The fastest, cheapest and highest-return revenue growth available to an MSP is not a new client. It is the client you already have. The six things top MSPs do differently: they take only fully managed clients, they run a deep-dive assessment at onboarding, they hold quarterly technology business reviews without fail, they design those reviews as C-level strategy rather than ticket reviews, they review client profitability twice a year, and they ask for referrals in the meeting rather than hoping for them. Proper account management grows MRR by no less than 10% year over year from existing clients, through price increases, service upgrades, projects and natural expansion. The benchmarks to aim for are 60% to 65% service gross margin per client, project revenue equal to roughly 60% of ARR, churn under 5% a year, and at least one referral per client per year. How much upside you have depends on how underdeveloped your base is right now, which is usually more than owners expect.
There is a famous lecture called “Acres of Diamonds” delivered over 6,000 times by Russell H. Conwell, a Baptist minister and founder of Temple University. At its core is the story of Ali Hafed, a prosperous Persian farmer who owned a large estate.
One day, a Buddhist priest visited the farmer and told him about the fabulous wealth that diamonds could bring. Ali Hafed became obsessed with securing that wealth, so he sold his farm, left his family, and spent the rest of his life wandering Persia, Palestine, and Europe searching for diamonds. He found nothing. He died broke, exhausted and in despair.
Meanwhile, the man who bought Ali Hafed’s farm one day noticed a flash of light from a black stone in a shallow stream. He reached in and pulled it out. It was a diamond. Then he found another. And another. The farm Ali Hafed had abandoned turned out to be one of the most magnificent diamond mines in the history of the world.
He had literally walked away from acres of diamonds to go in search for them somewhere else.
Most MSPs are Ali Hafed. They obsess over getting new clients, new leads, new campaigns, new cold outreach, new events, while sitting on a diamond mine of underserved, underdeveloped, and under-monetized existing clients. They leave money on the table every single month, with every single client, and then wonder why their margins are thin and growth is hard.
The fastest, cheapest, and highest-ROI revenue growth available to you right now is not a new client. It’s the client you already have.
But ALL Of My Clients Are Cheap, Stupid And Stubborn!
One of the reasons MSPs overlook the “acre of diamonds” in their own backyard is a stubborn belief that the clients they currently have are too cheap and too stubborn and too stupid to take their advice and spend the appropriate budget on IT.
Yet over and over again, I’ve proven MSPs wrong by having them initiate a PROPER technology business review (TBR, sometimes called QBR, or quarterly business review) with a good sales presentation.
In fact, getting my MSP clients to follow the process accounted for at least 80% of their financial success, with the average MSP generating over $240,000 in NEW sales in under 90 days, and a good percentage generating $500,000 or more in just 3 months.
Of course, some clients are still stupid, stubborn and cheap, but not ALL. And when presented with the right information in the right way, they buy, often spending more than double what they were currently spending, much to the shock of the MSP owner who has been insisting “they’ll never spend a dime more.”
If you won’t accept the fact that it’s likely YOUR failing to sell the recommendations and services you have correctly, YOU’RE the one who’s stupid and stubborn. (Yep, that’s me, Queen of Mean.)
The 6 Ways Best-In-Class MSPs Attract, Keep And Fully Monetize Their Clients
Here is what consistently separates the most profitable MSPs in client development, and how they grow their MSP without being overly dependent on referrals and acquiring new clients. Six things, in order of impact.
1. They do not offer break-fix services and only take fully managed clients. If they have legacy clients who are break-fix, a campaign is put in place to move them to managed services. Over the years I’ve helped thousands of MSPs move even their most stubborn, “cheap” clients to managed services. In most cases, better than 90% will move to managed services when you sell it properly, and the ones that refuse usually are the clients you don’t want to keep anyway.
2. Every new client is taken through a deep-dive assessment process as part of onboarding. This is a detailed analysis of their entire environment so you can provide support, but also to create an IT Roadmap and budget for upgrades, hardware refreshes, additional cyber protections and more, along with a budget, to get the client aligned to your tech stack and quality standards. This sets the stage for quarterly TBRs.
3. TBRs are scheduled and conducted quarterly without fail. Clients are not permitted to skip these meetings because it’s critical for you, the MSP, to address high-priority security risks as well as out-of-warranty equipment and outdated systems that could cause an increase in support tickets, downtime or other significant disasters that you would then be responsible for.
