Before you plan your lead generation and marketing/sales efforts, you really must understand the concept of Total Lifetime Value (TLV) of your managed services clients, otherwise you won’t know how much money you can spend to acquire a new client.

The TLV calculation does exactly what its name implies; it tells you the total value of the client over its lifetime. In other words, it tells you how much your client is worth to you, which is the number that determines how much you are willing to spend to get a client.

How do you calculate TLV? I would suggest you use the following formula:

Average revenues from client over lifetime of service relationship X Gross Margin %

So let’s say that your typical client is worth $5000 per month and on average they stick around for 3 years. This means that this client brings in a total of $180,000 in revenue over its lifetime.

Let’s further say that you operate at 50% gross margins. This means that the amount of money that is actually returned to you from your work with this client to cover expenses and generate profit is $90,000.

Theoretically you could spend $90,000 to acquire this customer and still break even. Now, that wouldn’t leave you with any money to cover any of your operating expenses, so it’s not a realistic strategy in the long term.

A more realistic strategy can be found by multiplying the $90,000 by whatever percentage of your budget your business model says you can spend on sales and marketing and still have a viable business. Let’s say that the total combined number is 15% of total revenues.

That means you could spend up to $27,000 (15% x $180,000) in total sales and marketing expenses and still be operating within the framework of your business model! If you were to find a way to operate with even higher gross margins, you could spend even more money.

There is an old saying in direct marketing circles that goes something like this:

“The company that can spend the most money to acquire a customer wins.”

Effectively, if I know the TLV of my clients and you don’t know the TLV of yours, you are going to be very hesitant to spend the kind of money you could to win new business, which means that I’m going to beat you all day long out in the marketplace!

You must calculate your TLV so you know how much money you can spend to acquire a customer; otherwise you may not be putting in the appropriate amount of effort to be competitive in the marketplace.

MRC

MSPs are increasingly using a wide variety of marketing tactics to engage prospects and attempt to speed up what can be a long and challenging sales cycle. One tactic that we’ve used successfully is holding managed services marketing seminars. Seminars are a great way to engage your prospects in a format that help you sell while also positioning you as a valuable educational resource.

Marketing seminars are live events at which you meet with prospects to:

• Educate – Share useful information about something related to one or more of your services/products
• Sell – Pitch your services/products

I think the most important lesson we learned about using seminars is that you have to be aggressive about getting “butts in seats”! Most people are way too passive in their approach to this – often times quitting after one postcard mailing or round of calls.

You have to keep after it! When we are holding a seminar, we’ll send three pieces of direct mail, make three rounds of phone calls, and do several email blasts if we have their address. That’s how you put butts in seats!

Holding live marketing seminar events can be daunting for first-timers and there are lots of pitfalls to avoid, so we put together a guide to help MSPs plan for and hold successful marketing seminars. Click here for this free guide from MSP Coach. This guide consolidates our experiences along with research we’ve done on seminar marketing best practices.

Good luck!

MRC

If you are having a hard time selling managed services, you should make a study of sales and commit to mastering the fundamentals.  No matter what you do in the future, your career will benefit from better sales skills.

 

As I mentioned in my previous post, the ability to get a prospect talking by asking good questions is one of the most critical sales skills one can develop.

 

The majority of time in your conversations with prospects should consist of you asking them good questions that:

 

1. Allow you to control the flow of the conversation

2. Uncover their needs

3. Uncover their goals

4. Establish you as an authority

5. Qualify the prospect

6. Move the sales process forward

 

Unfortunately, most salespeople still tend to do the “show up and throw up” model of selling, not giving their prospects enough air time to let the salesperson know their needs and wants. This wastes time, annoys the prospect, and results in fewer sales.

 

Instead, a salesperson should “dumb up”!

 

By this, I mean they should use questions to get the prospect to do more talking instead of blabbing on like an “expert” and never letting the prospect talk.

 

There are techniques to asking good questions, we’ll cover a few in the next few posts. They aren’t rocket science, but they do take some practice to do well.

 

Technique #1 for Question Based Selling: Ask open-ended questions

Open-ended questions are those that won’t result in a simple “Yes” or “No” answer, which means they engage the other person in active conversation with you.  Ask someone a closed-ended question in a sales conversation, and you’ll find yourself packing up and heading out the door in a hurry!

Salespeople that know how to masterfully use open-ended conversations can keep a prospecting talking the entire meeting with even realizing they are doing it.

 

There is a simple formula to make sure you are asking open-ended questions, which is to try your best to start each question with one of the following words:

 

· Who

 

· What

 

· When

 

· Where

 

· Why

 

· How

Go ahead and try to ask a Yes or No question using this formula – it’s very difficult!  Get into the habit of starting all of your questions with these words, and you’ll find that your conversations with prospects will suddenly become a lot easier.

 

NOTE: be careful with Why questions. Ask them carefully and softly so that you don’t come across as confrontational or questioning someone’s judgment!

 

Role Play!

It’s way too easy to read this lesson and think that it’s common sense and get the false impression that you don’t need to practice asking good questions.

 

Don’t fall into this trap!

 

I’m telling you with 100% certainty: if you haven’t practiced asking good questions over and over in role playing exercises, you aren’t very good at it! Practice, practice, practice – and you will be able to use questions to control your sales conversations.

 

MRC

I’m sure many of you have heard of the recent presentation from Sequoia Capital to the companies it has invested in telling them that this economic downturn is for real, and that they had better act like if they hoped to survive.  I had not seen it myself, however, until Michael Beecher from CoreIP Systems sent it along to me.

It’s a good presentation, and no matter what you think about how bad the economy is actually doing and how long it will last, it has some great ideas about how to run a company in tough times – regardless of the specific cause.

Here is the link to the presentation.

I’m a big believe in the idea that you should always run your company as if you’ll never be able to raise another dollar – that’s a lesson compliments of Warren Buffett.  Not having a big financial burden hanging over your company gives you the flexibility to take advantage of opportunities and the durability to survive tough times.

So take the suggestions from the presentation and use them when appropriate – they could be a lifesaver!

MRC

Well, I can think of a few things, but the first thing I did was:

Examine my overhead expenses with a fine-toothed comb!

When you are working with a relatively new model – like managed services – and pressing for aggressive growth, it can be difficult to watch your overhead very carefully at the same time.  I’m not suggesting that we got sloppy – we’ve always been a frugal company – but we did experience some “expense creep.”

By going through our P&L very carefully and asking “Do we really need this?” to every expense, we were able to add several points to our bottom line.  That’s the kind of cushion you need during tough times, and it gives us more money to spend on sales and marketing efforts.

I highly recommend that you go through yours and be aggressive about making cuts where you can – it can make the difference between a healthy company and one heading for trouble.

MRC