EP268 - The MSP Guide to Building a Real Sales Run Rate with Stuart Warwick and Ian Luckett

IAN: In this episode of The IT Experts Podcast, we help you understand why building a real sales run rate is crucial to help accelerate your sales growth.

INTRO: Welcome to The IT Experts Podcast, the only podcast to help MSPs scale to 1 million, and if already there, get to five and go faster. At the end of the day, isn't it all about building a business that works for you rather than you for it? I hope you enjoy the show.

IAN: Good morning, good afternoon, good evening. Welcome to The IT Experts Podcast. You wouldn't believe how long it took to get that intro out. It was amazing, wasn't it, Stuart?

STUART: It was unbelievable.

IAN: It was quite funny. Natural fact that we might end up cutting it at the back of the show. That would be very funny. Anyway, serious subject today.

STUART: Sales run rate.

IAN: Sales run rate. We've got Stuart back in the podcast lounge, and today we're talking about sales run rate. We've been focusing with our clients talking about this, why this is really important. Yes, we've got referrals and yes, we have the marketing activities and all of that kind of great stuff, but this is one of these subjects that many MSPs don't like talking about too much, do they, because it kind of scratches that scab doesn't it, that sometimes might reveal something that's not very nice underneath the business.

STUART: Well, it's more that I think people don't realise that they need to talk about it because it gets glossed over with just big round number goals. Like, yeah, I want to get to a million or, yeah, I want to get to 2.5 million and, the how and the steps, well, not the steps, but the milestones to get there, because that might mean we're adding a million quid this year and it's like, can I really add a million? It sounds great. And it's, ah, so it's that aspirational, emotional like round, round figure. You know, I want to climb Mount Everest, but the amount of effort that goes into climbing Mountain Everest, you know, it kills off. Well, not literally, but it does actually literally kill off some people. But, or they never get to do it because they can't do the preparation to get there. So the sales run rate bit, I think is something that is never discussed, because they don't realise we need to discuss it because we go, yes, I'd love to do that. And then, and this is the biggest frustration and the biggest problem MSPs have, they dive into the detail, which is actually the day to day.

IAN: Yeah.

STUART: And so the milestones and the building blocks, the piece by piece needed to climb the rope ladder of the goal gets forgotten, and you're just staring up at this great number that you then forget about in the day to day, because the majority of MSPs haven't got the time to step back and don't give themselves the time to step back and start thinking about it. So it comes back to a age old friend of time and being too busy.

IAN: Excellent. Just before we get into the detail on this, we've been doing some work to help our clients do a bit of an annual reset on their plans.

STUART: Yes.

IAN: It's very easy to keep chucking along and say, at the beginning of the year, this is what I want to achieve, we're getting to the end of the year, now we're all starting to reflect on our, our performance and what did or didn't happen and everything like that. But just dig into the, some of the process that you've been working on with regards to breaking down the goals so that, they don't just have this, yes, let's just put 30% on this year as a goal. And then they go away and then they go and they don't focus on it, because we're really trying to tune into, well, what does that 30% actually look like? Professional services, monthly recurring, you know, kind of what it might be. What's the process you are going to be going through in the next couple of days with all the clients?

STUART: Well, the sales, the sales goal has to be linked to your numbers and your forecast and your budget. And so you're linking finance with sales and most MSPs don't have the time to do that. And don't have the time and sometimes don't see the importance of connecting goals. And some people say, look, it's a point of setting goals. We just seem to get out there and do it.

IAN: Yeah.

STUART: Because I never seem to hit a goal. You know, we can sit, spend waste all this time, you know, visioning and planning, but actually we need to get out there and do it. And you know, that's an age old topic that we talk about all the time, but. But when you actually start breaking it down and building a budget, or building from a sales point of view, a sales run rate, you know, what do I need to do every month to hit the goal? What do I need to do every week to hit the goal? What do I need to do every day to hit the goal? Because when you start breaking it down, you can, well, eating an elephant.

IAN: Yeah.

