I spoke to an MSP a few weeks ago that does about $3 million in revenue, and I would call it low margins. They have been in business for 11 years, and I asked the owner, “What would success look like in three years?” He replied with, “We want to go from 3 million to $10 million in revenue.”
Now, you may have guessed that the first thing I said after being told this was the following: “You should be setting profit goals first and revenue goals second.”
Next, I asked, “What makes you think that you can grow that rapidly when it took 11 years to get the $3 million?” And he replied by saying, “I’m at a place in my life where I really want to focus on my business and growth.”
So, the next question I had for him was, “Have you done the math?”
Let’s break down the numbers together.
Going from $3 million dollars to $10 million in revenue requires an additional $7 million dollars of top-line growth. Assuming 70 percent of his revenue is recurring, that is $5 million of annual recurring revenue (ARR), a little more than $400,000 a month. That means over the next 36 months, he’d need to add around $12,000 of net MRR each month.
Maybe he had a great year last year. His sales team killed it, and he’s now on track to have the greatest year he’s ever had, right?
How much do you think he sold last year? He told me he sold $32,000, minus some churn.
After hearing this, I realize he didn't do the math. He also didn't have a business plan in place to match his goals.
Here’s the thing: If you want to be a $10-million MSP, you can be, especially in the marketplace that we're in right now! But, you need to break down your plan into smaller achievable goals and have command. If you don’t, you’re setting yourself up for failure when it comes to your goals.
To sum everything up: Start with profit first, then move on to your revenue goals, and finally do some of the simple math I’ve shared with you today.