A fully monetized client is profitable at 65% or better service gross margin, sits on your current plan and pricing, runs an environment aligned to your tech stack, buys regular billable projects, purchases your other services, refers you, and has given you a testimonial you can use. Five drivers get a client there: move them off break-fix, evaluate them for profitability and fit, run real quarterly business reviews, add advanced security and compliance, and systematically fuel referrals. Security is the biggest lever, because best-in-class MSPs earn 12.6% of revenue from managed security against 5.6% for the bottom quartile.
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 in his own backyard to go in search of them somewhere else.
Most MSPs are Ali Hafed where growth is concerned.
They obsess over getting new clients, new leads, new campaigns, new prospects, 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 so damned difficult.
Trust me when I tell you 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.
This is also why I tell MSPs to fix the Expand side of the business before funding lead generation. Pouring new clients into an unprofitable model just makes the hole bigger.
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 pigheaded 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 account management system, fueled by a quality technology business review process. That's a TBR, sometimes called a QBR, or quarterly business review.
In fact, getting my MSP clients to do this accounted for at least 80% of the financial success from clients who attended my Rapid Implementation Workshop. The average MSP generated over $240,000 in NEW sales in under 90 days, with a good percentage generating $500,000 or more in just three 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 YOU'RE failing to sell the recommendations and services correctly, not the client being "cheap," YOU'RE the one who's stupid and stubborn.
Yep, that's me. Queen of Mean.
Do You Want To Be Right, Or RICH?
If RICH, you have to be open to testing a better process for presenting solutions to your clients, because there are hundreds of thousands of dollars waiting for you to harvest.
If that doesn't motivate you, here are a few other reasons to really dig into developing a strategic account management process.
1. New Client Acquisition Is Very Expensive And Difficult
Best-in-class MSPs, the ones in the top quartile for profitability and growth, spend an average of $27,500 to acquire a new client. That is a fully burdened cost calculated by adding up all spend on marketing and sales, including salaries and commissions of the marketing and sales team.
Unless you have a giant bucket of money to burn through, fully monetizing the clients you have is the well you want to visit first. Current clients carry zero acquisition costs, so the profitability on those sales is far greater, more assured and easier than new client acquisition.
2. You'll Be Able To Outspend Your Competition To Get New Clients
When each client is worth only a tiny bit of margin, you can't afford to invest much into getting them. Jeni's ice cream can't afford to send FedEx packages to each home in the local area when the average gross margin from a client is $10 to $20 a visit, maybe $100 a year.
But when you know how to maximize the lifetime value of each customer and the gross margin, you can invest more to get them, giving you a significant advantage over competitors who can't invest into marketing.
They have to wait and hope for referrals to flow in. You can invest into sales professionals, SEO and digital marketing, trade shows, proper CRM tools and lists, and dominate them while they're boxed into spending little to nothing.
3. Clients Who Buy More Services From You Are Less Likely To Churn
When a client buys into a managed contract and your full tech stack, it becomes very hard for a competitor to unseat you. They'd have to replace everything, which is painful and disruptive. You become "the one throat to choke," which is exactly what your clients want anyway.
Clients without a contract under a break-fix arrangement, or who are not using you for cyber protections, phones or fractional CIO services, see you as an easy-to-replace vendor. Because you are. And they will leave at a higher frequency than a client who has all of their cyber, backups, compliance, phones and strategy with you.
4. It Keeps Competitors Out Of Your Clients
When you don't meet with your clients quarterly to discuss important topics like security, compliance and new technology like AI, or you're not reviewing their environment for old equipment that needs replacing, your clients could find someone who IS talking to them about AI or compliance. And that someone else could be another MSP.
Further, a competitor could make the case that YOU are truly failing them for NOT discussing these issues, sowing seeds of uncertainty and distrust.
5. It's Part Of Your Responsibility
Your job as their MSP is to help manage their risk, guide them on their IT budget and advise them on how to keep their environment secure, compliant and productive.
Reactive IT services, the "call us when you need us" approach, is a dereliction of duty.
What A Fully Monetized Client Actually Looks Like
The goal here is to help you understand what good account management is and how to FULLY monetize the clients you have.
