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5 Fundamentals to Help Technology Partners Grow Net Profit

Fundamentals to Help Technology Partners Grow Net Profit Blog Title Image

By Paul Green, MSP Marketing Expert

 

The goal for your IT Business should be to maximize net profit while still delighting the clients. Because long-term, sustainable net profit is the measure of a successful, robust business.

Maybe you’ve heard this before: Turnover is vanity. Profit is sanity. Cash is reality.

Who cares how big your turnover is? I’d rather have a $500,000 turnover business making me $100,000 net profit a year than an unprofitable $1 million turnover business.

There’s a formula for making your MSP more profitable:

Number of leads X Conversion rate = Clients
Clients X Number of transactions X Average sale = Revenue
Revenue X Profit margin = Net Profit

If you want to improve the three outcomes – clients, revenue, and net profit – then you must work on the five fundamentals.

In order of priority then

Fundamental 1 - Improve Margins

Assuming you have a mature IT Service Business, the fastest way to make more net profit is to improve the margins. 

Put your prices up. Don’t overthink it, just do it. Be careful with clients in a recurring support scheme. But for everyone else, add $10 today. Increase the price of the support plan for new clients. Often with price rises, the staff feedback is more problematic than client feedback.

Make sure you charge properly for every minute of service you deliver. Never discount or give it away (add value instead – more on that later).

Stop being a free bank to clients. Charge credit cards at the start of the month, not in arrears, so if they stop paying, you stop helping. Get in the habit of taking card payments over the phone for one-off work.

Finally, you should renegotiate with all suppliers every year. If they sell a commodity product – someone else can supply it – they will very likely have a lower price you can access, by asking “what’s your best price on that?”

Fundamental 2 - Increase Average Sale Value

 Decision makers mostly buy IT support with their hearts, not their brains. It’s not a cognitive decision to hire you. It’s an emotional one. It’s the reason why we upgrade our car insurance to more than the basic. The brain says, “you need it by law, get the cheapest.” The heart says, “but this might happen… or that,” and you upgrade to legal cover, breakdown cover, etc.

It’s no different with IT support.

So always offer people options. A good one (bronze), a better one (silver), and a best one (gold). We call this 3-tier pricing. They will pick the one that’s right for them. Many will upgrade themselves to a better option, with no selling required. 

You can do this with support plans. And you should always be increasing the value and packaging of support plans, so the silver and gold options appear to be getting better and better.

Another clever thing to do is treat your clients differently according to their status to the business. Have you heard of the Pareto Principle or the 80-20 rule? 80% of your profit comes from 20% of your clients. 

You should not treat clients equally. Give the highest gross profit clients more love and attention than the hassle low-profit clients. It’s kind of obvious, but few MSPs do it.

Fundamental 3 - Improve Conversion Rates

I’m talking about the conversion from lead to client. It’s about answering the question: “How many people who are ready, willing, and able to buy… and come across our marketing… actually buy from us?”

It’s no longer big beats small. It’s fast beats slow. So be the fastest MSP in your town.

Triple the speed of response when someone enquires. Call them straight back. Reply to their email instantly. Marketing speed is more important than service response speed because it sets a context for the future relationship.

Your website and the Facebook page should be designed for B2B decision-makers, not other MSPs. Make sure your business’s USP – Unique Selling Proposition – is right on there on the home page (it’s the answer to the question of “why should I buy from you and not the other guys?”).

Focus on the benefits of using you, not just a boring list of features. And make sure your website is littered with video. Professionally filmed ones; behind the scenes ones on your mobile; animated videos; webinar replays – a mix of videos will best engage your audience. They will give you an edge.

Fundamental 4 - Increase the Number of Transactions

This isn’t about trying to sell more. It’s about finding out what clients want and need, and then giving it to them.

Have you ever had that frustration where a client has bought something from someone else, which they could have bought from you? It’s the reason I’m a big fan of Strategic IT Reviews. Every year you take your best clients to lunch to talk about their future – their plans, hopes, and fears for their business.

Some will tell you what else they’d like to buy. All will emotionally bond with you. You stop being the support people. And become a trusted supplier that’s at the core of their future plans. 

Never forget that it’s dramatically easier (and more profitable) to sell more to an existing client than to gain a new client.

Fundamental 5 - Generate More Leads

 There’s a 3 step marketing strategy for this:

  • Build multiple audiences
  • Build a relationship with them
  • Commercialize that relationship

By multiple audiences, I mean relevant prospects who will listen to you. At the very least your email database, and your LinkedIn profile. But also consider other social media; a YouTube channel; forums where your prospects hang out; and even starting a podcast.

To build a relationship with them, educate and entertain them (a process known as edutainment) with content. They don’t know what they don’t know about technology, so teach them. Just make sure it’s at their level of understanding and not yours. This will help position you as an authority figure and genuine expert. 

And commercializing the relationship is about picking up the phone and talking to them. Not selling to them – talking to them. Ask them about their favorite subject… themselves and their business. The small number who are frustrated with their incumbent MSP will soon make themselves known to you.

Want to know how you generate sales qualified leads fast?

About the author

Paul Green is an MSP marketing expert based in the UK, working with 500+ MSPs around the world. You can get a free copy of his book on MSP marketing. (paperback copies posted to the UK and USA.) MSP Marketing Edge is his service that delivers marketing content and tools for MSPs. It’s only available to one MSP per area.