6 Ways To Increase Your Monthly Recurring Revenue6:00 PM EST Tue. Nov. 13, 2012
Gary Pica knows a thing or two about managing an MSP business. Before he was president of TruMethods, Pica grew a managed service provider business from zero recurring revenue to more than $500,000 a month before selling the company to mindShift Technologies (which was later acquired by Best Buy).
Today, TruMethods counts more than 450 members to subscribe to its coaching program to help MSPs be more successful. Pica shared some of his tips during a ComdexVirtual session for those struggling to win more recurring revenue.
"A lot of people think it's like 'Field of Dreams.' Build it and they will come. But, getting people to pay you every month is not easy," Pica said.
Here's a look at what you should be doing to increase your recurring revenue stream.
To successfully increase managed services, you need the right processes and resources in place, according to Pica. It's a difficult transition for sales staff to just add managed services on top of selling products and project work, he said.
"I haven't seen that approach be successful. It's better to take one of those sales people and dedicate them and motivate them and pay them to solely focus on adding monthly recurring revenue," Pica said.
MSPs should set a concrete target goal of how much additional recurring revenue they want to add, which then makes it easier to plan accordingly, Pica said, adding that $24,000 a year (or $2,000 per month) of new recurring revenue should be a minimal goal.
"Do you know what kind of pipeline you need to achieve that goal? Do you know how many appointments you need to go on? If the answer is no, that's not a goal; it's a hope or a dream. A goal is accountable and you know the steps to get there," Pica said.
TruMethods has a sales goal calculator to help understand those steps, Pica said.
Many MSPs rely too heavily on warm referral leads to generate business. While referrals are great, companies should employ other methods to keep the leads coming in, Pica said.
"Today, not every prospect is great for managed services. Referrals have some limit to how much they will generate," Pica said.
Direct marketing, internet marketing, networking events, joint ventures and partnerships are excellent resources for new leads, he said. "Find other companies with same target market to work together and share leads. Teach them what a good prospect is for you so they can identify when a company might need you," he said.
MSPs should have a disciplined sales process to get a predicable number of target prospects willing to buy the right support offering at the right price. Don't worry about close rates. Successful MSPs can have close rates below 25 percent, but they're getting in front of lots of folks.
"If someone tells me their close ration is 50, 60 or 70 percent, I know they don't have a sales engine built. If you're generating [only] warm leads that means those sales have to be partially closed before you get there. You can't generate enough to build a business," Pica said. "As you get [more leads], you need a more strict sales process in order to succeed."
The biggest challenge an MSP might face is answering this question from a customer: Our IT is fine, so why should I spend more for managed services? How you answer that question could be a big factor in determining your success, said Pica. To answer, first an MSP should know what a customer means by "fine," and how that matches up with reality.
"To them, it could mean their servers don't crash. Well, servers don't crash that much. The issue of lost productivity has to do with a lot of things other than servers crashing. By that definition, everybody would be fine," Pica said.
MSPs need to clearly illustrate their value and should expand the customer's definition of "fine" to include predictable performance, functionality, reduced risk, capital costs and increased productivity. Ask a prospect if their PCs slow down over time and how much productivity could be gained by keeping them at the same level of performance throughout their life cycle.
With that reframed vision of "fine," customers will begin to think differently, Pica said.
"Paint a picture and attach a value to that picture. Use cost to your advantage. I've sold hundreds of managed services agreements and almost always they told me they were fine when I met them. But, you can almost always charge more to get to a reframed version of 'fine,'" Pica said. "Nobody expects you to charge the same thing as [project-based IT solutions]. That difference is why they should invest in you."