MSPs get stuck with bad clients because they don't have the marketing and sales to replace them, they chase growth over profit, their sales process never sets expectations, they've never defined what a great client is, and they carry emotional baggage about raising prices and setting standards. A high-value client pays well, is profitable, follows your advice, pays on time, is reasonable and appreciates what you do. The least desirable clients are the easiest and cheapest to get but the hardest to keep and make money on. Filter them out, but don't treat your good clients like suspects because of the bad ones.
Back when I owned TMT, we had a brand-new member cancel his membership, threatening, "I'll take you to court" if we didn't let him out of it. Want to know one of the big reasons he was so angry? He was HIGHLY annoyed that we had MFA turned on for his member login. His exact words: "I don't know what that is. It's just annoying, so turn it off."
Folks, you can't make this stuff up. P.S. Only good MSPs will understand why that is such an incredibly moronic statement. If you don't understand it, ask a friend. But that's not my point…
No matter what type or size of business you're in right now, I know one thing for sure: you are either currently dealing with, or in the not-so-distant future WILL deal with, annoying to outright dangerously stupid clients like the doofus above. No one is immune, and if you're not proactively filtering these people OUT, they'll accumulate under your roof and multiply like cockroaches. This is one of the key things more successful MSPs do that failing MSPs don't: they routinely shed and replace BAD clients.
A stern reminder to ALL of you: set up your business to attract and retain ONLY those clients who meet your strict criteria for HVCs, or high-value clients, firing and repelling EVERYONE else.
This is very simple to understand intellectually, but, from an emotional standpoint, extremely difficult for people to implement. But if you actually pay attention to this advice and act on it, you will profit from this in multiple ways, including but certainly not limited to financial reward.
What Is A High-Value MSP Client?
That's because a high-value client is not just someone who pays you a lot of money, although that certainly IS one of the characteristics. They also:
- Represent a significant amount of profit
- Follow your advice
- Are easy to service (because they follow your advice)
- Don't complain about everything
- Are very reasonable in their expectations
- Pay on time
- APPRECIATE what you do
Many will also be deep wells for referrals. And ultimately, they should give you energy and inspiration, not suck the ever-living soul out of you.
5 Reasons MSPs Get Stuck With Bad Clients
Way too many MSPs make the mistake of clinging to low-money, unprofitable, wrong-fit clients and pay the price in multiple ways. There are several factors driving this.
1. No way to replace them. The biggest one is they don't have a sufficient marketing plan and sales team in place to create a steady flow of fresh new clients and opportunities to REPLACE the problem children they have. They're stagnant.
Other reasons MSPs stay burdened with a bunch of low-profit, wrong-fit clients are:
2. An obsession with growth and gross over quality and profits. If you're not too picky about who you take as a client, it's relatively easy to get growth, but it can cost you in profits, retention and equity valuation, not to mention having to deal with a high level of churn, staff burnout and a bad reputation that will come from these crap-heads posting negative reviews about you online.
3. An extremely flawed sales process that doesn't set the proper expectations for new clients about what is expected of THEM and how they should behave, so you're essentially set up to FAIL before you even get started.
4. ZERO thought, strategy or definition of what a GREAT client is, so they have no target to aim at, no criteria to filter through. They just take 'em all and sort the mess out later.
5. Emotional baggage over raising prices and insisting on certain standards for clients. This can show up as fear that you can't replace the money they represent, or a fear of simply confronting their bad behavior. Or guilt for making demands. Or insecurities about your authority to "make demands" and set standards.
How Do You Fire A Bad MSP Client?
Firing a client starts with knowing which ones to fire, and that takes numbers, not just a bad feeling after a rough week.
Rank every client on profitability and right fit at least twice a year. A right-fit client is easy to service, profitable, enjoyable to work with, and needs and wants the EXACT services you offer. Anyone running below a 60% to 65% service gross margin, or who has been ignoring your advice for years, goes on the list.
Then have the "come to Jesus" meeting. 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 stubbornly refused their polite nudges to upgrade will suddenly see the light and sign the new agreement rather than leave. And the ones who leave? Good riddance.
Firing cheap, pain-in-the-a$$ clients sounds scary, but the MSPs who do it consistently report that within 90 days they're making the same or more money with a lot less stress. (I walk through the full account review process in what a fully monetized MSP client looks like.)
The catch is reason #1 above. You can only afford to fire the bad ones if you have the marketing and sales to replace them.
Why Are Bad Clients So Easy To Get?
A theory I've long believed to be true but cannot provide statistical evidence to back up my gut feeling on is this: the LEAST desirable customers are the easiest and cheapest to get but the hardest to monetize and retain, and the MOST desirable customers are the most expensive and difficult to get initially but VERY easy to retain and monetize.
This means, of course, getting the RIGHT customers is going to be an expensive, difficult path to walk, requiring investment, solid strategy, consistent execution, careful thought and playing the long game. Given most MSPs simply won't give up their addiction to "easy buttons" in marketing, they are going to suffer with trying to support a growing scrap heap of low-money, pain-in-the-a$$ customers.
How Do You Find More High-Value Clients?
To do this right requires you to first dig into your customer records to find commonalities of source, demographics and psychographics, as well as investing time into defining what a great customer is and figuring out the size of market (haystack) you'll have to start sorting through to find the select few golden needles.
