It’s common knowledge that customer acquisition and customer retention are pivotal factors for a thriving MSP business. However, not every client is a good fit, and sometimes it may be necessary to terminate a client relationship to improve profits.
For instance, Erick Simpson, a former MSP owner and co-founder of MSP University, decided to part ways with a group of MSP clients who were generating $50,000-60,000 per month. Surprisingly, this move resulted in increased profits and a significant reduction in customer service issues for 95% of his team.
Naturally, the earlier you can identify "bad" clients in the sales process, the better you can avoid the associated headaches and bottlenecks. To assist you in safeguarding your profits and streamlining your business, this article will provide insights into 10 red flags in the MSP sales process and customer lifecycle, as well as four practical tips for identifying undesirable clients be it rmm software sale or managed services.
Top 10 warning signs in the MSP sales process
Selling MSP services can be challenging. The market is highly competitive, and proving value can be tricky. It's tempting to pursue any potential sale and focus on customer acquisition. However, avoiding problematic clients requires discipline and the ability to identify red flags that indicate you might not want to onboard or retain a particular client.
Here are the top 10 red flags to watch out for during the MSP sales process.
Red flag #1: Unwillingness to listen
While the saying "the customer is always right" is relevant, being an MSP means serving as a trusted advisor to clients. If clients are resistant to your recommendations and disregard or undermine your expertise, consider it a red flag. Things can be more challenging once you have assets under management and service agreements in place. Ignoring your recommendations may lead to conflicts and disagreements later.
This early warning sign often appears when clients want to save money or consider themselves tech experts. Before onboarding a client who raises this red flag, evaluate your business model and decide if the extra revenue is worth the potential challenges.
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Red flag #2: Unrealistic expectations
Every client wants to maximize their investment. However, some clients have unrealistic expectations that can cause issues. These clients may continuously contact your help desk for non-urgent matters and tie up valuable resources unnecessarily.
Once you have a contract with these clients, they may demand VIP treatment that goes against your agreed-upon terms or expect reliability that surpasses their IT investment.
During the sales process, be cautious of the following warning signs:
- Requesting unreasonable pricing
- Asking for free services
- Expecting you to invest in their infrastructure
- Disrespecting boundaries
- Assuming your job is easy
- Expecting high performance with outdated infrastructure and minimal investment
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Red flag #3: Frequent late or missed payments
This red flag typically reveals itself only after you start doing business with a client. While a single late payment may be an honest mistake, a pattern of late or missed payments can damage your bottom line and create cash flow challenges for your business.
Pro tip: Utilize direct debit to minimize the risk of late payments and improve cash flow.
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Red flag #4: Vendor hopping and excessively criticizing other MSPs
A client having a single negative experience with a previous MSP isn't something to be overly concerned about. However, if a potential client reports multiple negative experiences with MSPs, you may be dealing with a customer your competition has already dismissed.
As you engage in conversations with prospective clients, consider asking for specific details about previous unsuccessful MSP partnerships. For instance, if they complain about response times, inquire about the service level agreements (SLAs) that were in place.
One way to test for this red flag is to check if the potential client has experienced issues with one or most of their previous MSPs. If all their past relationships were problematic, they may be the underlying cause of the problems.
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Red flag #5: Everything is urgent
If everything is deemed a top priority, nothing truly is. Consistent last-minute notifications regarding issues or requests, followed by an expectation that you will instantaneously handle them, isn't indicative of a healthy client-MSP relationship. Of course, occasional urgent issues are to be expected; after all, this is the IT industry. However, if requests such as meetings, new employee onboarding, or hardware purchases are consistently treated as urgent, it could be a red flag.
Context is important. If a client is willing to pay for SLAs that address all their issues as urgent, incorporating that expectation into their contract through premium rates might create a mutually beneficial situation.
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Red flag #6: Abusive behavior
Clients who berate, insult, or threaten you, your staff, or their own employees are displaying a significant red flag. There is no professional justification for mistreating people, and onboarding a client who exhibits such behavior is asking for trouble.
Red flag #7: Questionable ethics
This one almost goes without saying: if a client requests something that is legally or ethically dubious, consider it a major red flag. For instance, if a client asks you to take shortcuts to avoid complying with local code on a structured cable installation, it could jeopardize your reputation if something goes wrong.
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Red flag #8: Unresponsiveness
Clients who fail to show up for meetings, don't respond to emails, or don't return phone calls may be indicating how they will communicate once they are under contract. Effective communication is vital for successful partnerships, so pay attention to how potential clients respond during the sales process.
