Growing a business is absolutely the same as trying to grow absolutely anything else. Whether you aim to cultivate seeds into vegetables, or mature a nervous foal into a champion stallion; there is a lot of blood, sweat & tears – combined with a reasonable amount of money & time – inevitable in the process to nurture a successful outcome.
The path to sustainable growth is no different for MSPs. It is arduous and not for the faint of heart.
Like the foal on its way towards winning at the races, with consistency of effort and the following of proven practices, you will start to reap the rewards – but there will be trips and falls along the way.
You have to invest for your MSP to win net new customers
Acquiring new customers costs money – fact.
Yes, there may be referral deals to be won that rarely come with a price tag attached, but they’re unreliable and you want to achieve more predictability in your pipeline.
And, like most things in life, there are short cuts available to you: instead of spending weeks growing vegetables, just spend more and get instant-access from the store.
We are seeing huge amounts of M&A activity in our sector. Rarely a day goes by where we see a post on Linkedin or TechTribe with owners looking to sell or buy.
In many cases, that backdrop behind that thirst for acquisition is net customers.
Instead of grafting to build their own pool and closing those prospects one-by-one into clients, they are going out into the industry and outright purchasing a block of those customers by acquiring the competition.
This path is of course not suitable for everyone, but we can learn a lot in our collective approach towards MSP marketing from this strategy of “buying” customers. Insights that are invaluable to appreciating investment costs and returns.
One lump-sum provides instant access to growth.
Which is more cost-effective? Let’s dive into the numbers …
Option 1: Net new customers via business acquisition
It is pretty simple equation to discover the price tag of a new customer from this acquisition model.
We are using GBP£ as our currency example … it’s straightforward to substitute your currency here.
Take the purchase price of the business – £500k, for example.
Identify the number of seats that the business supports (as a more useful figure than customers) – 400
Divide the purchase price by the number of seats bought: £1,250 to give us cost / seat
This provides an average cost of £12,500 for a 10-seat customer, or £25,000 for a 20-seat customer etc
Now we have the costs, we can now calculate the value of each customer.
We use an industry average value of £1,000 per seat, per annum
Assuming each seat brings in a gross profit of around 40% – this would equate to £400
Let’s then multiply this by a retention lifespan of 5 years – providing a lifetime GP of £2000/seat
Factoring back our costs – this would generate a return after about 3 years.
Would you pay £25k for a new 20-seat customer to double your return in 5+ years?
Option 2: Net new customers via organic marketing & sales
From our experience of running campaigns for more than 80 MSPs around the world, we have had the luxury of insight into the broad challenges and successes of MSP marketing and prospecting.
Starting a campaign from scratch with no established audience brand awareness or pipeline will take time to build momentum. Campaigns will steadily begin generating conversations, which will filter into some opportunities, and following nurturing efforts, some new customers will be secured.
With all of this in mind, and when combined with the average outcomes that we so often see achieved from campaigns, the numbers are remarkably similar to the costs of “buying” customers through option 1 – business acquisition.
Let’s do some numbers
Marketing spend over 12-months = £25,000 (our clients spend both more and less than this number)
In our considerable experience, this marketing budget will generate an average of 18 prospect conversations per annum
Cost per conversation = £1,388
Typically 65% of these coversations turn into prospect opportunities (let’s say 11)
Cost per opportunity @ £2,272
Let’s assume an average worst case – 1 in 4 become customers (let’s say 3)
Our cost per acquisition is now £8,333 (relatively high – but realistic)
Depending on the seat counts there, this would mean an average acquisition cost per seat between £1,400 and £300 (for an average SME business anywhere between 6 and 25 seats).
Let’s be conservative and say that’s 24 seats added (8 seats per the 3 new customers).
That’s potentially £24k in revenue.
(£1k seat/annum) – delivering ROI after just 1 year.
We believe that marketing is always about the numbers
Struggling to make sense of the math(s) in your business?
Our team are dedicated to helping MSPs map out and achieve their goals through marketing.
If you aren’t sure where to begin, our Message Builder process is exactly what you need.
We’ll work closely with you to not only align a compelling message that’s tailored to your target audience, but help you through budgeting, targeting & measurement, while planning actionable campaigns too.
Alternatively – hit one of the buttons below. We’d love to start a conversation …
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