A fully monetized client:
- Is profitable, at at least 65% service gross margin
- Is on your current service plan and pricing
- Has an IT environment aligned to your recommended tech stack
- Is doing regular, billable projects to upgrade their environment to your standard
- Is purchasing other services you offer, such as VoIP, security cameras and products
- Refers other clients regularly
- Has given you a quality case study, online review or testimonial you can use in marketing
Read that list against your own client base and you will see immediately where the money is.
So what are the steps involved in fully monetizing the clients you have? There are five big ones. Miss even one and you're leaving money on the table every month.
Driver 1: Move All Break-Fix Clients To Managed Services
If you have any clients still on break-fix arrangements, paying per problem, per hour or per project, they represent both a profitability problem and a retention risk. They're not on a recurring contract, which means they can leave without any friction, and they're not generating the stable MRR that makes your business predictable and sellable.
Even getting a client onto a basic managed services agreement where you are monitoring security and backups is better than a true, random break-fix arrangement.
Some people in this industry believe that if a client won't buy a full-blown managed services agreement, you shouldn't take them on at all. I think that stance works for larger MSPs. But I also understand some of you reading this are smaller startups who may need to baby-step this process of moving break-fix clients to fully managed.
Just know that the most profitable, fastest-growing MSPs target and only accept clients who want fully managed IT support, not break-fix arrangements. Your goal should be to get there within a year or two.
Driver 2: Evaluate Every Client For Profitability And Right Fit
Not every client deserves to stay. Some clients pay too little, demand too much, and cost you in time, energy and staff morale far more than they're worth on paper.
Furthermore, some clients are just difficult to serve because what they need and what you're delivering is outside of your normal "factory" of work. This can create complexity and chaos in your service department.
That's why you want to make sure all clients are a good fit and match your ideal client profile AND are profitable. Such a client is easy to service, profitable, enjoyable to work with, and needs and wants the EXACT services you offer.
Best-in-class MSPs rank clients on right-fit status at least twice a year, and they have a frank conversation with low-margin clients, meaning anyone under the 60% to 65% service gross margin target, about upgrading their service level, increasing their rates or finding another provider.
Firing cheap, PITA 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.
You don't need more clients. You need better ones.
Driver 3: Run MSP QBRs That Actually Deliver Value
A QBR, or TBR, is NOT a support ticket review. It's also not a sales "booty call" to sell your clients over and over again.
It's a strategic C-level conversation where you truly fulfill the role of chief technology officer for your clients. In a properly run TBR, you present the client with an IT Roadmap and IT Budget aligned to their business goals, identify ways to cut costs, reduce their risks, increase productivity and improve stability. And while doing that, you also naturally increase their spend.
These meetings are where you will:
- Check in on their overall satisfaction and address any concerns
- Provide company news or other headline-worthy information they need
- Review their IT spend and look for ways to be more efficient
- Go over critical updates and security issues that need to be addressed
- Map out the roadmap and budget for the next 12 months so they can budget for IT
- Recommend solutions that might help them
If you are not doing QBRs with your clients, or if you find it difficult to get them to meet with you to conduct these meetings, your process is broken.
Of course, there will always be that 5% to 10% cohort of clients that want to push off the meeting or constantly reschedule. But if they are an important, high-value account, you MUST figure out where you are approaching this wrong, and fix it.
This quarterly meeting is the lynchpin of account management, because it's where you truly showcase your value, help your client, build the relationship and drive sales.
Driver 4: Add Advanced Cybersecurity And Compliance Services
According to Service Leadership data, best-in-class MSPs, the most profitable cohort, derive 12.6% of revenue from managed security, versus 7.0% for median MSPs and 5.6% for bottom-quartile MSPs.
Further, a Forrester TEI study of MSPs also showed that MSPs who upgraded their security offering were able to institute a major price increase, securing 60% service gross margin versus 40% on standard managed services.
That's because help desk and basic managed services are nearly a commodity. If you want to make more money with better clients, you need to start selling advanced cybersecurity and compliance solutions to clients who need and want those services.
