EP270 - How to Reduce Over-Reliance on Big Clients with Ian Luckett

IAN: In this episode of The IT Experts Podcast, we help you de-risk your MSP by reducing the over reliance on your big clients.

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: So good morning, good afternoon, good evening. Welcome to The IT Experts Podcast. You just got me today. I've got a little bit of a risk warning, a little bit of a, not necessarily a punch in the guts, but a bit of a warning. Yeah, pretty much there. Over the last couple of weeks, probably about the last four or five weeks, we've seen quite a few of our clients or a handful of our clients lose their big clients, because of something that had absolutely nothing to do with them at all.

Corporate buyouts, I'm sure you've all seen it. You've all heard it. It's a horrible thing. You might be spending, you know, 5, 10, 15, maybe 20 years working with this client, and all of a sudden someone pops along and PE comes in. Boom. There you go. You might have had a great relationship with them, but all of a sudden they've just decided to throw you aside as if you're a bit of rubbish, which it feels really bad, okay. Because you, you might have been doing some really good account management. But the one thing that we want to kind of share with you today, a bit of a reminder to be honest with you about why this is so important that we focus on client concentration. We focus on getting the right contracts in place to protect yourself. Now, yes, you can't, you know, when this sort of thing happens, there's largely nothing you can do about it, because they might have an internal IT department if that is the actual case at all. But, we've got some tips and tricks for you today to help you protect yourself from this.

Risk is something that's not often talked about in the MSP space. It absolutely should be, you talk about cyber risk every single day with your clients, with your own business. But having a proper risk register around this is very, very important.

And also, the other thing that's equally important is, your valuation. One of the contributing factors to multipliers of your EBITDA at valuation will be your client concentration, and it's a big one. So whether your biggest client is 20%, 30%, or even 50% your revenue, that's going to be a big red flag to a lot of perspective buyers and values of your business. So, the problem is, and where it's kind of happened is in many situations is where MSPs have just kind of grown up. As they've developed and they've grown and the business has, you know, has got bigger. So has these, so are these large clients and because they're such a large client, a whale client, many, many people call them, is they consume you and you think you're making money out of them. Many times, MSPs don't know if they're actually making money just because they're your biggest client and they're the noisiest ones on the help desk, and they're the ones that give you all the project work. Doesn't mean that you're making money, but that's a whole another podcast. Don't worry about that one today. We'll talk about that. And we've, and we have talked about that previously before, so don't worry about that. But the thing that's really important is making sure that when you are going out and you are bringing in new leads, you're bringing in new opportunities that yes, you're serving that large client, because they're, yeah, they, it's cash, right? It's the most important thing. But you're also growing those other clients around you to start to reduce the reliance on that one client.

So, you know, risk is one of your clients is more than 15 to 20% of your revenue that is, that's a risk, that's a big risk. If a handful of your clients make up 50% of your revenue, again, that's another risk and it's going to be a red flag. Having long-term contracts or weak renewals is another major risk that we see all of the times. So if you've got people on 30 day contracts. Please just at least work towards getting them on a on an annual contract. We had a client who came into the Growth Hub and everybody was on 30 day contracts. He's just followed some of the frameworks and just done an absolute amazing job of getting all of his clients on three year contracts, which is just absolutely commendable, because that's protected him now, you know, with these buyouts and all these, all these sort of other situations that are out of your control you know, we don't want to be having verbal agreements instead of structured SLAs, people who, you know, whether when people come to, you know, to value your business and to look at whether they want to invest it. And that also means whether they want to work in it as well. They want solid SOPs that are going to work. They don't just want it wishy-washy on how does it work and how does it not work? Because then what happens is you get scope creep, and when you get scope creep, that's when your profitability basically just falls right out the bottom of that bucket.

But you know, one thing you don't want to be also in the position of is where you are feeling hostage to that one big client. You know, we don't want to be at that hostage position where they say, jump and you say how high, you know, you need to be in control of the business. And that's the really key thing.

So the question number one is, you know, what percentage of your business is made up from your biggest clients? You know, how do we calculate that client concentration? Well, really simple. We want to make sure that no client is above 20% and your top three clients are above 50% combined. Because this, as I said a minute ago, this is going to affect your valuation, you know, bankability and also the resilience.

Question number two is, you know, around those contracts, do you have proper contracts in place? Are they strong contracts? We've got good notice periods in them, you know, kind of automatic renewals, making sure everything's kind of in a really good place there, you know. Are the terms lining up, you know, is it a good quality, fair expectation exchange? You know, what's the minimum monthly commitments? What's the service guarantees? What's the SOPs, the SLAs and all of that kind of thing, you know? Handshake agreements and rolling monthly terms, you know, will bring vulnerability. And it doesn't matter how many times you have a great conversation or a coffee or an account management meeting, you are still, you know, not in a great place in terms of, you know, building that value and solidifying and connecting that client properly to your MSP.

