I’m going to share 9 reasons why most MSPs get paid less than they could. By knowing what they are and fixing them, you’ll build real financial strength in your business. I’ll outline them below.
1. Ignorance and misunderstanding about business financials.
I think one of the reasons you don’t have correct margins and you’re not charging enough, is that you really don’t properly understand business financials. I’m going to put myself in this category with you. When I started my business, I knew what revenue was and I thought I knew what profit was.
I heard terms like recurring revenue, ARR, gross margin, contribution margin, labor efficiency ratios, and all these things. And my eyes would just glaze over. I mean, I’m a marketer. I’m not a financial person. And this really hurt me.
Lack of financial discipline in small businesses is one of the reasons you struggle. Typically, what you’re doing is maybe outsourcing to a CPA or somebody who’s preparing your taxes or doing your books. And all they’re doing is reporting what’s going on in the business. They’re not strategic.
One person I recommend following to help understand this is Greg Crabtree, who wrote a book called Simple Numbers. Greg has done some sessions on financials for MSPs for my members. Really, you’ve got to start understanding some basic fundamentals like revenue, gross margin, and EBITDA (which is earnings before interest, taxation, depreciation, and amortization.)
You’ve also got to understand you should be paying yourself a fair market salary. I would just strongly encourage you don’t use your business as a personal piggy bank. You may have a sum of money in a bank account, and you look at it and go, “I’ve got $100,000 in there. Man, I’m rich!” (Or whatever you’ve got in there, it might be a million dollars). But that’s not necessarily the case. So, you’ve got to understand good solid business financials and get educated on that.
2. Copying BROKE people.
Another thing I see a lot is the copying of broke people. Social media is fantastic from the standpoint of connecting with people and marketing. But there’s a bad side to social media, and I’m going to include Reddit in this, though we tend to think Instagram or Facebook, or LinkedIn…
What’s tragic is I see a lot of MSPs that go out on Facebook and post serious questions about pricing or about financials and what compensation should be for a salesperson or an engineer… serious strategy questions.
People are responding and I’m looking at the answers and it’s like the worst advice anybody could give. Either it’s flat-out wrong or it’s out of context and there needs to be more thought behind it. It’s not as black and white as they’re making it seem.
Again, I’m talking to you here, entrepreneur to entrepreneur. When you go out and seek advice, please make sure you’re not talking to broke people. Because there are a lot of people out there who have very strong opinions about all kinds of business strategy questions. And they’ll make an argument, “This is how it is.” And they’re really not even successful themselves.
I’m talking about finances here, but in general, you should make sure you’re not copying broke people. Don’t listen to broke business owners who aren’t growing, haven’t grown, and aren’t making any money. Just because they’re a little bit further ahead of you doesn’t mean they’re geniuses.
Maybe you talk to someone, and you are at half a million and they are a million. Listen to what they say, but talk to somebody who’s doing $10 million or someone who’s doing $20 million who has gone through that. They will have a different perspective.
Like I said at the start, I wish I could have had this information for myself when I started my business. Because I didn’t know what I didn’t know. You talk to your socioeconomic peers who are just as broke and struggling as you are, and you get advice, and everybody copies everybody else. It’s like business incest. And, just like real incest, everybody gets dumber and dumber and dumber the more it happens.
You’ve got to make sure if you’re going to copy people, copy successful people.
3. Selling to broke people (poor targeting of right-fit customers).
That’s due to poor targeting of right-fit customers. You do not have to take everybody as a customer. We live in America. One freedom we still have is you don’t have to take broke, stupid people as customers. If they misbehave, if they’re not willing to pay your fees, you don’t have to take them as a customer.
When you’re doing marketing, one of the things that you want to make sure that you look at and think about, and that you’re strategic about, is selling to people who have money and who will spend money on IT services. If you talk to somebody like me, I have no qualms about spending $15,000 a month on managed services. That’s normal for me.
If you came and the next provider was $18,000, it’s a stretch, but it’s not going to break my firm. In other words, I need it. I’m going to pay for it. If you’re selling to broke people, they’re going to go, “Do I really need it at all? Do I want to spend that much? Can you give me half of that?”
So, one of the things to be strategic about is designing your business to sell to those individuals, to those companies who ARE spending money on IT services, and they need to spend money on IT. That’s another critical strategy for you in your business.
