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Not all MSP clients are of equal value. Some will put you on a path to wealth and freedom, and others will do the opposite. You must do an objective, data-based analysis of your clients in order to know which is which. We show you how.

The Anything For A Buck mentality says: “More clients are always better.” More clients mean more money, and therefore more profits, right? Well, not necessarily.

“More isn’t better. Better is better. There are three types of clients, and their importance is ranked exactly as follows: 1. Good clients, 2. Nonexistent clients. 3. Bad clients… You’re much better off having no clients than bad clients, because at least when you don’t have any clients you can prospect for good ones instead of tailoring, twisting, and tweaking to accommodate the bad ones.”

— Mike Michalowicz in The Pumpkin Plan

Bad clients poison your client pumpkin patch. They drain nutrients out of the soil. They suck up water that should be fattening up your giant pumpkin. They introduce disease to the garden that can spread. The worst clients aren’t very profitable, suck up a lot of time, keep you distracted, and sap energy from the team. Eventually, they can scare off an MSP’s best people.

We have an imaginary nonsense metric we talk about called “stress per dollar.” If every time your team works with a particular client, they just want to bang their heads on the wall, that would be a high stress-per-dollar client.

At my MSP, we had a saying: “You get to be cheap OR a pain in the ass.” A client who is both of those things is the very definition of a C-level client. MSPs should avoid ever bringing them on if they can, and if it’s too for late for that, it’s time for war. Change or die. They must be transformed into a client worth having, or it’s off with their head! (Metaphorical head. Calm down, dude.)

Remember, in order to scale a business, everything must be systematized. You can’t put processes in place if every client looks different in terms of their technology and your agreement with them. So the idea is to determine who your best clients are, standardize their technology and service agreements, and then build processes that enable you to efficiently provide them with great service. Then go out and get more clients like them.

That’s the Pumpkin Plan in a nutshell.

Notice what’s missing from this equation? The other clients. The ones who are cheap (or just unprofitable) and a pain in the ass (PITA). Because they’ve either been whipped into shape, or they’ve been excised like the malignant tumors they are.

So how do you determine which clients have giant pumpkin potential and which ones are just weeds?

Conducting A Ruthless Inventory
To do a client inventory, create a simple spreadsheet. You can use the fields we delineate below, and you can add or subtract fields as you see fit. But don’t let it get so complicated that you get buried in the weeds or need days to create it.

You’ll need some basic data available to have your assessment paint the most accurate picture of your clients, so the first job is to gather that information. Hopefully, you have a bookkeeping program and a professional services automation tool like ConnectWise, Autotask, or Halo for billing and time tracking. If so, all the data you need should be readily available. The numbers you’ll need are as follows:

With these numbers, you can easily create the following useful metrics:

Percentage Of Service Revenue That Is MRR
Divide client MRR by total client service revenue, then multiply by 100. Ideally, you want this number to be over 75%, but not 100%. This means that the company is a true managed services client that is pumping out MRR (ka-ching in that piggy bank you will break when you eventually exit) every month. The other 25% or less is for projects and out-of-scope work. If clients are at 100% MRR, unless there is a creative model in place that includes project work and extras in their monthly charges, then projects are going undone or being done for free. We don’t recommend that!

Effective Hourly Rate
Divide total service revenue by total hours spent on the client. This simple calculation shows how much is really being made per hour.

This number should be higher than what you would have charged for hourly services when…

Most clients will use a similar amount of help desk (lower-cost) time versus engineering (higher-cost) time, but if there are clients that are exceptions, make a note. Obviously, clients that don’t hog high-end resources are certainly preferred!

More sophisticated versions of this metric also factor in the total burdened cost of the different resources who have worked on the account. Services like MSPCFO can help MSPs get there, but if you don’t have those numbers readily available, don’t let it hold up your inventory.

Hours Per User Per Month
Divide total hours spent on the client by the number of users on their team. This number can reveal a lot about the efficiency of an MSP’s team and tools. The MSP’s clients are basically using the same team that is using the same tools, so for this exercise, all you really care about is how clients compare to each other. This number will show which clients are a drain on resources.

Armed with this information, you can build your assessment chart.

Start off by ranking clients in order by amount of revenue, as in the example chart below.

This exercise should help you to put each of your existing clients into one of three categories:

“Yes” clients have obvious giant pumpkin potential. They are low-stress and high-profit. They are on a standard managed services deal (the one you want to sell to everyone). These people are good to work with, and their technology aligns well with your stack of choice.

“No” clients obviously have no real potential. There isn’t a lot of trust in the relationship, and they see technology as an annoying cost center that is of little value to their business. To this type of client, your firm is just part of that annoying cost center. They don’t take advice, and often make their technology decisions without your involvement, only for you to then have to clean up after them. They try to ride obsolete hardware and software as long as they can. They are not very profitable and probably never will be, and there isn’t much of a relationship to build on. These clients must go! And the sooner the better. They are strangling your giant pumpkin.

Sadly, there are some MSPs whose entire client list is filled with “No” clients. Eventually they’ll go to sell their business, but there won’t really be anything to sell.

Hopefully that isn’t you, but if it is, it’s going to be okay. A proper diagnosis is the first step to a cure. There is great hope for you and your business. Anyone can grow a blue-ribbon-winning pumpkin! You just have to follow the formula. It may take a little more work and a little more time, but YOU CAN DO IT.

“Change or die” clients have the potential to stay in the pumpkin patch, but they are not there yet. Perhaps they are still primarily on hourly billing, or if they are on flat fees, they require too much time and attention to really be profitable. Maybe you have been able to get part of your technology stack in there, but some key elements are still out of line. While these clients aren’t the first in line to get chopped, they aren’t the ones to clone either. Eventually, they need to get with the program, or they will need to be pruned.

Do your ruthless inventory. Make the time. We promise there will be things you didn’t see before.

Adapted from Chapter 6 of The Pumpkin Plan for Managed Service Providers by Dave Cava and Shawn P. Walsh. Read a chapter for free here: https://encorestrategic.io/#form