The business plan for any MSP must be focused on the relationship between the cost to acquire customers and the ability to monetize your existing customer base through retention. High cost to acquire can halt a company’s ability to expand, but without a customer retention plan, you’re dead in the water. Promise the moon and fail to deliver it, your business plan won’t be worth the paper you write it on. Think you have the next killer managed service? Let’s take a look at what it takes to master customer retention.
Business school 101
Fixed costs, variable cost, breakeven analysis — you don’t need an MBA to understand why customer retention is key, according to the Harvard Business Review. New customer acquisition is simply more expensive than using existing customers. Of course, there are costs associated with your current customers, but these are offset by the clear revenue stream they provide in a service-oriented business model. All your marketing, design and advertising efforts are upfront costs targeted at new customers. If they’re not, they should be — it’s 2016. Don’t be guilty of re-marketing to existing customers.
One subtle point that’s often overlooked: Customers aren’t only expensive in upfront cost, but losing a client represents a huge miss in upsell/cross-sell opportunities. For example, if you oversee cloud backups and offer managed security services, you may be able to convert existing single product customers over to other solutions you offer, such as compliance monitoring and data breach protection. Don’t ignore these opportunities, as they represent back-end revenue streams from an existing — and loyal — customer base.
Twice the cost — half as much
Service-oriented business plans need steady revenue streams and long-term goals, otherwise you risk cannibalizing your business.
Here’s the wrong approach: your customer base begins diminishing at a rate that exceeds customer acquisition. Revenue you could be using to expand your business gets funneled back into growing your client base. This turns into a downward spiral that’s typically difficult to pull out of. This process can be mitigated with a clear plan that places an emphasis on keeping current customers, such as offering a free month of service to loyal clients. You need both short-term wins and long-term goals to thrive. If you avoid this downward spiral, you can gain one of the most valuable commodities in the tech industry: agility in the market.
It’s no surprise Forbes ranks agility so high. It’s not possible to remain static in the solutions you offer, as the technology they’re based on will become obsolete. With the constant release of new mobile and desktop operating systems, use your existing customer base to fund major plays into providing innovative services around new advances in technology — a win for both acquisition and retention.