EP137 – The Secret to Building a Pipeline of Profit Part 2 with Ian Luckett and Stuart Warwick

INTRO

In this episode of the IT Experts Podcast, we are sharing with you Part 2 of the secret to building a pipeline of profit in your MSP.

Welcome to the IT Experts Podcast, the only podcast to help MSP scale to 1,000,000, and if already there get to 5 and go fast 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

So, good morning, good afternoon, good evening. Welcome to the IT Experts Podcast, Part 2, Episode 137 of the Secret to Building a pipeline of profit, with Mr. Warwick Stuart Warrick in the House. Good afternoon Stuart.

STUART

Hey, Ian, great to be back.

IAN

Good stuff. So look, this is Part 2. If you have jumped straight in to this episode, I want you to go back and listen to the episode before episode 136. It's all around the fundaments of account management and where Stuart and I are sharing with you pipeline profit amplifier system that helps our clients to maximize their opportunities with their existing clients, increase their profitability, increase their client retention, stickiness, profit, revenue. All these really, really great things. It's one of the things that MSP's sometimes have a go out, sometimes, you know, play around with it, but we're going to sharing with you three-part episode, three-part series here on how to really maximize these relationships that you're building.

So Stuart, the second part, we're now going to be starting to go into how do we approach this account management. We've just talk about, you know, a minute ago about the, you know, opportunity of the profit, the relationships, the all the goodness and everyone's sold on it. Now, what do we do next? What is the next step? How do they apply or even start to even begin to develop their strategy?

STUART

Well, as a reminder for anyone listening to this first time is that most MSPs and particularly those sub a million are either one or two clients away from chaos. IE suddenly out the blue someone's being bought, merged and they're leaving you, you know, for an existing supplier in this new acquiring company and it's news to you and you're on three months notice and it could be your biggest client and it's so common, the story where suddenly you go from ticking along really nicely to suddenly feeling like your world's been turned upside down because now you're actually on paper, you know, making a loss or suddenly you can't afford the full wage bill that you would normally have because you've lost one client or two that have suddenly given you notice for some particular reason, even if you haven't done anything wrong. But actually you have done something wrong. The other thing is that you are leaving anything between 50 and 100 grams worth of additional revenue and profit if you're already break even or profitable on the table, hidden in plain sight in your existing clients, that's the opportunity that we are talking about and we're talking about and it's down to you the business owner to stop and think, okay, do I have a consistent process for talking to my clients regularly and in a way that is valuable to both them and me. And if the answer is no, then listen up.

IAN

So let's get into the nitty gritty. Let's cut to the chase on this one. What are the steps? What are THE, If you give us a bit of an overview on how to approach this and what are some of the things we need to and then we'll get into some of the detail on the actual actions that people need to take.

STUART

Yeah the first piece is probably the easiest yet also the hardest piece for MSPs to do because it requires you to stop and do some thinking and do some analysis. Because yes, you can just jump out and go and have conversation. Go and do that. There's nothing wrong with that, but actually it's understanding who you need to have a conversation, what type of conversation do you need to have and how often. And that comes from analyzing your clients. So the simple thing. And the hardest piece for many, if they've never done this and their chart of accounts aren't set up right, their finances aren't set up right. Their contracts connected to their PSA aren't set up right is that this is difficult and therefore it that gets forgotten about as motivated as you might be. Listen to this, if your finances are in a mess and your reporting your financial reporting is clunky, you want to find this difficult. But bottom line is, what do your current clients spend with you? How profitable is that from a gross profit perspective? If not a net profit perspective, if you can put all the costs. Against it and what is it that they are buying from you specifically in terms of products, obviously there's the support element. Is that profitable? How noisy are all those clients? And once you understand these fundamental basics of what these clients are worth to you, can you then start to say, okay, well, who's most important to me, where does most of the opportunity lie in terms of low hanging fruit that isn't being talked about or plucked.

If we keep the analogy going and so understanding these numbers first, then understanding actually who are my most important clients who are my most at risk clients cause just because they're your biggest revenue client doesn't mean they're profitable. So therefore the insight that comes from doing this can suddenly open up a whole different ballpark in terms of how you view your clients, because the ones you thought were most important may not be the most important. And actually, you probably pretty much know who your pitters are. You know your pain in the backside clients.