If you're not sure what "advanced cybersecurity" means, at a minimum you can design your services to make your clients compliant with NIST standards, which is what most cyber liability insurance companies use. Obviously there are other compliance standards, like CMMC, HIPAA and FedRAMP, so you need to pick the one that matches your ideal client profile.
Offering this will differentiate you from the smaller, cheaper MSPs who compete on price, and it will be critical to going upstream to win larger clients. They want, and will pay for, an MSP that can deliver managed security and compliance solutions, not a "Chuck in a truck that does anything for a buck."
Driver 5: Fuel Referrals And Testimonials
If you had good referral systems and processes in place, you could literally double your business every year without spending thousands on marketing.
Simply set a goal: every client must introduce you to at least one other client every year.
That's not a difficult goal to accomplish UNLESS you're merely waiting and hoping for your clients to give you referrals. But here's one simple thing you can do.
During your QBR or TBR, bring a list of your top 10 opportunities or prospects you're trying to get a meeting with. Show it to your client and ask if they know anyone at those organizations and can introduce you.
Also, when meeting with clients, have your antenna up for when they compliment you on your services. Say, "Would you be opposed to putting that in writing for a testimonial on our website? I can write it for you if you like and then have you approve it."
Happy, raving fan clients will help you in the ways described above.
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 high-value clients.
Where To Start
If you would rather find where the profit is leaking before you begin, run the profit-leak self-audit first. Then work through these five steps.
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 ideal client profile, 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: Be Prepared 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 and random 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 working out which of these five drivers will produce the most for your business, and in what order to work them, that is the work I do in one-on-one consulting.
Frequently Asked Questions
What is a fully monetized MSP client?
One that is profitable at 65% or better service gross margin, is on your current service plan and pricing, runs an IT environment aligned to your recommended tech stack, buys regular billable projects, purchases your other services such as VoIP or cameras, refers other clients regularly, and has given you a case study, review or testimonial you can use in your marketing. Most MSPs have very few clients who meet all seven.
Why should I grow existing clients before chasing new ones?
Because new client acquisition costs best-in-class MSPs around $27,500 per client, fully burdened. Existing clients carry zero acquisition cost, so the profit on those sales is greater and far more certain. Clients who buy more services also churn less, because replacing a provider who handles their security, backups, compliance, phones and strategy is painful and disruptive.
How much revenue should come from managed security?
Best-in-class MSPs derive 12.6% of revenue from managed security, compared with 7.0% for median MSPs and 5.6% for the bottom quartile, according to Service Leadership. A Forrester study also found that MSPs who upgraded their security offering could institute a major price increase, reaching 60% service gross margin versus 40% on standard managed services.
What should an MSP QBR cover?
Client satisfaction and any concerns, company news they need to know, a review of their IT spend and efficiency opportunities, critical updates and security issues, a 12-month roadmap and budget so they can plan for IT, and recommended solutions. What it is not is a support ticket review, and it is not a repeated sales pitch. It is a C-level conversation where you act as their chief technology officer.
When should I fire an MSP client?
When they sit persistently below the 60% to 65% service gross margin target and refuse to upgrade their service level or accept a price increase. Rank clients on profitability and right fit at least twice a year and have the frank conversation. MSPs who do this consistently report that within 90 days they are making the same or more money with considerably less stress.
How much should MRR grow from existing clients each year?
At least 10% year over year through price increases, service upgrades, projects and natural expansion. Reed Warren of IT Valuations recommends aiming for 8% to 10% from the existing base alone, roughly 5% from annual rate increases plus 3% to 5% from cross-sell, upsell and expansion, and says an MSP should be able to get close to 10% organic growth without adding a single new logo.
How do I get more referrals from existing clients?
Set the expectation that every client introduces you to at least one other client each year, then make it easy. During your quarterly review, bring a list of the top 10 organizations you are trying to reach and ask whether they know anyone there who could introduce you. And when a client compliments your work, ask right then whether they would be opposed to putting it in writing, offering to draft it for their approval.
Why does selling security and compliance make an MSP more competitive?
Because help desk and basic managed services have become close to a commodity, so competing there means competing on price. Advanced security and compliance separates you from cheaper providers and is essential to winning larger clients upstream, who want and will pay for a provider that can deliver it rather than a generalist who cannot.