I’ve been participating in a lively debate over on MSPMentor (www.mspmentor.net) regarding a philosophy about pricing, the value of services and most importantly clients.
My position on seeking out the right clients is that in order to maintain the highest level of profitability, we should seek technology-strategic and technology-dependent clients. Technology-strategic clients are those who view technology spending as strategic investments in their organizations to give them a competitive advantage in their markets, and technology-dependent clients, while not being quite as strategic, depend on technology so heavily to run their businesses that they realize they must invest in technology.
These clients appreciate being introduced to new solutions that will increase efficiencies and productivity, alleviate business pain and risk, and improve their bottom line. They also actively work towards building a long-lasting relationship with their Trusted Advisor, whom they see as a business partner with their best interests in mind, as opposed to just another vendor.
These clients are also most likely to maintain budgets for technology, or are open to creating them, and allowing their Trusted Advisor to guide them through spending it wisely, secure in the fact that they will make better decisions with an experienced resource to lead them.
It took us a while to transform our break-fix customer base to "A" and "B" Managed Services clients back in 2005, as we had a pyramid of customers that looked like this:
We had lots of clients paying us a small amount of money making up the bottom third – the widest part of the pyramid. In the middle third of the pyramid we had a much smaller amount of clients paying us more money than the bottom third. Finally, the top third of the pyramid was comprised of a very small amount of clients paying us the most money.
Our philosophy during and after transitioning to Managed Services and selling on value was to release the clients in the bottom third of the pyramid as we actively signed new "A" clients in the top third of the pyramid, replacing their revenue. We then were left with a lesser overall number of clients; but these were now "A" and "B" clients, who payed us more money, and were much, much easier to support and sell additional services and solutions to.
We had now "squeezed" our pyramid from the bottom and forced more "B" clients up into the top half of this new pyramid by building closer relationships with them (no third tier anymore) and growing it with the existing and newly signed "A" clients. We battled commoditization by only selling our services on value – as true consultative Trusted Advisor.
We made a conscious decision to work with only "A" and "B" clients (whom we worked aggressively with to promote to "A" client status), and deliver only managed and professional services moving forward – the result was no "break-fix" customers anymore, and we did not provide service to anyone that was not on a Managed Services Agreement. We were now very selective in our choice of clients, as our primary internal goal was maximum profitability. So our clients had to share similar philosophies regarding our business relationships with them, and take an active role in maintaining and growing it – after all, if we were experiencing maximum profitability, so were they, as that meant that their networks were running like well-oiled machines, and they were consuming new solutions to improve their business outcomes as quickly as we could identify and implement them.
This was another key point in our transition to a Managed Services Provider/Trusted Advisor – we deliberately changed our mindset from being focused on Operational and Project Outcomes to focusing strictly on Business Outcomes for our clients, moving from delivering technology to delivering business solutions. Here’s a graphic from Everything Channel that illustrates this concept perfectly:
As you can see, the gap between IT Reseller and IT Integrator is delivery of solutions instead of just products, and the gap between the IT Integrator and the Business Integrator is the focus on business outcomes instead of project outcomes. A key differentiator between the Business Integrator and the other groups is that this role, embodied by a true Trusted Advisor, pairs business acumen along with technical acumen in order to provide the most value to their clients.
The ability to squeeze your pyramid is directly related to your internal, as well as your clients’ perception of your role and responsibility to them. A reactive break-fix service provider may never be able to squeeze their pyramid, based upon the bullet points illustrated in the previous graphic. The professional service provider stands a better chance, while the Trusted Advisor/MSP will be the least challenged and most profitable of all groups in this respect.
How far can you squeeze your pyramid?