So first step, get under the skin of what these clients are worth to you. What do you currently sell to them. And then, what then provides you is the opportunity to go and have a conversation with them about pricing, scary, I know.I mean that's another area where MSPs get in their own way and go. Ohh. I can't talk to them about. Prices, because they might leave me because you are one or two clients away from being loss making. Yeah, or feeling like you're in chaos and that keeps you trapped. And so because you're not charging and or you've not got the right confidence to have the right type of conversations with your clients, is that you stay trapped in playing small and you're not valuing yourself. And so this is as much a mind gain, confidence process as it is a tangible process to execute and have meetings with your clients. But there's meetings and there's meetings.

IAN

I just want to rollback a little bit on something you just mentioned there about profitability of clients.

Now when we start working with people, we know that headline numbers is one of the hardest things that most MSs do to get their heads around. So by the way, if you're listening to this and you're managing your business finances on looking at your bank balance every month, then there's a little bit more analysis that's needed just to see what sort of runway you've got, what sort of growth plans you've got, who's profitable, you know, how many employees have you got. What are they costing you. And really running a I'm going to say proper, but I don't mean to insult people. You know, a really sustainable MSP, is you need to know your headline numbers and once you understand your headline numbers at depth and then reverse engineer that back into PSA you'll be able to have some real light bulb moments on. Yeah, I thought that client was a bit noisy, but the fact that you're probably not making any money with them, which means that if you actually get rid of some of your clients, because this account management piece is actually, it's not just about maximizing and selling to more people, it's actually about saying well actually. I don't want to work with these five guys anymore. Let's ramp their prices up. If they leave, that's a good thing, because we actually make more money because we could go and work with people who are more profitable. And this is a scary thing for people to get their heads around, isn't it? So you're saying we're going to lose clients and make more money? How does that work? Do you kind of how do we help people approach that kind of mindset?

STUART

The simplest way is getting to grips with your numbers and when we talk about PML forecasting. You know, forecasting is about looking at how your numbers expand into the future. Accountants, most accountants, not all, but the majority only work in the past. They do your accounts each year, which is basically recording what you've done. Very few like the whole concept of guesswork, which is forecasting. But when you've got a solid set of accounts and a solid set of a chart of accounts and you've got numbers that you trust that are based on, you know, the recurring revenue and the project revenue you can start to forecast. You can start to extrapolate what the next year might look like, and so if you put a 5% increase, for example across every clients’ recurring revenue year on year and you had a spreadsheet that allowed you to do that impact on the numbers, given that your overheads may stay, you know virtually the same, it's huge. And that profit is just dropping. So that's just one very simple way of by getting under the skin of your numbers and under the skin of your clients that you can start to play around with what clients are worth to you. Well, if I put the prices up, would that mean ohh they break even. Ohh no, we'd actually make a a proper return on it. You know, at the moment our markup on hardware is only 1% or 5% actually what's my minimum or actually I'm quite happy with that, so you can start to make important business decisions about how you, where you want your business to go, rather than be grateful for just having money, turn up in your account each month and and be grateful for that.

So the massive piece to answer your question is get comfortable with the numbers and then play around with them and see what the cause of the effect. And we're always talking about cause of the effect. If I do this, what will? If I do that, what might the impact of that be? And that then gives you the confidence to go and have robust well, it doesn't have to be robust, but intelligent conversations and so many of our clients that have gone ohh, but that's my biggest client. Ohh I'm not making any money. I've been working with them for 15 years or not enough money, even though they spend, you know, 300 grand a year with me or 70 grand A year with me. But by being armed with the numbers, you can actually go and say, Mr. Managing Director, I'm not actually making any money. This is what we charged you five years ago. This is what we're charging you now. Doesn't take a rocket science to workout that. I need to put your prices up. And very few managing directors who run good businesses will disagree with you. Yeah, they might not like the fact that they going pay more, but they won't disagree with you and they'll respect you more. And once you start to respect yourself and your business and your pricing and your value, you'll have better conversations with your clients and so the account management process starts with you because when you get into the account management conversation you are talking about you and what you do. And so if you're thinking like a, how many more laptop can I sell to this client You know, is there some more cabling? Is there some more memory upgrade that's all just tactical, it's all tactical stuff and they treat you like a supplier. To be called when they need something as opposed to valuing a regular relationship with you because you are helping them run a better business. And that takes a shift in you as a business owner.

