The question “when should I consider hiring a lead generation company” comes up on most webinars I host or participate in. Thank you to the Syncro marketing team for asking me to share on a topic I feel very strongly about.
I have built and sold two outsourced marketing agencies—Everywhere Managed, LLC and Managed Sales Pros, Inc.). I’m now in the process of launching a third. In the last eight years, I have worked with over 1200 MSP firms. Universally, the companies that experienced success with my firm had the following things in common:
- They already had clearly defined sales processes that they were executing against successfully and consistently.
- They understood their sales cycles for both displacement (removing an incumbent provider) and disruption (co-managed, security or other sale that doesn’t completely rip and replace a competitor).
- The owner of the business knew down to the dollar what they were already spending to generate leads (cost of lead) and closed deals (cost of acquisition).
- They understood the difference between referral appointments and cold appointments.
- Their client churn was minimal, and their pricing was no more than 25% over or under their most respected competitors.
- The owner is taking an industry-average paycheck and generating industry-average margins (over 150K in salary and over 15% EBITDA).
- They have the budget for an entire year of the services they want to purchase, they will not be debt financing their investment in marketing services.
That was a very small percentage of our client base when I launched my business in 2014. In start up mode we all take bad-fit clients, we charge too little, and we are on-call 24/7 for clients that we probably shouldn’t have onboarded.
As we grew as a business, we continued to raise our prices until the only companies that could comfortably afford to pay us fit the above parameters. They understood sales and marketing, and they understood when their highest and best use was no longer sales or marketing. Other MSP leaders had reached a place of comfort and safety in their business, and they wanted to hand off a task they no longer wished to do themselves.
Before you outsource sales or marketing activities, make sure you’re OK with zero ROI
What does “comfortably afford to pay us” mean?
“Comfortably afford” means if your marketing company produces not one dollar of revenue for you, it will not impact your life or your business. It might impact your ego, but your spend won’t fundamentally damage your business, or prevent you from covering personal expenses.
Outsourced sales and marketing services should be the cherry on top of the sales and marketing cake, not the cake mix. Lead generation will augment already successful firms who need additional temporary support, but it won’t do much for a new MSP.
If you can’t find and close deals, no outsourced company is going to be able to fix that. You’re going to spend the equivalent of your kids’ college tuition annually (at a minimum), so think carefully about whether or not you want to roll the dice.
Whether you win or lose, your marketing firm wins
There were plenty of business owners who wanted to work with us that didn’t consider how their marketing spend might negatively impact their business. Business owners who weren’t paying themselves at all were willing to debt finance our services and pay us just to avoid being uncomfortable.
We didn’t take business from MSPs that we believed would not be helped by our services. However, it has been my experience that most lead generation companies will take your business regardless of how a poor outcome would impact your business, with their only qualifier being “are you willing to pay for the service?”
It’s up to you to understand the potential ramifications of signing that three-year contract. You won’t be able to leave without litigation, and there’s a non-disparagement clause in there, too. If you have a poor experience, you can’t talk about it.
Your marketing firm gets paid no matter what, their margins are high, and you’re the only one who loses when they fail. They may share some imaginary risk with you, but they’ve done the math. Their margins are covered in your base fees, the success fees are just gravy.
Consider outsourced lead generation as an addition, not a replacement
Don’t rely on your lead generation firm as your only source of leads. This is a common error – an MSP will outsource lead generation, then stop their own internal lead generation activity, believing that the outsourced agency is going to “handle it for them” now.
The truth is an incredible number of outsourced engagements fail – either due to the marketing firm misrepresenting what they can do, or because you can’t close cold deals. It really doesn’t matter which side the failure happens on, it still happens.
Think about any client breakdown you’ve had in your MSP. Some were caused by your own poor performance—some were the client’s fault. It doesn’t matter why it didn’t work out – it didn’t work out.
Often an MSP will blame their lead generation firm for a failure that wasn’t theirs. The MSP fails to support their lead generation company or fails to hold them accountable when their performance is poor. Or maybe the MSP doesn’t work on improving their internal processes for sales discovery and closing once the leads are coming in.
In my experience, those become irreconcilable differences, and the relationship breaks down.
Let’s explore the most common reasons SMBs engage an outsourced lead generation company.
I am losing revenue, and I need more sales!
If you’re considering outsourcing any sales and marketing function because you’re losing clients and want to quickly replace revenue, this is a red flag. If you’re losing clients, you have a problem, but you don’t have a sales and marketing problem.
You have a pricing problem—you raised your rates without showing any value add, or you’re not able to build value in your sales process so companies won’t pay your rates—or you have a service delivery problem.
When you’re losing clients quickly, it’s time to fix your foundation and focus on keeping the clients you do have. Outsourced lead generation will not work quickly enough to fix a revenue hole. The work done by your lead generation agency in 2023 will pay off in 2024 and beyond. It’s not a quick fix. Start working your network instead.
I’m not good at sales
It’s time for you to stop believing that lie. You have the capacity for this. If you can talk to a stranger and follow a process, you can succeed at sales.
If you want to grow your business, you no longer have the luxury of picking the jobs you like doing and going home at five. You do everything now, so unless you want to be a statistic, learn. Fast.
Instead of outsourcing and hoping it works out, invest in a one-time expense sales course. Take a few marketing classes online. There are dozens of free and low-cost resources within our industry and externally.
Avoid any monthly recurring commitments or contracts for sales and marketing services until you’ve got predictable revenue and you’re paying yourself well.
80% of small businesses in the US will fail before year five. Under ten percent of small businesses in the US have more than one employee. Under 6000 MSPs in North America have cracked the 2MM ARR mark.
Growing a business is hard, and outsourced lead generation isn’t going to do it for you. While lead generation can help mature business owners, it’s not a good idea for a self-funded small business with no profit.
Ask professionals before you sign a contract with a lead generation company
Before you invest in outsourced lead generation for your MSP, book some time to talk to an accountant, and a financial advisor.
Find out what else that monthly spend could do for your business or your personal financial situation.
If it’s decided in partnership with financial professionals that your business could withstand the impact of the spending, and the reward is worth the risk, take your lead generation contract to a lawyer, and find out what land mines are in the contract.
- Is there a complex breach remediation clause?
- A non-disparagement agreement saying even if you’re not happy you can’t talk about your experience with the vendor?
- An auto-renew or a renew process that’s time-bound and complex?
Make sure you know what you’re signing, and how you can get out of the agreement if it’s not working out as promised. The moderate spend of a discussion with professionals and a contract review could save you thousands of dollars and prevent some major headaches in the future.
Remember, managing your vendors is like managing your employees. You must be ready to hold them accountable, have difficult conversations and ask clarifying questions. If it hasn’t worked in a year, it’s not going to work, it’s time to move on.
A three-year commitment is insanity. A three-month commitment will not produce any discernible results. Got questions about a potential marketing investment? I’m happy to answer them – find a time to chat with me here: randr.consulting/connect.
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