There are few thrills that can match the feeling of landing a new, high-value client. Overnight, the financial position of your company can change. It’s no surprise that most businesses jump at any chance to sign a big client. Unfortunately, the excitement of landing that client can quickly put a company in a precarious position.
Few businesses take the time to stop and think about the adverse effects that could come from accepting such a large client. With new cash flow comes new responsibility, and not all MSPs are equipped to suddenly meet those demands.
Aside from landing one sizable client, the more common threat of client concentration comes from allowing a handful of clients to become the driving force of revenue. A good rule of thumb to follow is to ensure that your top 5 clients don’t account for more than 25% of your revenue. While simple rules like this are helpful, MSP owners should look to improve their negotiating and onboarding processes to protect themselves against client concentration.
A huge contract is hard to turn down, but too often businesses get ahead of themselves during negotiations. If you find yourself in this position, take a few deep breaths. This new contract may very well be a huge boon to your business, but it’s important to do your due diligence first. A few questions that any MSP owner should ask themselves before signing on the dotted line include:
A big new contract can be a step forward for any MSP, but only if it makes sense for both parties. Take some time to examine the effects that signing a large contract could have before rushing into it.
Big clients require big commitments from MSPs. It's important to ensure that you don't lose sight of the big picture. When you commit yourself to a high-value client, you can’t allow that client to become the main focus of your business.
Companies that survive with a small number of high-value clients are teetering on a very dangerous ledge. Doing so takes the control out of your own hands as the owner, and puts your entire company at risk. Economic downturns, client bankruptcy, and late payments are just a few of the ways this approach could backfire at no fault of your own. Never put yourself in a position where the loss of a small number of clients means the loss of business viability. Growing too fast can lead to growing pains and ultimately leave you worse off than you were before that large contract.
To ensure that a small group of clients is never responsible for too much revenue, you must find ways to diversify your client base. To start, you should always have an idea of the largest client that you would be willing to take on. Actively pursue a healthy balance of small, medium, and large clients, even if it means tailoring your marketing to attract specific client types to protect your business against unexpected losses.
This isn’t to say that MSPs should avoid taking on big clients. A big client that you are prepared for can take your business to the next level. But it’s important to set expectations from your first interaction with a prospect. Clear milestones and targets set the stage for long-term business relationships. They give you ground to stand on when you feel unmanageable demands have been asked of your company.
To start, outline exactly what the client will need. What services will you provide? How often will you meet with the client? How will feedback be delivered? Also, outline how upgrading the service will work to avoid negative outcomes from growing your business relationship. Having these details ironed out from the get-go ensures that you are not drawn into a relationship that weighs your company down. It also gives you the ability to push back when unfair demands are being asked of your organization. Creating a comprehensive scope outline sets expectations for both parties and puts your company in a position to succeed.
Ultimately, maintaining a healthy balance comes down to recognizing a problematic partnership and knowing when to decline. There will always be that voice in the back of your head telling you that you can manage. But when a client’s demands are too large, trying to meet those demands can weigh down your business and hamper growth.
Interested in learning more about choosing the right customers for your business? Download our free webinar “Tips on Identifying Your Ideal Customer” featuring MSP Coach Richard Tubb.