So analyze your clients, categorize your clients, work out what they're worth to you, the order in which you need to go and talk to them. Then the the massive opportunity then is be clear on what you do and what you offer, IE your proposition and your packages. So many people are developing and maturing their security offering, which means common sense reasons over the last few years, it's been front and centre and always will be going forward. That everybody needs to strengthen their proposition, but being able to explain it in in business language, not in technical language and by becoming really clear about what your standards are, what your text stack looks like, because the tech stack the, the, the clearer you are about what it is and the more confident you are about non negotiation around what that text that looks like and the greater that you align your clients technology to your stack, the Better business that you have and the better service that they will get from you. Because you're getting economies of scale, you're streamlining set up, you're taking complication and individual setup out of this hole, and that all drops to profitability because you will become efficient in servicing them and it will give you more time and space to have proactive conversations about the technology and their business and not just be scampering around in the background, being busy and hoping for more work to come from them. Does that make sense?

IAN

Absolutely. And the thing that's really, you know, apart from the understanding the profitability there, I've just made a note and we're going to point you to another podcast that's going to help you out with this a little bit later on. It is also the resistance or the fact that every client that's on the say that is on a different package, and if you can imagine you've got a bag of licorice, all sorts and every clients on a different package. How are you then going to be able to go in and have a robust conversation? Or more importantly, when you get big enough, you get an account manager to go in and have those conversations for you in a standardized way with your process on your stack and on your offering. Because this is about leverage, isn't it? It's about getting to a point where owner not needed, so it's about removing you from the business so that you can go and do what you want to do and leave the leave the MSP to kind of run where it is and I think so many times...

This is why it gets so complicated. It's because people try and bite this apple all in one go. Headline numbers we talked about today, it's not on the sheet to talk about. You know, pricing, packaging and all that sort of stuff that's not on the sheet to talk about date, but it's all part of account management. And when you start, I'm peeling this onion, there's so many different layers, and this is the process, you know, that we need to go through in these sequential steps to make it more powerful.

STUART

And it's about strategy. The first step, as I said right at the beginning here, is to stop and think about what you've got. And the cliche of where you want to go with your client base. And so the strategy is everything that we've just talked about. And it underpins then, how you are then going to nurture the key relationships that underpin your business, which is your clients? So strategy comes first and then tactical implementation is what comes next.

IAN

And then any of the time that you're spending thinking about any of this, this is, you know this is working on the business rather than in the business, This is going to pay you back 10-20-30-40-50 fold in terms of, you know, getting this into a process that others. And operate, which is really powerful.

STUART

I want to share a story about one of our clients, probably going back two or three years, really nice business, really nice business, but just not profitable enough, even though great clients are great setup from technology... this particular business owner came from a really robust compliance background. So really hot on products, services, setup systems automation. However, not working very hard for not enough profit, and when we originally had the conversation, we talked about everything we talked about before, right? Analyze your clients, look at your headline numbers a) he wasn't too sophisticated in what he had but he took the time and he took the action to understand the numbers behind his clients. And when I was saying to him, look for your type of business and at the time he was probably turning about 750K. And I said for your size of business and looking at the number of clients you've got, you've probably got close to 100K's worth of additional business. And he nearly spat his coffee out at the time because he was, he’s a very consistent, really relationship driven die and he felt he was having you know good whilst he was very busy and could do more he had really good relationship with his clients and there wasn't too much, but actually when he sat down and he followed the process that we gave him, he ended up having, I think it was close on £185,000 worth of low hanging fruit opportunities.

Now, he wasn't going to get his arms around them all tomorrow, however, he could see that was something that he could be talking to his clients about what they needed and what they weren't buying. And they hadn't been talking about. And that that gave him something to aim at over the next 6 to 9 months. But the thing about it, and we joke about it even now, is that every time we review his business, which we do 3 times a year on the 16 week alignment process, is that that spreadsheet keeps staying at around that figure. Between about 180 and 200 K's worth of opportunity that's lying in the new clients that have now joined an existing clients cause clients. You know, we've said before on this podcast, things change constantly. He's got good clients, they are growing. They are expanding. They are doing mergers, they're doing acquisitions, they need more stuff.

