When To Break Up With A Client

Sometimes losing a client is a good thing. Just because you haven’t lost a client in five years doesn’t mean you’re doing a good job. In fact, it could mean the exact opposite. Even though breaking up is hard to do, there are times you should take the chance.

More often than not, the reason why clients stay with you is the relationship is better for them than it is for you (unless your RHEM number is at TruMethods standards, but that’s seldom the case). If a client has been with you for more than six years, and you haven’t significantly upgraded your client’s service offering and price during this time period, the truth is often the following: Your client is probably at a low average seat price. If you want proof of this, we have a tool you can use to evaluate each client’s MRR, number of seats under management, and calculate the per seat price. Then you can add the number of average monthly support hours to calculate support cost relative to the MRR.

Are Your Clients Holding You Back?

I’ve seen hundreds of MSPs go through the process of figuring out if some customers are actually hurting business. Nearly 100% of the time these MSPs are surprised to learn that some of their longtime customers are actually holding them back. These MSPs find out that 60-70% of their total gross margins come from only 25-30% of their customers. This is why our industry’s margins are low and MSPs get stuck at MRR levels.

Review Your Roster For Offenders

Take out your client list, and figure out who your worst offenders are. Then decide whether you can fix them. This may entail raising prices and lowering reactive noise levels. Sometimes these clients have a lot of reactive noise because they don’t make the right investment in technology (in other words, they don’t take your advice). On the other hand, sometimes it’s just a price issue. The other scenario is that you now bundle more value into your current offering to new customers, and these offenders never saw the value. You now have a decision to make: Can you make the relationship work for the both of you, or must it end? Breaking up is hard to do (I hope you got the reference).

I Can’t Afford To Lose My Monthly Billings

I get it. You can’t always afford to lose the monthly billings, so, in my opinion, here’s what you should think about. There are two situations when you should risk a break up.

The first scenario is when you add a new customer at the right price. Let’s say you just closed a $4,000 per month agreement. Afterward, maybe approach two of your customers who are priced low at $1,500 per month and have too much reactive support. Try to fix the agreements first, but keep in mind you can afford to break up with them.

The second situation to consider: Take a hard look at the bottom of your customer list when it’s time to add another support resource. If a new resource will cost you $5,500 a month fully loaded, could you instead find $5,500 a month of MRR that generates a resource worth of tickets? Either way, your cost goes up $5,500, but removing the bad customers makes your revenue base healthier and your support levels lower.

I realize these tactics will slow top line growth in the short term; however, once your seat price and reactive hours per end user are in range you will grow faster and more profitably, and the result will be a much better company for you, your team and customers. Yes, breaking up is hard to do, but sometimes — you have to do it.

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TOPICS: IT solutions
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