It’s no secret that customer acquisition and customer retention are key drivers of a healthy MSP business. However, not every client is a good client, and sometimes you may even need to fire a client to improve profits.
Case-in-point: Erick Simpson — a former MSP owner and co-founder of MSP University — fired a pool of MSP clients generating $50,000-60,000 per month and saw profits increase while 95% of his team’s customer service issues went away.
Of course, the earlier in the sales process you can identify which clients are “bad”, the more headaches and bottlenecks you can avoid. To help you protect your profits and streamline your business, in this article we’ll take a look at 10 red flags in the MSP sales process and customer lifecycle along with 4 practical tips for identifying bad clients.
Top 10 red flags in the MSP sales process
MSP sales is a tough job. There’s plenty of competition, and demonstrating value can be tricky. That can make it easy to jump on any potential sale and overemphasize customer acquisition. Avoiding bad clients requires a mix of discipline and knowing which red flags are a sign you might not want to onboard or retain a specific client.
Below are the top 10 red flags to watch out for during the MSP sales process.
Red flag #1: Clients who are unwilling to listen
The “customer is always right” mindset only goes so far. As an MSP, you’re supposed to be your client’s trusted advisor. If clients aren’t open to your recommendations and either ignore or undermine your expertise, consider that a red flag. Things will likely become more challenging once you have assets under management and service agreements in place. If your recommendations go ignored, there’s a risk of finger-pointing and friction down the line.
This early warning sign can come up when clients want to save money or view themselves as tech experts. Before onboarding a client that raises this red flag, consider your business model and if the additional challenges are worth the extra revenue.
Red flag #2: Unrealistic expectations
Every client should want to get the most value for their investment. However, this can go too far and lead to unrealistic expectations. These clients can easily become the type to pester your help desk for updates on non-urgent issues and unnecessarily tie up key resources.
Once you’re under contract with them, these clients can become the type to demand white glove service regardless of what your MSA and SLAs dictate or expect reliability that is misaligned with their IT investment.
Early in the sales process, warning signs to look out for include:
- Unreasonable pricing requests
- Asking for free services
- Requests for you to invest in their infrastructure
- Failure to respect boundaries
- Assuming everything is easy on your side
- Expecting high performance with outdated infrastructure and little investment
Red flag #3: Repeat late or missed payments
You typically can’t know about this red flag until you’re already doing business with a client. A single late payment may be an honest mistake, but a pattern of late or missed payments can jeopardize your bottom line and create cash flow challenges for your business.
💡Pro tip: Use direct debit to reduce the risk of late payments and improve cash flow.
Red flag #4: Vendor hopping and overcriticizing other MSPs
A client having a single bad experience with a previous MSP isn’t anything to be too concerned about. However, if a potential client reports multiple bad experiences with MSPs, you may be dealing with a customer your competition has already fired.
As you have conversations with prospective clients, consider probing for specifics around previous failed MSP partnerships. For example, if they complain about response times, ask what SLAs were in place.
An easy way to test for this red flag is: check if the potential client has had issues with one of their previous MSPs or most of them. If all of their previous relationships were bad, they may be the source of the problems.
Red flag #5: Everything is urgent
If everything is a top priority, nothing is. Consistent late notice regarding issues or requests followed by an expectation you’ll jump right on it, isn’t the best sign for a client-MSP relationship. Of course, the occasional urgent issue is to be expected, this is IT after all. However, if requests such as meetings, new employee onboarding, or hardware purchases are regularly being treated as urgent, it may be a red flag.
That said, context matters. If a client is willing to pay for SLAs that treat all their issues as urgent, baking that expectation into their contract in the form of premium rates may create a win/win.
Red flag #6: Abusive behavior
Clients berating, insulting, or threatening you, your staff, or their employees is a major red flag. There’s no professional justification for treating people poorly, and onboarding a client that does is asking for trouble.
Red flag #7: Questionable ethics
This one almost goes without saying: if a client asks for something that is legally or ethically dubious, consider that a major red flag. For example, if a client asks you to take shortcuts to avoid complying with local code on a structured cable install, it could put your reputation on the line if something goes wrong.
Red flag #8: Unresponsiveness
Clients who no-show meetings, don’t respond to emails, and don’t return emails may be indicating how they’ll communicate once they’re under contract. Communication is essential to win-win partnerships, so pay attention to how potential clients respond during the sales process.
Red flag #9: Requests that go against your processes
This is the toughest of all the potential red flags in the MSP sales process. Chasing new business comes with new, often reasonable, requests from potential clients. The challenge is balancing those requests against your existing processes.
