Show notes
In this week’s episode Are you prepared to out-spend your competitors to attract new clients? You will be when you calculate the Average Lifetime Value (ALV) of a client to your business! This week Paul takes a deep dive into how you can link your marketing to the ALV of a potential new client It can be hard for a prospect to jump straight into a monthly recurring revenue relationship. Paul explains more about the special low-cost purchases that can help convert prospects into regular clients And, is the future of IT support in the hands of artificial intelligence? This week’s featured guest is working on a system to help your MSP shoulder some of the heavy lifting Featured guest Thank you to Lucas Meadowcroft from Tribu for joining Paul to talk about how artificial intelligence could be help you deliver IT support in the future. Pushing the boundaries when it comes to tech & innovation, his mission is to change the MSP industry forever. For more than 17 years he has served a diverse range of businesses, from start-ups to scale-ups, with the highest calibre in helping businesses leverage the latest technology trends, digitally transforms organisations and drive competitive advantage. Connect with Lucas on LinkedIn. Show notes Out every Tuesday on your favourite podcast platform Presented by Paul Green, an MSP marketing expert Here’s a link to the book Paul mentioned Influence by Dr Robert Cialdini Paul suggested listening back to Episode 91 for more on the subject of risk reversals and guarantees Register for a free copy of Paul’s book Thank you to Stormie Andrews from the Yokel Local marketing agency for recommending the book Post Corona by Scott Galloway In the next show on November 16th Paul will be joined by Todd Kane from Evolve Management Consulting, talking about how to run your business instead of your business running you Got a question from the show? Email Paul directly: hello@paulgreensmspmarketing.com Episode transcription Voiceover:Fresh every Tuesday, for MSPs around the world. This is Paul Green’s MSP Marketing Podcast. Paul Green:Hello, and welcome to the show. We only recently celebrated our 100th episode, but this week is the two year anniversary. Can’t believe it’s only been two years the podcast has been going. It started on the 5th of November, 2019. This is Episode 104, and here’s what we’ve got coming up for you this week. Lucas Meadowcroft:Well, the end goal over the next three to six months, all things level one IT support, completely solved end-to-end, using AI. Paul Green:That’s’ Lucas Meadowcroft. He’s going to be here later on in the show. We’ve also got a book suggestion from Stormie Andrews; such a great name, Stormie. He’ll be here at the end of the show, and we’ll be asking if the marketing concept of using an easy first purchase, something that makes it very easy to get into a transactional relationship with you, is this valid in our world? Let’s answer that question later on. Voiceover:Paul Green’s MSP Marketing Podcast. Paul Green:Inevitably, at some point, you’ve sat down, and you’ve started thinking about the business, and where you can take it, and what you should be doing with it. And you’ve thought to yourself, “I wonder how much we should be spending on marketing?” Or, maybe you’ve thought about it in terms of, “I wonder what our marketing budget should be?” Paul Green:It’s a very common question, to be honest. And I don’t really have a concrete answer for you, because marketing theory says you should be spending a percentage of your turnover. And that might be, I don’t know, 5%. It could be 20%. I guess it depends on how aggressively you want to grow. Paul Green:The thing is, actually setting a budget like that, that’s something that you have to do when you’re in a bigger business, and you’ve got managers. You’ve got to give them some boundaries, right? You’ve got to give them some limitations of what they can and can’t do, or can and can’t spend. Paul Green:But I recognise that most small businesses, most owner-operated businesses, they don’t really budget for anything. There’s just buying what you need. And just asking yourself, “Have we got the cashflow to afford this right now?” so I never recommend looking at marketing budgets. Paul Green:Instead, I recommend focusing on something called LTV; and this stands for lifetime value of a new client. What do I mean by lifetime value? I mean, someone who joins your MSP today as a new client. Let’s say they’re spending $1,000 a month. So, over a year, they’re going to spend $12,000. And let’s say they stay with your business for 10 years, which is not unlikely, let’s be honest. In the MSP world, 10 years is probably pretty much average for someone staying. Paul Green:So we’ve got $12,000 a year, times 10, that’s $120,000. So let’s say that client stayed for exactly that, for 10 years; their average… Well, the lifetime of that client, the lifetime value is $120,000. And you can add this up for all of your clients, and even do some forecasting. And you’re looking to work out that LTV, that average lifetime value. Paul Green:Someone who joins your MSP today could be worth $50,000, $100,000, $200,000 to you. And okay. Yeah, you’ve got to stick around for the next 5, 10, 15, 20 years to actually collect that cash. But also, when you come to sell the business, you’re