STUART: The only way to do it is piece by piece, you know, little piece by little piece. And suddenly it becomes not so overwhelming because a sales goal is not just made up of new business. You know, it is easy to think, yeah, yeah, I need to go and find a million pounds of new clients. It's like, actually that's not true. And we talk about low hanging fruit, and when you start to break down a sales number, there's a number of component points. There's organic new business there's marketing driven new business that you've created yourself. And then there's your low hanging fruit, you know, your existing clients and the revenue and profitability that lies within them, which all comes down to then your account management process and the nature of your relationship. But they're also underpinning all of this is the nature of your numbers and your understanding of your numbers and what your clients mean to you, what they're buying, what they're not buying, and therefore the million pound goal or the half a million pound goal, that might be your annual goal or two or three year goal. Suddenly when you break it down, you realise, do you know what I need to add a hundred pounds an hour, which is what, in a working day? 700 pounds, 800 pounds a day. Okay, the numbers start to multiply, but if you've got a help desk of five, five people you might find that there is 700 pound a day to be had with your technicians listening for opportunities and helping clients refresh hardware. Okay? Margin's, different on hardware, listening for opportunities to refer you in to talk about projects. And suddenly 700 pound a day, if you communicate, and this is a bit we're going to come onto is having created the goal and you communicate it to not only your help desk team, support team and your, if you have any account managers or salespeople to them, suddenly that goal has been broken down and shared out.

IAN: Absolutely. And even more before we get stuck into the detail, why do people so, so many MSPs not look at their numbers. You know, when you come into the Growth Hub, we have a deep dive into your headline numbers. We look at it and it can be scary, and sometimes some clients even have to go away for, not go away, but, you know, literally spend a year working on their accounts, their chart of accounts, the way that they're financing, because it just doesn't make sense to them. And it's such a, it's this thing, isn't it, that people don't want to look at. But how do we help, how can we help people overcome that fear of if you did one thing out of the back of this podcast and you went and looked and assessed your accounts because we say your headline numbers are the window to the world, all your activity, everything you are doing, it shows up in your numbers.

STUART: It does period.

IAN: Mic drop moment, that's it. But many just don't, don't want to do it or don't know how to do it. What's the thing you, you see most?

STUART: And I think this is the, not having the time.

IAN: Okay.

STUART: Not feeling like they have the time. And we've talked about that and we can over, well, not overtalk it, I think we have to talk about it because we are in control of time. But I think the equal challenge is that they don't know where to start. So therefore, to use your word, it's overwhelming. And if something's overwhelming and you cannot see the wood for the trees, you do what you know best.

IAN: Yeah.

STUART: What's easiest, what's comfortable, which is usually avoid it and go back to what you do know and what isn't overwhelming. And so until that, well, for all of our clients, we help them. We take the overwhelm out of stopping and looking at their numbers, getting control of the historic nature and the current nature of their numbers. And then they have the confidence to start looking forward and forecasting not only their cost base, but also their revenue base going forward. And then they can start to have confidence about, well, could I exit? Could I exit at the right, kind of, and suddenly the ability to be feel more in control of your destiny becomes a real thing. Now that's all about the numbers, and we're talking about sales run rate, but sales run rate is connected to your numbers because like with vision, when we get clear on what success looks for, like for us, so let's say we're a 700 pound, a 700,000 pound MSP today. And say, do you know what in five years time, if I can build it to a 2 million pound MSP that has a 20% net profit or EBITDA, then as you begin to understand how multipliers work for exit values, you could begin to realise, Hey, that's probably by the time I take 20% of 2 million. That could be a four to five times multiple, could be, there's a lot of other factors that determine that multiple rather, not just EBITDA that, when I do that multiple suddenly becomes an interesting figure in terms of exiting with, you know, 1.2, 1.5 million. But that's not really the key at the moment. You know, that's the longer term outcome. But if I'm looking to increase revenue, increase profitability, increase lifestyle, increase solidity of the business because you might also be recognising that you are overly reliant on one or two customers.

IAN: Yep.

STUART: So I need to grow the client base wider to de-risk those customers. So suddenly it's like, well, how much business do I need? And from who, to understand: How I achieve that and so this sales run rate is by going, okay, it looks like my numbers mean that I need to add 250,000 pounds a year. You break that down. What's that? That's 20,000 pounds a month. Is that just you, is that between you and account manager? I talked about earlier about the help desk team, and then if you look at your numbers, which you, if you trust the past, you can then confidently forecast the future. So you can say, Hey, the breakup of my numbers show that I get x new business a year. We have y amount of business from existing clients, so it comes from new projects. It's been the same over the last three or four years. So therefore I can be confident that this coming year I'm going to have an, you know, 20% or 30% or 40% of the number will be recurring projects as long as we do what we always do. So suddenly that number, the forecast and the confidence required to achieve the number gets greater and greater because actually of that 250,000, only maybe 75, 80,000 needs to be new business.

