No one could have expected the severity of impact that the COVID-19 (coronavirus) pandemic had on managed service providers (MSPs). As a community, we collectively had to figure out our best move as an industry of IT professionals navigating an unprecedented situation to find our new normal.
Even now, we must forge ahead to continually plan for recovery. Whether you have experienced significant hardship in your business, or your day-to-day operations have not significantly changed, now is the time to start planning ahead.
COVID-19 Rapid Recovery Webinar Series. See Webinars >>
In our three-part Rapid Recovery Webinar Series, Paul Dippell, CEO of Service Leadership®, Inc., provided expert advice on maximizing profits, improving customer retention, and generating new business. From implementing strategies for retaining customers, to tracking profit margins, this series laid out a set of guidelines for rapid recession recovery.
Part 1: Determining Your Financial Situation and Protecting Profitability
In the first part of this series, Paul provided valuable information on how to clearly understand your financial health and maximize MSP profit margins—both during and post-COVID-19.
Typically, MSPs who do the best in recessions cut their total costs the soonest. This allows them to foster a positive bottom line that they can then invest prudently in sales and marketing. Those who do the worst don’t cut costs much or at all, and count on cash to cover their losses.
Unfortunately, even though there are ways to counteract declining revenue, often times they are not enough to truly stabilize revenue, as priorities will immediately shift to recession related must-haves. For example, MSPs may need help transitioning to a remote workforce which has an initial cost, or they may need to outsource to cover for loss of skills from furloughed workers.
So, how do you stay proactive? There’s a new Service Leadership Index® (SLI) metric—your Financial Early Warning Score—that indicates your company’s immediate risk during economic downturn. Over 33% of solution providers surveyed were in danger or risk—meaning they were likely to be in jeopardy during and after an economic recession.
Learn the expected level of risk per quarter by leveraging our business resilience resources to find out your level of risk, your Financial Early Warning Score, and recommendations for your MSP based on your results. Paul recommends forecasting every two weeks to keep ample track of your financial health.
Part 2: Retaining and Risk-Managing Your Existing Customers
One way to keep existing customers who may be struggling financially is to reduce your fees. This should only be done when needed and not offered to everyone. If you need to reduce fees because your existing customer base isn’t able to pay, here are the steps you can take:
- Build an expectation of reduction in quality of services if you charge less—when things get back to a healthier state, customers likely won’t want to pay more for the same services
- Avoid deferring payments—you aren’t a bank
- Be selective on who you approach—you can’t afford to reduce costs for all of your clients
- Focus on creating ONE low-cost option and merge customers onto that plan
If you do reduce fees, your offer should focus on saving your customer 15% to 20%, while still keeping your gross margin at 50%.
According to Paul, good cash flow comes from more than just altering your clients’ behaviors—you have to change your own. The webinar lays out several tips on ways you can continue to bill and collect on time, despite this economy recession.
Part 3: Selling Into the Storm – New Business Generation in a Downturn
In the third and final webinar in the Rapid Recovery Webinar Series, Paul provided in-depth insight into how solution providers can tackle the increased challenge of driving sales during this period of uncertainty.
When the economic future is uncertain, you may be tempted to say yes to any and all new business. However, it is important to be able to properly evaluate whether prospects are a good for your business. Prospects that ARE a good fit are typically:
- In your Target Customer Profile (TCP)
- In your geography
- On your tech stack
- Accept your fullest offer
- Will pay your fullest price
- Able to make time to transition
- Are credit-worthy and stable
These prospects may also be growing. Prospects that are typically NOT a good fit for your business are:
- Bigger or smaller than TCP
- Outside your geography
- Not on your tech stack and can’t or won’t go there
- Expecting a skinnied-down offering
- Unable or unwilling to make time to transition
- Not credit-worthy or stable
- Shrinking fast
By determining your financial state, you’ll be able to understand if you should be willing to go outside your TCP. If you’re not profitable at the bottom line, your number one priority is to get to a positive bottom line. Certain traits may have to be suspended, which is difficult on your business but if it will keep you afloat, is completely necessary. However, even if you’re struggling to make a buck, never take on customers who are not credit-worthy.
For MSPs who are looking to attract higher operational maturity level clients, Paul laid out several pieces of advice you can follow to get the best quality prospects. For example, one tip is that customers who value IT and are willing to invest in it to manage risk and drive growth are shown to respond best to solution providers who take decisive steps to assure the mutual success of the new relationship. Another tip is to not lead with lowest cost offering during a recession—by doing this you are communicating to the prospect that you have failed to recognize their actual situation. Watch the webinar to get the full scoop!
One thing’s for certain—the 2020 economic recession has been a unique period of uncertainty for all of us. But with a bit of proactivity to increase preparedness, we can recover from the economic downturn and emerge with newfound strength and an ongoing strategy for success.
Paul Dippell’s Rapid Recovery Webinar Series lays out guidelines for MSP financial recovery.