STUART INTERRUPT: If scaling your MSP is your goal, but you're not sure which road to take, then you'll really want to get hold of the MSP growth guide. It's the shortcut most MSPs wish they had much earlier on to work out what the right support is for them. Even better, if you like meeting up in person, why not come to join us at one of our live events? See the system, meet the people, get inspired, get to kick the tires and see exactly what we get up to at the Growth Hub. So. Details are on the show notes below. Go have a look, click and come and join us and we look forward to seeing you another time, but let's get back to the show. Thanks, Stuart.

IAN: So how in Q1 of 2026 do we build that contract quality? Let's have a little look at what we need to do. So when you're trying to proactively, you know, de-risk your MSP, it needs to be, what can we do this quarter to strengthen the business? This is what this is all around, is strengthening the business. So I've got 10 tips for you right now to help you to do that.

Number one, we need to reduce the reliance on that, you know, under 20% client for that revenue to make sure we've got that in place. We need to strengthen the contracts and the renewals and also your notice periods.

Number three is around building a healthier pipeline. So you are never that one client dependent. Now this is, you know, unfortunately you've got to get your sales and marketing working in here. But first of all, let's actually work on account managing your other customers as well, because you can easily increase the, you know, other customers buy just some really good account management, building that relationship and revenue we talk about all the time and building that up. So getting that pipeline as well. Starting with your sales and marketing. You know, it is like growing an oak tree. When should you started it, you know, years ago, but keep that going. It takes a long time to build up that know, like, and trust.

Number four, you could diversify into verticals, into particular niches, or go super deep with one that you've already got. Start to go and look into that area. Where can you be doing speaking stocks? Where can you be doing adding value, educating those new customers and generating new business you know.

Number five is increasing that revenue versus the project dependence. So it's all very well and good doing project work for your customers. That's absolutely fantastic because it gives you these nice little peaks in cash flow and busyness. But remember, the managed service model is the most powerful model when you've got your focusing on your monthly recurring revenue. And that's what sometimes we forget. Might have a really good year. You might, you know, might have broken a million, but you might have had two or three or 400,000 pounds worth of project work, which is great. But that's the consultancy work. So set yourself some targets around balancing out your monthly recurring revenue against your project dependence.

So, another one, number six, that you can be able is you start to get really confident about your packages and your pricing. Minimum standards, minimum security package, minimum value, so that you start to build up, as I said, your existing customers and any new customers that come in are going to be more profitable than your whale customers as we'll call it.

You know, number seven is building that client retention program. You know, QBRs, TBRs, whatever you want to call them, new opportunities coming in. This is a thousand pound task for many owners when you are focusing on, you know, delivering extra value not only to those existing customers, but making sure that you're staying in touch with them. Making sure that you are understanding now, you know, in reality. If someone is going to get bought out, you are going to be the last one to know. But you might get some inclination. You might start to get a bit of a feeling if this has happened to you before, you might actually get the feeling. And also, the thing to remember is that as and when it does happen, you know, just be really polite about it and just, and help them move on and help them, then you never know then just because they've got some new, another, another MSP coming in or an IT department, they might not have some of the skills that you want. So don't go and burn your bridges. Anyway, digress a little bit there.

Number eight. This improves your cash reserves, you know, to buffer some of these revenue shocks. Once you've got better profitability, you're going to have more cash and more cash means that you are going to have more money for a rainy day, should this ever happen to you.

With your midterm clients, so number nine is around, over communicating. So over to communicate the value, kind of resell them maybe if you haven't spoken to them a while. Go and explain to them what your plan is this year to help all your customers keep more safe, more secure, more productive, all of that kind of great stuff, and more importantly, earn more money through the IT. And when you add that value to those mid-tier clients, you know, that's going to help you prevent that churn that, that could be around the larger clients.

And number 10, last but not least, is, you know, build out proper account management instead of owner-led client control. Now, this is really important. What I mean by proper account management is an end-to-end process that will literally embed within your business. So you are not involved in it all the time. And you know, again, these are like a thousand-pound tasks, but once you set that process down, the rest of the business can run it. You can build it, bring in account managers. It's the most successful way to kind of grow that business. So, in conclusion, bit of a quick one today I want you to complete think about what can you do in the first, in the next 90 days to help protect your business against this horrible shock that may have already happened to you. If it didn't, it may be on its way, you might not even know, but let's reduce that risk and start to look at client concentration checking in. You know, review that top 10 list with your team. You know, pick one. What are you going to do in the next seven days to help your MSP become safer, stronger, and more resilient? On that note, I'm going to leave that one with you.

You enjoy the rest of your day. I hope you found this useful. Please, if you do anything, listen to this again, share it with your team. Let's make sure that you are not one of those casualties this year that gets caught out when your client decides to say cheerio.

And that's all from me today. I look forward to catching up with you on the next episode. Take care. Be good. Stay safe.

OUTRO: Wait, wait, wait, wait, wait. 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 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 day.