selling on that future cash as well. You’re selling on the contract, and you get rewarded for that when you sell your business. Paul Green:Lifetime value of the average client in the MSP world is high. It’s a lot higher than it is in a lot of other industries, a lot of other sectors. So although it’s longer and harder for you to win a client in the first place, it’s a lot more rewarding to keep that client. And you certainly make a lot more money out of them in the long term. Paul Green:So if you haven’t got a marketing budget, I guess the opportunity here, is to spend as much as you can comfortably afford on marketing, with an eye on the average lifetime value. So the goal really, is to be able to outspend all of your competitors on acquiring highly qualified leads. This is really more a mindset thing than it is a budget thing. Paul Green:Let’s do a lifetime value calculation. So, as I said, imagine if that client pays you the $1,000 a month; they stay around for 10 years, so that’s an average lifetime value, and ALV of $120,000 pounds, dollars, whatever your currency is. So the questions to ask for this is, “How much would you be willing to spend to acquire $120,000 of revenue?” Let me say that again. Remember, if the client sticks around for 10 years, they will give you $120,000. “How much are you willing to spend to acquire $120,000 of revenue?” Paul Green:And that’s the key question with this. See, a marketing budget, it’s got nothing to do with it. You’ve got to ask yourself, is, “What would you spend for that?” Bearing in mind, you’re only getting $1,000 a month. So if, for example, you said, “Hey. I’m willing to spend $6,000 to acquire that $120,000 worth of revenue.” That is a fortune. That’s an absolute ton of cash, there. There’s loads of cash, and loads of things you can do. Paul Green:Now, it’s got a six month payback with it. I’m ignoring projects, of course. I appreciate you can often recoup some of the marketing spend with initial project spend. But if you are willing to spend six months worth of revenue to acquire a client. Well, first of all, that would allow you to outspend your competitors; but also, it would force you, focus you, on making sure you onboarded that client properly. Because who wants to spend $6,000 on a client that goes within two months, because they haven’t been onboarded properly? No one would do that. Paul Green:$6,000 is probably extreme. Me, if that was me, and I ran an MSP, and it was $1,000, a month and I knew I’d keep them for 10 years. I’d easily spend $3,000, easily. In fact, we do it in our MSP Marketing Edge. That’s 99 pounds or $129, US dollars a month. And we will happily spend three to four months worth of revenue to acquire a new client, because we know that we have incredibly high conversion rates from trial to new clients. And we know that we have incredibly good retention as well. We run that business on the numbers. We’re very confident on the numbers, because we’ve been tracking them over several hundred people for a number of years. And so, I will happily spend three months worth of revenue to acquire a new client. That’s the way to think about how much you should be spending to acquire a new client. Paul Green:But of course, most MSPs don’t think that way. And there’s the opportunity for you, because if all MSPs think one way, and you think a different way, that makes you a little bit different. That’s a good thing, certainly from a marketing point of view, because you’re tackling everything with a completely different mindset. The chances are, you’re more likely to thrive if you’ve got a different mindset to all of your competitors. Voiceover:Here’s this week’s Clever Idea. Paul Green:For some people, buying something from a new supplier for the first time is terrifying. Now, you might not see it that way, but maybe in a way you’re not normal. And no offense intended for that, because I’m not normal either. As soon as you’ve been the business owner of any business for a while, you kind of lose perspective on what it’s like to be an ordinary buyer, or a business owner, perhaps of just a couple of years in. Paul Green:I certainly found this with payroll. When my payroll was like, what was it? About $50, $60,000 a month. I kind of lost perspective of how much that was, because I was used to that much coming in, and I was used to that much going out. And I remember sitting, talking with friends once; and we were talking about the cost of a car or a holiday or something. And I’m like, “Oh yeah, yeah. It’s only $20,000.” And their jaws opened over, “Huh? You’re spending that much?” And it was because I had become desensitised to money. Anyway, I digress. Paul Green:For you, spending a whole chunk of money on IT and technology, and all of that kind of stuff, it’s not unusual. It’s normal for you. So there’s less risk and fear in it. But for ordinary people, investing in a new partnership, or picking a partner, a new partner, can be a scary thing. For the everyday business owner or manager that you deal with, getting a new business in to look after their IT, whether it’s for the first time, or whether they’re switching partners, it’s a perceived risk, because they don’t know you. They don’t know if they can trust you. They do know that you can stop all the work from happening in their business