It will also require a much more targeted marketing message and media approach to ensure you're not aiming too broad, which may require marketing media such as direct mail, telemarketing and sponsored trade shows and events (not cheap), as well as strategic partnerships and referral partners, which can be relatively difficult to establish.
The Overlooked Trust Mistake: Don't Punish Good Clients For Bad Ones
There’s another reason to work hard on attracting high-value, right-fit customers. When you encounter (or worse, accept) bad customers, it changes you. It makes you skeptical of every customer who meets you and causes you to put strategies, roadblocks and actions in place that are off-putting to your good customers.
Like the Costco receipt check.
Every customer leaving the store has to have a Costco employee check their cart to make sure you aren't stealing. They SAY it's to ensure you don't get double-charged for something (which means they don't trust their checkout staff either). I don't go to Costco anymore, but when I did, it was highly annoying to wait in line to get the cart checked after I just waited in line to have one of their employees scan every item in the cart, item by item.
Another example: I once stayed in the "presidential" suite in a Chicago hotel.
Everything was beautiful EXCEPT one thing: The hand-soap bottle was glued to the wall with a very cheap-looking, plastic fixture, a sign that they don't trust their guests not to steal it. I'm fully aware that in some states, hotels are required by law to provide full-sized bottles of toiletries, but the law doesn't say they must solder them to the wall, and if they did need to do this, there's a more elegant way of affixing it to the sink that would look aesthetically pleasing than what they had going on.
Three weeks earlier, I stayed at the Four Seasons Hotel in Las Vegas, which also had full-sized toiletries in the bathroom. They were a FAR more expensive brand of soap, but they weren't glued to the countertop or attached by a chain.
Does theft happen in hotels? Without a doubt.
But theft happens in ALL retail stores, grocery stores, restaurants and hotels. The difference is that most don't, in response, treat their guests like criminals, particularly those establishments that are attempting to attract a higher-value clientele. They simply adjust for it on what they charge their clients.
My point is this: If you want to get customers to trust you, you also need to return the benefit of the doubt. If you can't trust them, you need to find a way to attract better clients and filter out the ones you don't want.
The Bottom Line On Bad Clients
Few are ever willing to make this shift in mindset and approach, much less do the work involved. They choose to run faster and harder, eyes shut. The key word here is CHOICE. You do choose your customers, whether strategically or sloppily, thoughtfully or thoughtlessly.
Start by defining your high-value target market, build the lead generation to replace the clients you need to shed, and fix the sales process so new clients know what's expected of them from day one. Then earn their trust and give it back.
If you want help defining your ideal client and building the marketing to attract more of them, that's the work I do one-on-one as an MSP marketing consultant.
Frequently Asked Questions
What makes a high-value client for an MSP?
A high-value client pays well, but that's only one part of it. They also represent significant profit, follow your advice, are easy to service, don't complain about everything, have reasonable expectations, pay on time and appreciate what you do. Many are also deep wells for referrals, and they should give you energy rather than drain it.
How do you fire a bad MSP client?
Rank every client on profitability and right fit at least twice a year. For anyone below a 60% to 65% service gross margin, or who keeps ignoring your advice, have a direct conversation: upgrade to the service level they need at a price that reflects its value, or find another IT provider. Most will upgrade rather than leave, and MSPs who do this report the same or more income within 90 days with less stress.
Why do MSPs keep bad clients?
The biggest reason is that they don't have the marketing plan and sales team to bring in new clients and replace the problem ones. Others include chasing growth over profit, a sales process that never sets expectations for new clients, no definition of what a great client is, and emotional baggage about raising prices, confronting bad behavior or setting standards.
Should an MSP fire bad clients?
Yes. Successful MSPs routinely shed and replace bad clients, while struggling ones let them accumulate. Set up your business to attract and keep only clients who meet your criteria for high-value clients, and fire and repel everyone else. That's simple to understand and emotionally hard to do, which is why so few MSPs do it.
Why are bad clients easier to get than good ones?
The least desirable customers tend to be the easiest and cheapest to get but the hardest to monetize and keep, while the most desirable are the most expensive and difficult to get but very easy to keep and monetize. Getting the right clients takes investment, strategy, consistent execution and patience, which is why MSPs addicted to "easy buttons" end up with a scrap heap of unprofitable customers.
How do I find more high-value clients for my MSP?
Start with your current customer records and look for what your best clients have in common: how you got them, their demographics and their psychographics. Define what a great client is, then size the market you'll need to sort through to find them. Reaching them takes a targeted message and media like direct mail, telemarketing, sponsored events, strategic partnerships and referral partners.
How do bad clients hurt your relationship with good ones?
They change how you behave. Encountering or accepting bad customers makes you skeptical of everyone, and you start putting rules, roadblocks and policies in place that put off your good customers, like a store checking every receipt or a hotel gluing the soap to the wall. If you want clients to trust you, return the benefit of the doubt, and filter out the ones you can't trust instead.
How does your sales process affect client quality?
A sales process that doesn't set expectations about what's required of the client and how they should behave sets you up to fail before the relationship even starts. Your process should spell out what you expect from a new client, such as following your advice, meeting for regular reviews and paying on time, before they sign. Clients who won't agree to those terms during the sale rarely become good clients after it.