4. Fear of charging what is necessary.
We were talking a little bit about prices and Will Nobles, our VP of client coaching, shared the story about another MSP sitting in the back of a seminar room when he mentioned his price and said, “Man, I was charging your price four years ago.”
I think a lot of it is an emotional reaction to price because you’re not good at selling for the most part. And you’re targeting poor people. So, you get in your head that everybody is broke and nobody’s going to spend money on IT. It’s just not the case because right now in every market out there, I guarantee you I can find a competitor who is selling into your market and charging at least 20% above if not double what you’re charging and they’re getting customers.
It’s not like everybody’s telling him to go pound sand and go away. They are winning business away from you at a higher price point. Why is that? It’s because they have the audacity, the CONFIDENCE to think that they can.
A lot of what is happening with the price is just that you’re afraid of charging what you need to charge. Get it in your head that your business is not a nonprofit. Again, I would walk away from a bad piece of business versus saying “Yes” just to have customers and just to have activity.
Another problem with this is if you starve your business, and if you don’t charge enough, then you cannot give your employees raises and you can’t invest in better tools. You can’t invest in more people. You can’t invest in training. You can’t do any of that because you’re not charging enough. And that in turn delivers a worse service for your customers. I cannot stress enough that you’ve got to charge what’s necessary.
5. Giving services away for free.
Some of you forget to bill. That’s a big mistake. One of the things that we find when we get new members is a lot of them are not only NOT charging what they need to charge but they also forget to bill customers. They forget to add on users. They forget to add the software license that they’ve deployed to this customer’s account. Make sure you tighten all that up. There are tools out there. But whatever you are doing for your customers, make sure you charge adequately for those services.
6. Predetermined belief of what a customer is willing to pay.
Another reason you’re not getting paid what you could or should be is that you already have a predetermined belief of what your customer will pay. Again, that ties into the emotional pricing.
7. ZERO sales process.
One of the big reasons that many MSPs fail to charge what they can and leave a lot of money on the table is that they go into a sales meeting and they totally wing it. They get in there and they start giving a quote like the Maytag repair guy, where they’re looking at bits and bytes and feeds and SKUs and hardware and software, and “Are you cloud-based or are you not cloud?”
They start asking these questions and they never elevate themselves to a true business professional and business consultant. I have sales training and we also run sales accountability groups. One of the things that we coach our members to do is when you first sit down with that prospect is don’t start just drilling in with things like, “Tell me about your environment. How many users, how many PCs, how many servers, are they cloud, are they on-prem, are they off-prem, where are your firewalls?” All these things. Stop doing that because you’re instantly labeling yourself an engineering tech.
We teach our members to sit down and say, “I know I’m here because you’ve got these issues. But let me pause for a minute. I want to learn a little bit more about your business. Tell me how you get customers, how do you charge those customers? What technology does your sales team use? Tell me about how you run payroll and the financials of the business. Do you outsource that or is that in-house? Tell me about how that happens. Tell me about how you deliver your product, whatever the product or service. Tell me about how you fulfilled that. What technology does your team use? What do they like and what don’t they like?”
By elevating yourself up, you’re going to find bigger opportunities within that business than “My Wi-Fi is slow, and my email is down” or something like that. I think a big part of what you also want to work on is your sales process and getting some sales training in you.
8. No differentiation from competition.
There isn’t a lot to say about this, other than to say it… you have got to differentiate yourself from your competition. You have to create a unique selling proposition for your business so that you can explain that differentiation to your prospects and they can see the value in working with you versus the other guys.
9. Poor self-esteem and just a lack of confidence.
This ties back into you emotionally pricing your services. You’re afraid to ask for what you’re worth, and it’s likely because you don’t have confidence in yourself, or because you have that predetermined belief about what a prospect will pay.
These are just 9 reasons that you are getting paid far less than you could. Now you can go find better customers. One of the ways that you can get better, higher-paying customers is to do the marketing, so you have more inbound leads coming in.
If you’d like help with that, you can sign up for a LIVE training program with us where we will reveal: How To Set Up Autopilot Marketing Systems To Consistently Get 1 To 2 High-Profit Managed Services Clients Every Month