for several hours, if you get something wrong. So they are aware how important you are, but there is an element of fear there. Paul Green:This is one of the reasons why people don’t switch MSPs very often, and why it takes them a long time to switch MSPs. We call this inertia loyalty; better the devil you know, better to sit with someone you don’t like, but at least, you know them, rather than switching over to someone brand new. Paul Green:So you can minimise the perceived risk of using you, using a whole series of influential techniques, things like Dr. Robert Cialdini’s Weapons of Influence. We’ve talked about these on the podcast before. He’s got six Weapons of Influence, things like social proof, authority scarcity; you can read all of these in a book called Influence, by Dr. Robert Cialdini. It really is a great book. Paul Green:I’d particularly look at how you can put in place risk reversal. We call risk reversals guarantees. In fact, if you wanted to absorb yourself in this, go back to Episode 91 of the podcast, where we spent a little bit of time talking about risk reversals and guarantees. Paul Green:The real opportunity here, is to do something to make someone’s first purchase with you really, really easy, and completely risk-free for them. So you make it as low a commitment as possible. Because the theory goes that once someone has purchased one thing from you, and it’s been a success, it’s been a good experience for them, then they’re more likely to go on to purchase something else from you. If your biggest business challenge is winning brand new clients; and for most MSPs, that’s pretty much their biggest business challenge. Then, consider ways that you can get a foot in the door. Paul Green:What can you do to reduce the perceived risk for the client, of buying from you? So you can get the chance to start a relationship with them. Because don’t forget. Most people are more motivated by the fear of loss than they are the opportunity to gain. We did this with our MSP Marketing Edge Service about three years ago. Instead of asking people to jump straight in, and pay for a month. And it’s only 99 pounds or $129, we did a free trial. Well, it’s free in the States, and it’s a pound in the UK, just because of the differences in the payment platforms we use, and the limitations in those. But that, as you can imagine, led to an explosion. In fact, we had a massive increase of people trying the service out. And, as I said earlier, the vast majority of those people love what they see, and they go on to become a full member. Paul Green:What could you do to do the same thing? Because you don’t necessarily want to offer someone a free month. In fact, that wouldn’t quite be right for an MSP; that would be the wrong way to get a relationship off to a start. But what if you could, for example, charge them for the audit, as part of your sales process? Now there’s an idea. What if you were to charge them money, even if it was just a few hundred or maybe even a thousand, depending on the size of the client, to actually do the technical audit needed as part of your sales proposal? “Hang on a second, here Paul. Are you suggesting that we charge people, to actually charge the money, in order to do a sales proposal?” Well, yes I am, actually. If you could get someone to pay for a good, proper, technical audit; and I mean a thorough technical audit, that you don’t make any profit on; that could be an incredibly powerful tool for you. Paul Green:Now, it’s got to be positioned in the right way. You’ve got to have some “roar,” some chutzpah, when you actually suggest it to people. But what a great, easy purchase. Because instead of asking them to get into bed with you on a monthly, recurring revenue basis, couple of thousand a month, or whatever it is, “Here we go. Sign the three-year contract.” Which is the right thing to do. You actually show them that working with you guys is really good fun. It’s a valuable experience. You know what you’re doing, and you do the job properly. Even if you could just get a couple of hundred from them, psychologically, that would be a very, very powerful thing to do. Get them to give you a little bit of money, so you can do that audit. Off the back of it, the chances of them becoming a client are so much higher. Paul Green:Now, you may choose not to do an audit, but there might be something else you could do. Maybe a piece of project work; maybe you do the project work, and the reason you’re doing it is because you know you’re going to ask them for some recurring revenue off the back of it. Although, I’ve got to be honest. Most of my clients won’t do project work, unless someone is making an ongoing monthly commitment. Paul Green:But you’ve got to look at this from their point of view. It is a risk to buy from you. What could you do to minimise that risk, and talk directly to the fear that is so motivating for them? How can you take that fear away, make them feel that, “Hey. The worst thing that happens here, is we lose a few hundred. I can sleep well if I lose a few hundred, but not so much if I’m trapped in a 36 month, monthly recurring revenue commitment with someone that I don’t get on with.” Make it easy for someone to buy from you. And just maybe, more people will try it out.…
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