4. TBRs are strategically designed and planned, not low-value “booty calls” or ticket review sessions. Top MSPs design TBRs to be a C-level discussion about how to lower the client’s risk, ensure legal compliance, improve productivity and provide support for growth. Yes, selling happens, but it’s done to a strategic plan designed with the client’s best interest, not your quota.
5. Client profitability is reviewed at least twice a year. If any single client is found to be under 65% in service gross margin, not including hardware sales or product resell, a plan is put in place to raise prices, upgrade their plan and/or sell them a project to fix something in their environment that is causing a lot of tickets and driving down profitability. If the profitability is severely low, under 50%, they are given an ultimatum to upgrade or pay more, or they are transitioned out.
6. Referrals are asked for and expected. If you’re doing a great job, clients will want to refer you, but you’ll need to incentivize and ask for them during the TBR, not just hope they’ll remember to give them to you or toss a “we love referrals” comment on your way out of the meeting.
How Do You Know You’re Getting This Right?
Proper account management typically grows MRR by no less than 10% year over year from existing clients, through a combination of price increases, service upgrades, projects and natural expansion.
Reed Warren, CEO of IT Valuations, who works specifically in MSP valuations and M&A, recommends you aim for 8% to 10% growth from the existing customer base exclusively, roughly composed of about 5% annual rate increases plus another 3% to 5% from cross-sell, upsell, service upgrades, and expansion. In his words, an MSP should be able to get “pretty close to 10% organic growth” without adding a new logo.
Another indicator is that your project revenue will equal roughly 60% of total ARR. So, if you’re generating $100,000 in ARR, you should be generating $60,000 in project revenue from those same clients annually. If you’re not, you’re leaving money on the table at every QBR and not properly upgrading your clients’ environments.
And finally, client churn should be less than 5% per year, with each client providing at least one referral or introduction per year.
IMPORTANT: If you are spending money to chase new clients while the clients you already have are underdeveloped, underpriced, and unprofitable, you are overlooking the EASY money in your business and could be compounding the problem by adding more clients to an unprofitable business model.
Fix the existing client base FIRST. That’s where your fastest and cheapest revenue growth lives. Next, find more HVCs, or “high-value clients.”
Where Are You Leaking Profits? A Quick Self-Audit
Here are the most common ways MSPs under-develop their existing client base, and the questions you should be asking yourself right now.
1. Do you know the gross margin on every client? Not revenue, gross margin. Topline is for vanity, bottom line is for sanity. If you don’t know which clients are profitable and which are money pits in disguise, you can’t make good decisions about where to invest your time and which clients to develop versus which to fire. Pull this number for every client. The results will shock you.
2. Are you conducting QBRs or TBRs with every client at least twice a year, ideally quarterly? Not check-in calls. Not ticket reviews. Strategic meetings where you show up as a CIO, present an IT Roadmap, and talk about their business goals and technology plan. If the answer is no, or “only with some clients,” you are systematically leaving project revenue and service upgrades on the table AND underserving your clients.
3. Are any of your clients still on break-fix? If yes, you have an immediate opportunity to convert them to managed services, and you should do it before you spend a single dollar on finding new clients. A break-fix client is not a client, they’re a drain on your profits and enterprise value.
4. Are your clients buying cybersecurity, compliance, or backup services? If you’re not providing EDR, MDR, MFA, employee awareness training, immutable backup solutions and the rest to every client, you’re putting THEM at risk and leaking profits out of your business.
5. Do you have clients you dread dealing with? Every MSP does. The question is what you’re doing about them. Clients that make you cringe every time they call are draining your profitability and your team’s morale. The time and energy you spend managing your worst clients is time you’re NOT spending developing your best ones. Fire them. You’ll make more money with less misery.
Where To Start
Step 1: Assess every client and identify the gaps
Here’s your criteria:
- Profitability (gross margin). Are they at 60% to 65% on service gross margin? If not, why? Do they need a price increase? An upgrade that will quiet the noise in your service department? Figure out why.
- Tech stack alignment. Are you supporting some technology that doesn’t fit into your service department’s expertise? If yes, look to get that client aligned.
- Contract and pricing. Are they on your most current MSA and service offering? Does your agreement have automatic annual price increases of 3% to 5% baked in? Assignability? Proper SLAs? If not, this is another misalignment that needs to be corrected.
- Risk assessment. Act as if that client is using a competitor. Conduct a risk assessment and find out where they’re not secure and compliant. Your competition will use that to wedge you out, so disrupt YOURSELF before another MSP gets in there and points out the flaws and blames you for failing to warn them.
