
- Open: They are aware they have issues, and are open to exploring options to solve them
- Engaged: They are interested in exploring how you can solve a problem for them
The objective is moving prospective clients from the unaware stage to the engaged stage, he said.
Spend More on Marketing
Most MSPs have a low customer churn and long-term customer relationships, Burns said, but they need to do more to keep their attention. “I believe that MSPs are not spending anywhere near enough money on marketing,” he said. “You can’t rely on word of mouth alone. You need a system that generates leads and automates leads.”
He said a key action is to work out what your current managed services revenue is, what the current contract lifetime is and what the gross margin is. “Once you have done that, work out what percentage of that gross margin you are willing to invest back in each client,” he said. “Predictable growth comes when you invest your time, money and focus driving more demand than you can handle.”
Want more business-building tips?