IAN: And I suppose when, you know, when you approach it like that, because. When you started listening to this podcast, you might have thought, we're just talking about new business. How am I going to get a million pound new business? This isn't about how you're getting a million pound fresh, new business. This is sales within the organisation, which, as you say, come from all those different categories, can actually be quite motivating, can't it? Because you can look at a goal and go, well, natural fact, do you know what? I think we need to up that goal a little bit.

STUART: Well, that, and also just like, oh my God, this is impossible. This is possible. This is, and suddenly the energy, you know, from looking I think in many cases people go, oh, oh yeah, I'm going to grow by a million pounds. And it's like, well, I don't actually believe it. But when you start breaking it down and realise that actually annually, 40% of your growth every year is, or 50% or whatever the number is existing clients. So suddenly that new business goal becomes much more achievable. And then you can look at, well, how many networking events do I have to go? How many webinars do I need to run? How many lunch and learns? You know, in terms of new business, whatever it is you need to do to get that new business.

IAN: Excellent stuff. Let's get into the detail, you know, what do we need to do to bring this alive?

STUART: Apart from, well, starting with confidence in your numbers today. I think that's the important thing. No way. If you believe in your numbers today, knowing where you're at and then saying, well, where do I want to be in two or three years time? So take three years and then reverse engineer it. And as we said a moment ago, if you reverse engineer it across those five key buckets, you know, which is support revenue, services revenue, projects, hardware, and then kind of other, other income that comes in, whatever that might be. Those core chunked up buckets when you break down the goal for next year, the year after, and the year after that, you'll start to get a feel for how much. Well, as I just said a moment ago, you know what that mountain is that we've got to climb and it will be more manageable than you realise because going back to what we said right at the beginning of the podcast, once that's clear, you can involve the team. You can communicate the team. So let's say the support desk generated you know, 75,000 pounds last year. It's like, well, you can break down how and why. How the behaviours that they undertook the things that they were listening for. Yeah. The things that we were selling. The key aspects of each client. So if you do a client review of the key clients, I'm saying not every single client, because most MSPs have a long tail of minnows. But if you look at those top, top 10, top 20, top 30 clients and if all the team know on the help desk and the projects team who are client facing, where the opportunities may lie and what we might be looking to, what we should be listening for with clients. Then between you all, again, if you have that rhythm of review, weekly meetings, monthly meetings, and also by sharing your sales numbers and your goals and celebrating them as well as doing sort of drains up, you know, learnings each month means that it's not you on your own. So reverse engineer the numbers is the starting point. Share them with the team. Help the team understand how they can or how, not how they can, but how they have in the past and therefore how they can in the future. Support sales and sales seem, you know, does have a dirty word.

IAN: Yeah.

STUART: Oh, I'm an engineer. I don't sell. But actually it's part of how we help our clients make the most of technology. Isn't that what we do in our mission statement and our vision statement that we've got on the wall, guys? Yes, it is. So actually it's just about asking good questions and letting our clients go, oh yes, I think we need that. Can you give me a quote? Yeah, of course. I can do your quote. That's not selling, but actually it is selling.

IAN: No, exactly that. And I think you've, you know, you've just put it into a nice simple nutshell there of just how to kind of get started and what we need to do. When they've got this in place, what's going to be the, what's the future outcomes of this? What's the kind of the benefits of doing this? What can they do now?

STUART: The real benefit is confidence in direction for the business owner.

IAN: Okay.

STUART: It's involvement of the team across the board. So it gives you something additional to celebrate. Because if you're communicating it and certainly doing a review every month and saying Progress, not only are we picking a couple of other KPIs in terms of what we do for clients. So let's say first time fix on the, you know, percentage score on the dashboard on the help desk, that may be one. You know, new business signed, you know, both existing clients and new business each month, and it gives you an opportunity to celebrate. And again, that comes back to subtly involving everyone in sales, in commas across the whole business. So that confidence then turns it. Well, you're translating confidence into achieving a plan that starts to compound, you know, month by month, year by year. And you'll start to see yourselves achieving the goals that for many just feel like...

