By Jay McCall, Business Solutions Magazine
This MSP changed its business model and became more profitable with fewer customers.
Even before his 10-year career working for AOL as a technical security analyst, Cory Carson loved computers, and he was always the go-to guy when friends and other IT enthusiasts got hung up on an IT issue. Carson would take care of it, and he learned that explaining in detail everything he did to get a computer up and running again was lost on most people. By 2008, Carson’s love for IT led him into a nearly fulltime VAR business he did on the side, helping out a few friends who ran small businesses and keeping their networks up and running. Within two years, his hobby grew to the point where it made sense to turn it into a full-time job, and Computer Doctor was born. Heeding the advice of several former business colleagues who were seeing a rising interest in managed services, Carson made the decision that managed services was going to be a core focus of his business. Before long Carson had a business partner, a commissioned salesperson, and enough work to keep him busy 12+ hours a day, seven days a week. Besides the taxing work hours, Carson’s business wasn’t profitable. Rather than throwing in the towel, he looked for answers and eventually found them at master MSP (managed services provider) CharTec’s training academy. According to Carson, partnering with the master MSP and following its sales advice has been the single best business decision he’s made to date. Following is a recap of the top six business lessons he learned and how applying these lessons has changed his business.
Lesson #1: Stop Underselling Your Services
One of the biggest eye-openers Carson experienced during the two-day academy training was that he was going about selling managed services all wrong. “We were selling our customers just one aspect of managed services — such as 24/7 support — and behind the scenes we were doing all kinds of things to keep their networks running smoothly, such as network assessments, security audits, server rebuilds, and several other things that they weren’t even aware of,” he says. Because Carson is more of a technician than a salesperson, his previous managed services pitch was little more than “We’ll take care of keeping your network up and running, and you can call me anytime [i.e. 24/7] if there’s ever a problem.” He learned at the training academy that he needed to articulate each service he was already doing for his customers, so they could appreciate the value of what they were receiving and pay Computer Doctor more money.
Lesson #2: Stop Selling Hardware at Cost
Prior to attending the training academy, Computer Doctor was a gold-level partner for a major computer and hardware manufacturer. Even though the hardware vendor had a channel program, it was notorious for competing against its channel partners, a fact which Carson learned the hard way. “I would quote a customer a price for desktop PCs and servers, and then they’d go on the vendor’s website and find the same hardware cheaper,” he says. “Then, they’d look at me like I was some kind of shyster trying to rip them off.” Rather than jeopardizing his customer relationships, Carson ended up reselling workstations and servers at cost, hoping to earn all his revenue selling services. At the training academy, he learned there was a better solution to this dilemma. The first part of the solution was to fire his hardware vendor and partner with a vendor that was loyal to the channel. The second part of the solution entailed offering customers a choice of buying his new hardware offering up front or rolling the cost of the hardware into a managed services contract (i.e. selling Hardware as a Service).
Lesson #3: Put Customers On A 3-Year Managed Services Contract
Prior to the academy, Carson’s managed services customers signed 12-month contracts. What he soon discovered was that he was always in renewal mode and renegotiation mode. At the academy, he learned that three-year contracts were the way to go. After discussing this with his customers, most were fine making the switch, knowing that if Carson didn’t live up to his end of the agreement, they could get out of the contract in 90 days.
Lesson #4: Don’t Sell Managed Services To Customers With Fewer Than 1 Server, 5 Workstations
Computer Doctor sold managed services to customers of any size. While at the training academy, Carson was challenged to set a managed services minimum requirement of companies with at least one server and five workstations. “We had two customers that were below this minimum threshold, and I knew this was going to be a difficult conversation when I returned home,” recalls Carson.
30 Days To A New Business Plan
After returning from the training academy, Carson knew he had some significant changes to make, but he was convinced what he learned made good business sense, and he was committed to making each change. He had received a PowerPoint presentation from the academy, which would serve as the basis for his business transformation. Carson’s plan was to schedule appointments with eight of his customers on managed services plans and to make them aware of his new business model. So, how exactly do you prepare to tell a customer that you’re going to double, triple, and maybe even quadruple their monthly service revenue? You practice. And, that’s just what he did. “I customized the 30-minute presentation with my logo and verbiage, and I rehearsed my presentation a dozen times over a one-month period,” recalls Carson. “I talked to family members and friends and asked for their honest feedback.” The rehearsals helped him in a couple of ways: First, they helped him to focus on his customers during the meetings and less on himself and the script. And second, they helped him anticipate objections he would soon be facing from his customers. Here are the top four objections Carson was hit with during his rehearsals:
“I don’t need that much value. I’m happy with the way things have been.” Carson prepared to overcome this objection by focusing on two things: server software licensing and preventative maintenance. By selling Hardware as a Service (HaaS), the cost of the software licensing was already rolled into the monthly services contract, whereas previously the customer was responsible for paying this annual fee, which ran about $3,500. Also, most servers have a three- to five-year life cycle. Under the old program, a customer would be hit with an unexpected project fee if Computer Doctor had to rebuild a server that month. Under the new program, customers paid a monthly flat fee, which included all future server rebuilds.
“I would still prefer to buy my hardware myself and just have you service it.” This objection required Carson to sharpen his TCO (total cost of ownership) skills. Even though his new hardware provider was more expensive, it used better components and had a failure rate that was 28% lower than the previous hardware vendor. “Even though the customers’ hardware costs were going up 25%, they gained peace of mind that their hardware would be more dependable and it would last nearly twice as long before needing to be replaced,” says Carson.
“I don’t feel comfortable signing a three-year contract. I’d prefer to sign for one year at a time.” Customers that present this objection worry that if they sign a long-term contract, the service provider is going to get lazy, and the service is going to slip. “We combat this objection by explaining to customers that if they’re ever unhappy with our service, they can get out of the contract in 90 days with written notice,” says Carson.
“Your backup and disaster recovery offering is now more expensive than your competitors.” This was the one Carson struggled with the most, initially questioning himself about the necessity of adding another server to each of his customers instead of just backing up to a flash drive like he did previously. “My master MSP account rep helped me get over this hurdle by helping me understand the cost of downtime to my customers’ businesses,” says Carson. “It’s not just about having a safe copy of your customers’ data; it’s also about how quickly you can get them back up and running if their server goes down.”
After the 30-day preparation period, Carson scheduled face-to-face meetings with each of his clients and used his PowerPoint presentation to explain his new business model. He ended up losing three customers — two were below Computer Doctor’s new minimum requirement for selling managed services, and one didn’t want to pay more and couldn’t be convinced otherwise. The upside was that the other five customers saw the value in having Computer Doctor manage their network and computers for a fixed monthly fee, and they agreed to pay more. Right away, Computer Doctor was more profitable than it had been previously, and because its higher need, less profitable customers went away, it was able to focus on going after new business. Within six months, Carson revolutionized his business and increased his monthly recurring revenue sevenfold.
Jay McCall is the networking and managed services editor for Business Solutions magazine. You can contact him by emailing firstname.lastname@example.org.