For many smaller MSPs, getting the right customers may not seem as important as getting ANY customers, so it’s easy to see how it often gets ignored. With any business, you have three categories of customers (good, bad, and ugly). In this article, I am going to describe them so that you can identify them, learn how to attract and convert the right ones, and lastly, know how to get rid of the unwanted ones.
The first step is to identify what types of customers you have. These common traits should help you separate the good from the bad and the ugly.
Notice, I do not mention whether or not they are fully managed or break/fix. I do not think either necessarily make for good or bad customers. There is a difference in profitability and consistency of cash flow, which makes one more valuable, but that is outside the scope of this article. There is also a relationship between profits/cash flow and the traits above. That is why it is important to identify these customers and deal with them appropriately.
It helps to attract the right customers in the first place. Making sure that your marketing, offering, and pricing are aligned with getting the customers you want, which in turn can help decrease the numbers of bad customers you get in the first place.
Using the traits we identified above, you want to appeal to established businesses that want a trusted advisor or outsourced CIO vs. a computer guy. You want someone who understands the value of IT in their business and is looking for expertise, not duct tape and a bandage. The ideal customer will see you as a member of their management team.
Your offerings should provide the most value for the customer in terms of reliability, scalability, and security. Most of the time that is going to be a managed services model. Pricing should be aligned with the value provided. Being a member of their management team has high value and therefore demands higher pricing. The right customer will understand the value and respect that pricing.
It is hard to say “no” to paying customers even if they do not always pay on time. So how do we get bad customers to become good customers? We help them mature their IT practices. The first step is to position yourself not only as an IT expert but as a business expert as well. They have to see the business value in your IT expertise to bring you in as a trusted advisor. This means not just fixing the broken things or managing their network. It means helping them identify new opportunities to increase revenue or reduce the costs of using IT.
Back in the day, we did this with website design and hosting services. That later transitioned into SEO services and now I know several MSPs that are offering social media advertising services as part of their services. Once you get them some business “wins” they will start asking for your advice more. As you improve their revenue stream they will also be able to pay you on time.
That is improving two of the most important traits and the other three usually follow closely behind because you have now established yourself as part of their business rather than just a vendor.
When all else fails you sometimes just have to say goodbye. I know that at some times in your business lifecycle it seems like any revenue is good revenue, but that is not always true. If a bad customer is getting in the way of servicing your good customers, keeping you from getting new ones, or is just plain unprofitable, they will cause more harm than good.
So what do we do?
The first thing to do is to sit down with them and explain what you do, why you do it, and the importance of proper standards. The positive outcomes of that meeting are an action plan and the date of the next meeting. If you come out of that meeting with neither, then a follow up call or letter explaining that you will no longer be able to provide their services and you will be happy to transition them to a new provider may be warranted.
They will reply to this in one of two ways: they will either ask for another meeting to discuss moving forward; or they will cancel on the spot. Whichever way they go, you have accomplished your goal of either moving them toward being a better client, or you have removed them from your client list.
If they do not reply at all, simply provide them one last letter explaining that you will no longer be supporting them as a client and attach all of the documentation related to their network. This will either bring them back to the table or let them go. The benefit is that your integrity and peace of mind are intact. You gave them every opportunity, did not blackmail them by withholding information, and offered assistance in the transition.
As a side note, any time that they concede and want to move forward is also an opportunity to collect payment. In my opinion, you should never withhold information because of non-payment.
At the end of the day, you must decide which customers are “worth it”, and which ones are not. At different levels of maturity, your business may have to tolerate some less than stellar customers. I caution you however to never let an ugly customer get in the way of finding your next good customer. This will stagnate your growth in the early years and keep you from becoming as profitable as you should be. Also, keep in mind that sometimes bad customers can become good ones with the right help. Profitability by customer can be a great indicator of which customers are better than others. Find a way to measure and report on it regularly to make sure you are on the right track.
Eric Anthony is Director of Customer Experience at SolarWinds MSP. Before joining SolarWinds, Eric ran his own managed service provider business for over six years.
You can follow Eric on Twitter® at @EricAnthonyMSP
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