- Right fit. Do they match your ICP, or are they outside of what you consider ideal, disrupting your service department and creating more chaos and complexity?
Do this first to figure out what needs to be done in the account.
Step 2: Prepare for the meeting
Now that you’ve got your list of things to address with the client, build an IT Roadmap and IT Budget to address all of this.
Be prepared to show them how it reduces their risk, increases their stability, and gives you a structured plan to systematically align their environment to where it should be. This will allow you to grow MRR with that client over the next 12 to 24 months. It also keeps competitors out, because your client now has a multi-year plan with you, not just a month-to-month relationship.
There are a lot of great MSP tools that can help you prepare for and present a TBR. Some are, in no particular order or recommendation:
- ScalePad Lifecycle Manager
- myITprocess
- CloudRadial
- Strategy Overview
Tip: Use a cyber liability insurance application as your security upsell tool. Ask every client if they have, or are looking for, cyber liability coverage. Walk them through what insurers are requiring. Then show them your premium cybersecurity tier. This one conversation generates more upsell revenue than any other approach we’ve seen, because it’s not you selling, it’s the insurance company requiring it.
Step 3: Schedule the TBR
Don’t wait for the “right time.” Book the meetings this week and require your client to attend. This is not a request they can deny.
Step 4: Prepare to fire the clients who refuse your advice or terms
Some clients will need a “come to Jesus” meeting. These are the ones that are unprofitable and have been ignoring your advice for years. Tell them directly: either they upgrade to the service level they actually need, at the price that reflects the real value of what you provide, or they need to find another IT provider.
Most MSPs are shocked to discover that the majority of clients who have stubbornly refused your polite nudges to upgrade will suddenly see the light and sign the new agreement rather than leave. And the ones who leave? Good riddance.
Step 5: Schedule the next TBR before you leave the meeting
Don’t fall back into the dysfunctional “account management” you’ve been doing. Get on a regular meeting cadence to review the plan and budget, and to re-audit the account. Measure client MRR and profitability. Constantly monitor threats. If you’re not tracking all of this, you’re not managing it, and you’re almost certainly leaving significant money on the table every month while underserving your client.
If you want help building the account development process that makes this happen consistently, rather than in fits and starts, that is the work I do in one-on-one consulting.
Frequently Asked Questions
How do MSPs grow revenue without acquiring new clients?
Through proper account management of the clients you already have. That means quarterly technology business reviews conducted as strategic C-level discussions, a documented IT Roadmap and budget for each client, twice-yearly profitability reviews, and moving any remaining break-fix clients to managed services. Done properly this grows MRR by no less than 10% year over year, through price increases, service upgrades, projects and natural expansion.
What gross margin should an MSP make on each client?
Aim for 60% to 65% service gross margin per client, not including hardware sales or product resell. Any client under 65% needs a plan: a price increase, a plan upgrade, or a project to fix whatever in their environment is generating excessive tickets. If a client is severely unprofitable, under 50%, give them an ultimatum to upgrade or pay more, or transition them out.
How often should MSPs conduct QBRs or TBRs?
Quarterly, without fail, and clients should not be permitted to skip them. These are not check-in calls or ticket reviews. They are strategic meetings where you show up as a CIO, present an IT Roadmap, and discuss the client’s business goals and technology plan. Skipping them means leaving project revenue and service upgrades on the table while underserving the client.
Should MSPs still offer break-fix services?
No. Best-in-class MSPs take only fully managed clients, and where legacy break-fix clients exist they run a campaign to move them across. Better than 90% will move to managed services when it is sold properly, and the ones who refuse are usually clients you do not want anyway. A break-fix client is a drain on both profitability and enterprise value.
How much should MSP revenue grow from existing clients each year?
Aim for 8% to 10% annual growth from the existing customer base alone, roughly 5% from annual rate increases plus another 3% to 5% from cross-sell, upsell, service upgrades and expansion. Reed Warren of IT Valuations puts it as getting pretty close to 10% organic growth without adding a single new logo.
What percentage of MSP revenue should come from projects?
Project revenue should equal roughly 60% of total ARR. If you generate $100,000 in ARR from a group of clients, you should also be generating about $60,000 in project revenue from those same clients annually. Falling short of that usually means you are not properly upgrading client environments at each review.
What is the easiest cybersecurity upsell for an MSP?
Use a cyber liability insurance application as the tool. Ask every client whether they have or are seeking cyber liability coverage, walk them through what insurers now require, then present your premium cybersecurity tier. It works better than any other approach because you are not the one selling. The insurance company is the one requiring it.