Red flag #9: Requests that go against your processes
This is the most challenging of all the potential red flags in the MSP sales process. Pursuing new business entails receiving new, often reasonable, requests from potential clients. The difficulty lies in finding a balance between these requests and your existing processes.
MSPs that operate based on well-designed processes and standards tend to be more efficient and profitable. If a client asks you to deviate from your existing processes and standards, consider it a potential red flag because accommodating such requests could result in exceptional cases that hinder your overall business efficiency.
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Here are some examples:
Implementing non-standard technology that increases your support workload
Offering services that are outside your typical scope (e.g., supporting Juniper gear with a team of Cisco engineers)
Compromising security standards
Red flag #10: Too many stakeholders
To get things done, decisions need to be made. Clients who require a tedious multi-stakeholder approval process, even for minor changes, can be a red flag. Committees can be valuable for governance purposes, but they can also create process bottlenecks and consume significant time through repetitive meetings and email threads. Additionally, as an MSP salesperson, being aware of this red flag can help you identify when you're dealing with a "buyer" who doesn't make buying decisions.
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How to identify problematic MSP clients
The red flags in the MSP sales process that we've discussed above serve as effective "smell tests" to help you identify potential issues. Now, let's explore five steps that you can follow to identify and weed out undesirable clients.
Know what a "good" client looks like (hint: it's relative)
To quote Andy Cormier from his (free!) So You Want To Be An MSP eBook, "the key to profitable contracts is properly pre-qualifying customers". Drawing inspiration from The Pumpkin Plan, nurturing customers who contribute to your success and filtering out those who don't is fundamental to a sustainable and profitable business.
In simple terms, understanding your ideal customer allows you to focus on delivering value to them while avoiding clients who don't align with your business goals. There are a variety of ways to achieve this, and the definition of a "good" client will depend on your business model.
If you're just starting out, identify your target buyer personas and maintain a sharp focus on them. If your MSP business has been operating for some time, analyze your MSP KPIs and the lessons you've learned to make informed decisions. I suggest starting with the 80/20 rule and addressing the following questions:
Who are the 20% of customers that drive 80% of profits? What common characteristics do they possess?
Who are the 20% of customers that generate 80% of support tickets? What common characteristics do they possess?
Using this information, you can conduct an ABC customer analysis to group clients into the following categories:
Customer: These are the most valuable customers to your business.
B customers: Although they are valuable, they are not as profitable as your A customers. With some nurturing, they have the potential to become customers.
C customers: This group consists of clients who make a small contribution to profits. Consider automating processes for these customers to avoid investing excessive time and resources.
By understanding your "A customers," you can establish the characteristics of a "good" customer, which will serve as a reference for identifying "bad" customers.
Seek input from your staff, as Muhammad Ali once said, "I don't trust anyone who's nice to me but rude to the waiter. Because they would treat me the same way if I were in that position."
If you are the owner of your MSP business or hold a position of authority (e.g., director or VP), it's possible that difficult clients may treat you differently than they treat your level-one technicians or dispatch personnel. Therefore, it is advisable to communicate with your teams and gain insights into how clients interact with them. You may be surprised by the information you uncover.
Identifying troublesome clients is more of an art than a science. As you gain experience in MSP sales, you'll develop intuition. While it's important to back yourself with data and objective facts, don't discount your gut feeling. If you encounter multiple warning signs and something feels off, it's okay to walk away from a deal.
However, it's crucial not to get overly vigilant. The concept of "bad" is subjective. Adopting a combative mindset can be easy if you're constantly looking for red flags. Keep in mind that potential clients are also individuals running their own businesses, so strive for win-win situations whenever possible. Remember, there's a fine line between a challenging but profitable partnership and a genuinely "bad" one.
To strike the right balance between identifying red flags and avoiding an overly cautious approach when acquiring new business, establish clear expectations, practice transparency, and set appropriate standards for your business.
Author Bio
Fazal Hussain is a digital marketer working in the field since 2015. He has worked in different niches of digital marketing, be it SEO, social media marketing, email marketing, PPC, or content marketing. He loves writing about industry trends in technology and entrepreneurship, evaluating them from the different perspectives of industry leaders in the niches. In his leisure time, he loves to hang out with friends, watch movies, and explore new places.
Website: https://www.gorelo.io