And if you're having the right style of conversation, which he was, he was quite strategic in his positioning with his client. He was just too busy to do it often enough. He's having even better conversations and they are drawing on and leaning on him more. And as a result, that revenue has allowed him to invest deeply in the right people that he's needed. So in the short term, his net profit hasn't changed massively, but that profit has been going into amplifying the capacity of his business and strengthening it such that it's scalable without him. And now he's at that point where he can really start to reap the reward and the profit from a really healthy strategy business.

IAN

And if we were to ask him what was the thing that was in his way at the beginning of this process, what, what do you think he would say him?

STUART

Him. Again and again and again. We've got great clients who are really self aware or realized and become more self aware and it was him. It was as simple as he didn't have the numbers to actually quantify exactly what the opportunity and when he saw what the opportunity was. It was a case of, well, that's very simple. I just need to go and talk, to talk to those clients about what the opportunity is that lies there. And because he had such great relationships already, because of the way he thought about his business, set it up. It was like, you know, fishing in a barrel instead of throwing fishing at sea.

IAN

Absolutely love that. Absolutely love that, love hearing stories like that. So let's just start to bring this one in just from an opportunity point of view when they get this right and when they get this particular part of the process right. What's the kind of the outcome of, you know, analyzing your clients, understanding where the category is, understanding your stack and your standards and all of this kind of good stuff. How should you feel once you've finished putting all of this together after listening to this episode?

STUART

It changes how you feel about the future, so many MSPs are ticking along doing nicely, but those that are ambitious, they know that they're there's something missing. And when you start to add the kind of revenue and profit that good account management can do because it's not being done. You start to it. It's funny, Ian, because we both see this, they show up at meetings differently. They are more confident to speak their mind to, to share with others. And they go from doubting themselves and being kind of fear driven to thinking, you know what's next. Bring it on and you know that's why we get out of bed every day to do what we do. But when you feel that you've got something, you know the thing that holds us back is fear, fear of failure, fear of getting it wrong, fear of failing. So when you start to see, see your business strengthen and there be cash in the bank and consistent cash in the bank and you're able to easily invest in, you know, new staff or new resources or put fill the pension pot up, you know, every year that that is the, you know, the tax opportunity for everyone. That's when people saying, you know, bring it on. I'm feeling bulletproof. What’s next? And people that never thought that they could acquire or merge with someone is suddenly thinking, well, I wonder if I maybe I could buy someone and grow faster.

IAN

What if, the great what if question. The biggest thing that will hold us back.

STUART

So confidence.

IAN

Right, that’s the thing.

IAN

Well, look, this is been a great second episode in the last episode, we're going to be sharing with you some more of the details, some of the things you need to do, some of the actual tasks and tactics you need to do to really bring this pipeline of profit into your MSP. So if you haven't listened to it already, I want you to go back and listen to episode 136, which is the part one which sets the context and it helps you understand, you know, the opportunity, what it is that you're going to, you're going to be getting and how it is to help you to have increased that profit and that sustainability in that. You know potential sale value as well if you're interested in selling.

But for now, if you're interested in working out if you've got the capacity to scale or the capability to scale, then Stuart and invite is just going to take the MSP mastery quiz. The link will be in the show notes. Takes 4 minutes absolutely free and it will help you to or number1 it will help you to understand what you need to be focusing on right now because you get personalized report that will help you to check out your score, see where you're strong, see where you could have some areas that you need to development and help you to put things like all the great advice we're putting into this podcast, to help you scan and grow your MSP to 1,000,000 if you already there then help you get to 5 and go faster.

So just leaves me to say thanks very much, Stuart, any final words for you on this one?

STUART

Go do it.

IAN

Go do it. Three words, brilliant. Right. That's it from us. We're going to look forward to catching you up with you on the final episode next week. Have a great day and we'll see you all soon.

STUART

Take care.

OUTRO

So I hope you enjoyed the show. If you did, I'd love it if you could leave a rating and review on your favorite podcast platform. If you want to learn more about how to take your MSP to a million, or if you're already there, go faster then come and join Stuart Warwick and myself in the Scale of Confidence. Facebook group. Link’s on the Show Notes. You go and enjoy the rest of your day and. I look forward to connecting with you soon.