IAN: Pie in the sky, isn't it? So a future thing...

STUART: Lip service was the word I was looking for. They, you know, they're giving themselves lip service because they ought to have a goal, but they never achieve it year on year. And they stay static in that drive space that we talk about on the MSP journey, which is like, it's comfortable, but not really stepping into that potential, which only becomes critical when people are like five to 10 years away from, you know, retirement or wanting to exit for some reason when they go. This isn't what this isn't worth what I need it to be worth. And that's when it's like, well, how do I make it worth what it should be worth?

IAN: And sometimes you know, MSPs look at this, would look at this or listen to this and sort of go, this is just, this is way too much overkill. But when you look at, you know, some of the most successful businesses in the world and you again, reverse engineer and break down what they're doing, you know, do you think every, you know, apple has a, a monthly board meeting, they go for their finance. Absolutely. Departmental plans. Absolutely. You know, one-to-ones. Absolutely.

STUART: Yeah.

IAN: You know, and you just, you just slice the part that you need for the MSP, because this is also about, you know, having that visibility on budgeting as well, you mentioned, and it's quite a funny word, budget because it's like, oh, come on, budgeting, really? But you know, when you've got this information, you can then set that budget and you can then measure against that budget and go, well, you know, let's put our big boy or girl pants on and let's just budget properly. Because then guess what, when we want to invest, we want to and more than likely in people or systems, then you know, that you can, as you say, with confidence.

STUART: And it's this breaking it down piece so that you can share, because I think most MSP owners will be surprised at how much business gets done. Not by them, you know, by clients ringing the phone.

IAN: Yeah, yeah.

STUART: Having a problem. Highlighting the problem, client saying yes. And suddenly you are writing, you know, doing a quote for another piece of business and suddenly your sales team is actually far much bigger than what you thought. And your engineers who don't see themselves as salespeople, they see them as client people are actually, you know, you can show them that actually they're actually driving the profitability. And this comes back to service gross margin, which is a key driver of operational maturity. We haven't got time for today to go into that.

IAN: I was going to say, hang on a minute. This is a fork in the road here.

STUART: It did, and you touched on this with Darren Strong and on one of the other podcasts we did, a couple of months ago, where service craft gross margin is badly understood, but it is a key metric for understanding the profitability of your survey. And so knowing your sun sales run rate and involving your help desk in understanding that they're part of the sales team, will help drive the service gross margin, because the more business that is being done in terms of a support and a project point of view, increases that service gross margin, which is your efficiency and drives profitability.

IAN: Love it. Absolutely love it. Well, I think. I think we've done that one. Not to death, but I think we've, that's nice and succinct. We've got all the little actions in there that they need to go and really take your sales run rate and make it such a...

STUART: Totally.

IAN: A big thing to.

STUART: It's a simple thing.

IAN: Yeah.

STUART: Yet we have to see the value of it and take the time to commit ourselves to giving ourselves the investment of time to expand on that plan.

IAN: So if you're not doing this element of your finance control and looking in the business, stop the podcast, but it's nearly finished. Anyway, go back, listen to it again with your pen and paper and get the team involved. Get on with it.

STUART: Totally.

IAN: Good stuff. Thanks very much, Stuart.

STUART: You're very welcome.

IAN: See you on the next one.

STUART: See you. Bye.

OUTRO: Just before you go, and if you're curious about how this episode links with the ability to scale your MSP to a million or, or if you are already there, accelerate to five, then we want to invite you to come and take the MSP Mastery quiz, and in just three minutes, you're going to get a 360 degrees scan of your business where you can identify the one or two tactics that can help you find more time engage in, align your people and help generate more leads in your MSP. It's really simple. Just click on the link in the show notes and if you have enjoyed this episode, we'd love to get some feedback from you by means of a rating review on Spotify or iTunes, or your podcast platform of choice. We really appreciate every single one of them. Now, you can go and enjoy the rest of your day and we look forward to catching up and connecting with you soon. All the best.