Managing MSP Cash Flow Wise Sync

Managing Your MSP Cash Flow

Paul MacNeill joined us last week on Carrie Simpson’s new podcast “Hallway Conference” .  Paul’s big takeaway on MSP cash flow (paraphrased by Carrie) is this:  Cash is king, and it’s your cash, so why isn’t it in your bank account?

We’ve known Wise-Sync since our first days in the channel – and Paul’s been instrumental in educating the MSP market on how streamlining payment processing will improve your managed services business and create more profitable exits for business owners.

We focus on sales and marketing here – we’re a company that helps MSPs with sales and marketing.  Every business owner we talk to on Hallway Conference has had to build their own business while providing products and services other companies rely on to grow their businesses.  Paul has significant experience, having grown and sold an MSP at a significantly better multiplier than most before starting Wise-Sync.

You can see one of our first webinars with Paul MacNeill here!

How is MSP Cash Flow A Sales and Marketing Problem?

To begin any conversation around cash flow and IT companies, we must first discuss the inconsisent feast and famine billing routine associated with traditional “break fix” IT support.  We see a ton of MSP cash flow issues originating from just choosing the wrong pricing models to begin with.  Your billing should reflect your value to your clients, not your costs of providing support.  Every time I talk to someone at a conference complaining about receivables or habitual late paying clients, I want to drag them over to Paul’s Wise-Sync booth to get a quick and dirty tutorial on cash flow management for MSPs.  Our podcast touches on some of this, but I want to talk a little deeper on how your sales and marketing approach can improve your overall cash flow if you tweak how you present your services.  You don’t need to spend your time convincing people to pay their bill if your sales and marketing process includes outlining your payment process.  You just don’t sign business that won’t pay in the way that you want to be paid.  They’re not qualified leads unless they’re going to follow your process.  Let someone else chase that client for payment.  Let your sales process disqualify companies that won’t pay up front.

Are Your Managed Services Rates Too Low?

In the US market, if you’re charging less than 100 US per end point or user per month, you’re charging far too little and it’s time to consider how and when you’re going to raise your rates for both your legacy clients and net new prospects moving forward.   (Here’s an ROI Calculator that shows you how Managed Sales Pros can increase your annual reoccuring revenue based on your average cost per endpoint)

Push back if you want, argue about your city being different than “the big city”, state loudly that your clients will never pay such rates.  It’s all nonsense, and I hate hearing it.  If you can’t get your customers to spend more on IT support you have a sales and marketing problem, not a cash flow problem.  You can improve your cash flow immediately just by increasing your rates.  Adding more clients with lower profit margins seems attractive to a small MSP trying to build a client base – but you’re setting yourself up for failure, and ultimately you will reach a point in your managed services practice where your service levels are declining due to an inability to add headcount:  because your prices were too low to begin with.

“The most important lesson I’ve learned as an entrepreneur is that discussing top line revenue with other business owners is a vanity exercise.  You could make 20 points on a 1MM book of business, or 10 points on a 2MM book of business – one requires you to work twice as hard.”

Are You Qualifying Leads Early In the Process?

Qualifying a managed services opportunity early is essential if you want to protect your time and margins (which equals better cash flow).

Remember – a large opportunity that requires the highest paid asset  with the least amount of time available to them (the CEO) to spend an hour a week for an indefinite period of time hand-holding a prospect may not be an opportunity you want.  You don’t have infinite time.  You don’t have infinite resources.  Something’s gotta give, so bump unqualified leads out of your pipeline early.

Ask right up front what their budget looks like – if their budget is minimal, or they refuse to discuss their budget, this isn’t an engagement you want.

Here are some questions you can use that are less likely to put prospects on the defense as you determine their budget and need:

“How many hours of I.T. support do you use on an average month?”  (Calculate your hourly support rate to estimate their current monthly spend.)

“What is included in your monthly I.T. bill?”  (Trying to determine if you’re comparing apples to apples pricing and services.)

Building Value Before Revealing Pricing In Your Sales Process

Yes, budget needs to be talked about before you can consider a lead qualified.  Before you talk budget, you need to understand the needs and goals of your prospect.

Why do they want to change I.T. providers?

What do they wish was different?

What are they trying to accomplish?

Do they value security or are they phoning it in to check a box?

Do they need access to their data everywhere, always?  Can they handle an hour of down time?  A week?  Are they technology dependent?  What do those numbers look like.

Before you reveal your pricing, make sure that you have a thorough understanding of what this client wants and what they value.  Help them understand the cost of inefficient technology, downtime and standstills – math is your friend.

