Is Your Biggest Customer Holding You Back?

Sometimes your largest customers aren’t always your best customers. While your largest customers may be paying yours bills and then some, they may also be hurting your margins. Look carefully at what your customers are costing you. 

An MSP typically has a couple of large accounts. Combined, these customers are usually 20-30 percent of an MSP’s revenue; however, they’re also oftentimes 40 percent of the noise you deal with daily. In other words, they take up most of your time, and because of that, they’re cutting into your gross margins. In the long term, that’s a problem.

But since these accounts are generating a good portion of your revenue, you feel like you can’t let them go. You can’t live with them, but you also can’t live without them. This oftentimes holds an MSP back from doing the right thing. And that’s letting them go.

Sometimes you need to fire a customer. Sure, it’s easier said than done, but it shouldn’t be that way. Here’s the thing: Ideally, you should be able to operate your business without your largest customers. If you’re unable to do that today, then put a plan in place to change that tomorrow. 

This usually means adding new revenue at the right price (something we at TruMethods talk about often). See if there are ways to increase the margin on your current or future customers. This could mean increasing prices, tightening the edges of the agreement or changing your approach. Every situation is different. What works in one instance may not work in another.

You can save the relationship if you think it’s worth saving. Sometimes it’s possible to help your customer hire someone else to manage the day-to-day noise, while you provide alignment, vCIO and centralized services. In some cases, your customer spends about the same amount on IT and your margins go up dramatically. It’s a win-win scenario.

As a rule, be sure you’re careful about adding any new customers that are more than five percent of recurring revenue. You get yourself into trouble when a single customer is keeping your lights on. When a customer has that much control, you can’t make good business decisions. 

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TOPICS: business successHigh-Value ServicesIT servicesMRRvCIO
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