If you asked 10 MSP business owners if they’d like to grow their sales next year, you’d likely get a yes from all 10. But if your follow-up question was to ask how much they wanted to grow, you’d get a wide variety of responses.
Not all sales growth plans are grounded in facts or reality. If the most you’ve ever grown your MSP sales over a one-year period is 20%, the odds of you growing your sales by 500% next year are slim.
The very first step to creating a successful plan for growing your MSP sales is gathering perspective through data.
MSP sales goals should be attainable
Setting a BHAG—big, hairy, audacious goal—for your sales results can be inspiring when you set it. It’s much like setting a New Year’s resolution to lose 100 pounds in 12 months.
Sounds great, and you might start the year strong by eating right and exercising daily. But losing two pounds a week for a full year isn’t realistic for most people, and once it becomes clear there’s no way you’ll actually hit the goal you’ve set, you’re likely to abandon your attempt to reach it.
Imagine, instead, the satisfaction that comes from setting a more realistic goal—for example, losing two pounds a month for 12 months—and then hitting or exceeding the number. It’s far more satisfying to hit a goal, even if the goal isn’t as lofty.
How to use historical data to define attainable MSP sales goals
When you’re planning your 2023 MSP sales goals, begin by reviewing your last three years of sales results.
The pandemic may have skewed these numbers for many MSPs. So if 2020 was an outlier year for your business (exceptionally good or really bad), extend your data back four years, to 2019.
(If you’ve only been in business for a year or two, you won’t have enough data to get accurate forecasting. But don’t let that hold you back from putting together a plan. Make your best guess based on whatever information you have, and know that planning will get easier each year.)
To identify your sales growth percentages, compare your total revenues for each year.
Here’s a quick example:
In the last three years, the most ABC IT Co. was able to grow in one year was 11%. If we average the last three years, we see that ABC IT Co. is still reeling from their 2020 loss, but the needle is moving in the right direction. So what sales growth goal should ABC IT Co. set for 2023?
Before we choose that goal, we need a little more perspective.
How much are you spending to generate your MSP sales?
Creating a sales plan isn’t just about increasing your revenue. It’s about understanding your sales and marketing costs, and maximizing your return on investment from those activities.
It’s hard to know if your sales plan is working unless you know how much you’re spending on it. So next steps include figuring out how much it has traditionally cost you to add new revenue.
How much are you spending out-of-pocket?
Look at the line items that are sales and marketing focused on your profit and loss statement. If you don’t have that broken out yet, check your credit card or bank statements to identify what you spent on sales and marketing items.
Did you send direct mail? Were there printing costs? Stamps? Did you pay for email marketing software like MailChimp? Did you pay a marketing partner? Attend a paid networking group like BNI? Pay for a premium Linkedin subscription? All these expenses should be counted as sales and marketing expenses.
Let’s call it a conservative $2,000 per year for all sales and marketing costs for ABC IT Co.
How much are you spending on labor?
Now, figure out your opportunity cost (or labor cost) for the deals you signed. If you did 100% of the sales and marketing activities yourself, how much time did you spend on them?
Let’s say that the owner of ABC IT Co. spends an hour a day doing sales or marketing activities, or five hours a week. Five hours a week x 50 weeks (taking a two-week December break) = 250 hours.
ABC IT Co. is small enough that the business owner still does a lot of the tech work themselves. The easiest way to calculate the value of the time spent on sales and marketing initiatives then is to use the billable hourly rate of the business, which was likely set by the owner.
For easy math, we’ll call it $100/hour. That means the 250 hours of sales and marketing activities totalled $25,000 in labor costs for the year.
Out-of-pocket expenses plus labor costs gives us the total cost of sales and marketing. For ABC IT Co., it was $27,000.
What’s your cost per deal?
A very simple way to figure out your cost per deal is take your total cost of sales and marketing last year and divide it by the number of deals you signed in the year.
Let’s say that ABC IT Co. signed two small new contracts last year. Their cost per deal works out to $13,500 ($27,000 / 2 deals).
What’s your cost per lead?
Before you can find your cost per lead, it’s important to define what a lead is. For me, a lead is a company that has expressed interest in my services, has the budget to implement my services, and fits my target client profile.
If you’re not tracking how many leads you get every year, it’s time to start. If you are tracking that number, take your cost of sales and marketing and divide it by the number of opportunities you had to sell your services last year. Now you have your cost per lead.
Perspective tells you where to focus
Our chart of ABC IT Co.’s annual revenue tells us that in 2022 they generated just $10,000 in additional revenue. We know that the $10,000 came from two contracts, so let’s assume an annual contract value of $5,000 each.
We also know that the company’s cost to land each deal was $13,500—almost triple the annual value of each contract. That’s way too high.
If their sales plan was to grow revenue by 50% next year, but they paid no attention to how much signing a new deal cost, their cost of sales would increase in alignment with their sales growth. Their sales efforts aren’t currently profitable, so their sales problems are going to increase right along with their revenue.
This is a simplified example, but it should give you food for thought. Before you set your sales goals for 2023, make sure you really understand what your historical data is telling you.
ABC IT Co. must make some choices. They can’t spend less time on sales and marketing, because their current efforts aren’t generating enough growth. They can’t afford to continue their current efforts because they’re spending three times what they’re generating.
Something has to change here. Growing revenue at a deficit doesn’t make sense for a small services business. Based on the perspective they’ve gathered, ABC IT Co. may not want to grow their sales next year. It might be more important to set a goal of learning how to generate more leads at a lower cost per lead.
Are they losing clients while they’re signing new clients? Maybe they have service delivery issues that trump their sales issues. If the business owner spends more time on sales and less time on service delivery when there’s a fundamental service delivery problem in the organization, it doesn’t matter that they’re closing more deals—they’re losing them just as quickly.
So before you set your aggressive sales growth goal for next year, spend time gathering perspective.
- What’s going well?
- What’s not going well?
- What should you be doing more of?
- What kind of scenarios can you plan for?
What scenarios—both positive and negative—can you imagine? No one expected a pandemic, so no one planned for a scenario that included their business being affected by mandatory closures.
While you plan for growth, think of the things that could impact those plans. Consider the things that could accelerate your success as well as the things that could completely derail it. What if you lose your biggest client next year? What if you close a client that’s twice as big as your largest client?
I’ll help you build a successful MSP sales strategy
Starting in January, I’ll be taking MSP business owners through four sales and marketing training sessions. At the end of this free series, you’ll know how to build and refine your own sales and marketing strategy, find leads, make cold calls, create prospecting campaigns, use social media effectively, and use all these skills to both find new opportunities and collect more referrals.
Let’s do this! Register here to access the live calls, all recordings, and a companion PDF ebook for this MSP Sales Fundamentals course.