Should you worry about a potential recession or inflation, as an owner of an MSP?
In case you missed it by being distracted by the Johnny Depp trial, recent government decisions and Chappell getting mugged onstage, the Fed just triggered the sharpest rate increase since the year 2000 in an effort to slow the economy and fight inflation without causing a recession. But there are mixed opinions about the economy and what’s to come of it. Many Wall Street titans are saying a recession is imminent, citing the fact that short-term government bonds are delivering a higher yield than long-term ones – a recession signal that has predicted nearly every recession since 1955. Further, consumer confidence is down, inflation is soaring and Americans are in greater debt than ever before. By this point you might be wondering, how will your MSP survive a recession? 
Our Producers Club members are growing at a faster rate than ever before.
20% YOY and 26% this last quarter over quarter. The biggest problem is not demand but supply-chain issues and labor shortages. Of course, this too shall pass…
A few suggested strategies for your business to profit, even during a recession:
1. Be sure to solidify relationships with your best customers by creating and selling advanced cyberprotections and compliance as a service.
There is growing demand for both of these, and MSPs are already losing some of their best customers to other MSPs that are selling these services. I also strongly encourage you to have semiannual – if not quarterly – meetings with your clients (QBRs/TBRs) to ensure NO opportunity is overlooked AND to build the relationship.
2. Work to get ALL your clients on some type of recurring services contract.
Break-fix services are going to carry more cost due to the labor shortages, pulling your best people away from your committed clients. Surprisingly, over 40% of MSPs we poll still have a good percentage of their clients as break-fix or time-and-materials. There’s weakness in this model, and you want to build your financial fortress and strength NOW, not when a recession comes a-calling.
3. Get your clients on longer-term commitments and hold them to it.
As many of you know, Kaseya has become infamous for the three-year contract. And like it or not, many vendors are going to follow suit. Maybe not three-year agreements, but longer-term agreements that you cannot simply cancel. While you might not like it as the buyer, it does deliver protection to the seller. Plus, it’s not entirely a “bad” business decision. If you are left with the burden of licenses, hardware, staff and other costs you invested in to service a customer, that customer ought not be able to break the contract on a whim. As with a lease on an apartment or office space, you want that contract in place so the landlord cannot throw you out on a moment’s notice or raise your rent to a ridiculous amount without warning – so this is something you want to be strategic about with both your vendors and your clients.
4. Make sure you have marketing oil wells producing NOW and advertise, market and promote more aggressively NOW, while the money is flowing and the demand is there.
Far too many MSPs have this idea that they can go from zero marketing to full steam in a matter of weeks or even a few months. Not so. You are selling to slow-maturing buyers and will need to get systems set up and working months in advance of needing the leads and sales to come in. If you think you’ll just run a Facebook ad or start pay-per-click advertising to have leads rolling in that week, you’re in for a big surprise. Systems for capturing, handling and following up on the leads need to be in place.
5. Raise your prices and start padding your coffers and saving up a reserve.
Right now, one of the biggest problems and threats all MSPs face is inflation and a spike in labor costs. According to our Expert-In-Residence, Paul Cissel, who runs many of the Service Leadership groups, best-in-class MSPs have recently raised their rates across the board to both new and existing clients by 20% or MORE. Read that again – that’s a significant hike but a necessary one. If you haven’t raised your prices in a while, you need to.
6. You must CONSTANTLY be recruiting.
You could easily lose your BEST people to another MSP or company that will offer them a significant salary increase at any moment. At no point do you want to be scrambling to replace them (“desperate” and “stupid” are bosom buddies). If you are not constantly looking for great talent in general, you’re a fool. In this labor shortage? You’re a moron. It will come back to bite you.
7. Build up your own rainy-day reserves – you may need them.
That doesn’t mean cut costs. I would raise your prices and target more affluent clients with bigger IT budgets, not hoard TP and starve marketing. Another reason to have some extra cash: you might want to invest it. When the economy tanks, people with money take advantage of everything being on sale. It’s a common saying in real estate that the money is made in the buy – meaning cheap.