MSPs that operate based on standards and well-designed processes tend to be more efficient and profitable. If a client wants you to go against your existing processes and standards, consider that a potential red flag because the new business could result in an exception case that makes your business less efficient overall.
Some examples include:
- Implementing non-standard tech that increases your support burden
- Offering services you don’t typically provide (e.g., supporting Juniper gear with a team of Cisco engineers)
- Compromising security standards
Red flag #10: Too many stakeholders
To get things done, decisions need to be made. Clients that need to go through a tedious multi-stakeholder approval process for even small changes can be a red flag. Committees can be useful for governance but can also create process bottlenecks and chew up your time in repetitive meetings and email threads. Additionally, as an MSP salesperson, looking for this red flag can help you identify when you’re dealing with a “buyer” that doesn’t actually make buying decisions.
How to identify bad MSP clients
The red flags in the MSP sales process that we’ve covered above are solid “smell tests” that can help you identify a potential problem. Now let’s look at five steps you can use to identify and weed out bad clients.
Know what a “good” client looks like (hint: it’s relative)
To quote our own Andy Cormier from his (free!) So You Want To Be An MSP ebook, “the key to profitable contracts is properly pre-qualifying customers”. Borrowing from another MSP book you should read, The Pumpkin Plan, nurturing the customers who make you more successful and weeding out the ones that don’t are fundamental to a sustainable and profitable business,
Simply put, you must know what your ideal customer looks like so that you can focus on delivering value to them, and avoid clients that aren’t aligned with your business goals. There are a few ways to do this, and a “good” client will vary depending on your business model.
If you’re just getting started, identify your target buyer personas and keep a laser focus on them. If your MSP business has been operating for a while, take a look at your MSP KPIs and what you’ve learned so far to help make an informed decision. I recommend starting with the 80/20 rule and answering:
- Who are the 20% of customers that drive 80% of profits? What characteristics do they have in common?
- Who are the 20% of customers that drive 80% of support tickets? What characteristics do they have in common?
From there, you can use ABC customer analysis to group clients into these categories:
- A customers– The group of customers that are most valuable to your business.
- B customers– This group of customers are valuable, but not nearly as profitable as your A customers. With some nurturing, they can become A customers.
- C customers– This is the large chunk of clients that make a small contribution to profits. Look to automate processes for these customers and avoid wasting too much time on them.
Your “A customers” will help you frame what a “good” customer looks like so you have a reference for what “bad” looks like.
Ask your staff
“I don’t trust anyone who’s nice to me but rude to the waiter. Because they would treat me the same way if I were in that position.”
– Muhammad Ali
If you own your MSP business or have a position that implies some authority (e.g., director of VP), bad clients may treat you differently than they treat level-one technicians or dispatch. Talk to your teams and see how clients treat them. You may be surprised by what you learn.
Listen to your gut
Identifying bad clients is more of an art than a science. As you rack up experience in MSP sales, you should start to build an intuition. Check yourself with data and objective facts, but listen to your gut too. If you notice multiple red flags and don’t “feel” right, don’t stress too much about walking away from a deal.
Don’t go overboard
“Bad” is relative. Getting into a combative mindset can be easy if you’re continuously looking for red flags with clients. Remember that potential clients are people running a business too, and look for win-win situations where you can. After all, there is a fine line between challenging but profitable and “bad”.
Setting expectations early, being transparent, and having standards for your business can help you strike the right balance between identifying red flags and going overboard with refusing to take on new business.
How Syncro helps MSPs identify red flags with clients
At Syncro, we’re laser-focused on helping MSPs run a more profitable, efficient, and automated business. Syncro can even help you identify red flags with existing clients to help you identify business issues and improve your profits.
For example, with a built-in ticketing system, you can get a high-level overview of tickets, compare ticket content between clients, and drill down to see what type of issues your staff is spending their time on.
A list of tickets in Syncro
You can also generate reports that help quantify ticket efficiency by customer.
A Syncro ticket efficiency report generator
Additionally, built-in invoicing features make it easy to track which customers are putting your cash flow at risk.
An overview of invoices in the Syncro web portal
If you want to take Syncro for a spin yourself, sign up for a free (no credit card required) trial today.
Final thoughts: Balance growth and efficiency
There’s no one-size-fits-all strategy for weeding out bad customers and identifying red flags. One MSPs ideal client might be a C customer for another MSP. The key is to find the right balance of growth and operational efficiency, given your business goals. Once you have a clear vision, weed out the customers who work against it and nurture those who help you get closer.
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