  • If you have twenty employees, and let’s use minimum wage as the baseline as I don’t know your payroll.  Twenty employees that make fifteen dollars an hour that can’t access their work for one day costs you $2400.00 in lost productivity.
  • If two of those employees work in sales, and normally close a deal a day each, you’ve lost 2400.00 in payroll plus the revenue from the two deals they weren’t able to secure for you.
  • If you had two new employees starting that day, you are now behind in training, you’ve left an undesirable first impression on a new hire, and you may lose the assets you just spend $30,000 recruiting.  Now you’re short staffed again and unable to help service your clients.
  • If your clients were unable to reach you for support or service, they may leave, costing you x.
  • Then those disgruntled clients who you couldn’t help for a full day went online and left terrible reviews, or called you out on social media – costing you further lost revenue and likely you’ll need to increase your marketing spend to account for the hit your reputation took – all over one day of downtime.
  • Now what happens if that one day becomes one week?  What about a ransomware attack that leaves you unable to access data for weeks or months?

Now you can confidently show them a price that ensures this won’t happen to them.  You don’t buy insurance hoping you’ll need it – you buy insurance in preparation of an event that may not happen.  You buy managed I.T. to prevent the problem from happening.   When you read the above sentences, how do you feel?  Do you feel like you’re charging enough?

Build value, then present your pricing.  Don’t present it apologetically or sheepishly.  This is what keeping your business safe and operational will cost monthly.  Then say nothing at all. They’ll accept the proposal or they’ll provide an objection to why they can’t possibly do this.  If price is the only reason they’re not buying, you’re presenting to the wrong prospects.

Help Me Understand Your Needs vs. Your Budget

The highest “need” I.T. support clients are usually also the least profitable managed services accounts.  If you’re discounting their per seat managed services pricing to “make it up in volume”, it’s very likely that you’ll reach your team’s service capacity quickly at a much lower per seat rate than is viable for the long term sustainability of your business.   If your prospect is looking for price concessions from the very beginning, the conversation then becomes “what can we eliminate from this offering in order to fit this into your budget” not “how much can we discount our services in order to win what will likely be a time-intensive, labor-intensive engagement?”

You should not feel uncomfortable making your desired margin. My lawyer doesn’t think twice about billing me $600/hour and that’s an essential service for a small business.

So is I.T.

Your services are worth what someone will pay for them.  Your margins are your decision, and a personal one – you don’t need to share them with anyone.  The higher they are, the more your company is worth on exit.  Did you become an entrepreneur and take all those risks to walk away with nothing in ten years?  No?

Okay.

Raise your prices.

Your Receivables Will Bury You

This is where Paul and Wise-Sync come in.  Get paid.  Start billing your clients in advance of providing service.  Bill them in a way that ensures you get paid on time, every time.  Take the hit on ACH or Credit Card payments and get paid now.  That five percent will seem like a blessing a year from now and you’ll wonder how you ever ran a business hoping your biggest client doesn’t pay late again this month.  Don’t give them the option, standardize your billing and don’t work for clients who don’t pay you.    I’ve had to walk away from some huge vendor deals because I’m not a bank and I don’t want 60 day terms.  I need to pay my team today, not in sixty days.  I get paid before I pick up the phone.  You can get paid like that, too.  Watch how much more efficient your business becomes when you’re not moving money around to cover things due to receivables.  Enjoy a drink with friends after work instead of making collections calls trying to beg people to just pay their bill please.  Your life gets infinitely better when you’re not chasing cheques.  And your time, as we discussed earlier, is valuable – every hour you spend trying to get paid is an hour you’re not billing for something else – which means your margins are shrinking signficantly.  To have a profitable, growing MSP business, you need to manage your MSP cash flow.

Here’s How it’s a Sales and Marketing Issue

When you clearly outline how you do business, why you do business that way, and what your prospect can expect when working with you, you have less issues later in your relationship.  Review your payment terms in the sales process, not after the contract is signed.  Find partners who want you to succeed as much as you want them to succeed – partners pay their invoices on time.  You can always let someone slide due to a special circumstance, but do that too many times and you’re right back to where you were.    Start talking about what you expect from your clients when you’re selling to them.  “We run ACH payment for your contract on the first of the month.  We only accept customers who pay via ACH, because we’ve managed to avoid raising our prices by keeping our receivables low.  Here is your ACH form, we’ll need this back with your contract in order to proceed.”

Check out this webinar on how managing cash flow makes your MSP more attractive at exit:

 

 

Interested in being a guest on Hallway Conference or chatting with Carrie about sales and marketing for your MSP?  Email us at hello@managedsalespros.com and we’ll take it from there!

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