Wednesday, August 29, 2007

Weeding Your Business Garden - part 2

We've been weeding the garden at KPEnterprises (Sacramento's Premier Microsoft Small Business Specialist).

Last posting addressed the vendor side. Now for the client side:

Every year or so we do some weeding of clients. The basic outline is pretty simple. What does our ideal client look like? And how do our current clients compare to that ideal?

One thing we've done every year (sometimes twice a year) for the last ten years: We raise the bar.

The most obvious bar is money. By the end of October, we won't have any clients who have not committed to:
- Paying at least $6,000 per year
- Prepaying for all work (monthly if on credit card, quarterly if by check)
- Remote work for almost everything

That plan is worth enough to make it worth our while to do business. At the same time, we get the client to recommit to our model for support.

If you think about it, the higher-end clients are the easiest "sell" because they are already committed at a pretty high monthly stipend. The question regarding them is: Are we making enough money on this client? If we get $50,000 in revenue but it costs us $49,000 to deliver it, that's no better than a client who brings in $1,400 in revenue and costs $400 to deliver.

So, if a high-end client is not particularly profitable, they need to agree to some adjustments. Otherwise, we'll free up all those hours to spend on clients that are more profitable.

At the low end are people who either ARE break/fix or long to be break/fix. They haven't drunk enough kool-aid. They don't believe in the system. They want more hands-on petting. Or they just think they'll save money by waiting to call you until the server's smoking.

For us, the bar is set at $500/month. That's the "silver" plan. It includes monitoring and remote maintenance, patch management, and generally keeping the server working. If clients are willing to do that, we can make money and feel that we're actually taking care of the client.

For people who say "I just want to call when something goes wrong," we can't help them any more. Because when something goes wrong, they'll want to hold us responsible. And, when something goes wrong, we'll have four technicians booked solid and working on other things. So we don't have time to do emergency repairs on some snake pit of a server that hasn't been patched in a year.

[ Sidebar: Other Consultants ]

I don't know why anyone would want that client, but plenty of people do. So our savior is the local SBS user group. If a client is good to work with and pays their bills on time, we are happy to refer them to the user group. This can result in free lunches and the occasional beer.

Of course we don't refer non-paying or pain-in-the-butt clients. We just tell them that we can't help them, but be sure to hire a small business specialist.

[ /sidebar ]

For our largest clients, there's a small reduction in price. Most of them will save about $3,000 per year starting next month. After that, the strategy will be to keep the price stable, but to offer more for the money.

In some sense, managed services is like stereo equipment. The price points will be stable going forward, but you'll get more for your money each year. For example, we now give away Exchange Defender for anyone on the Platinum plan.

Our investment in the tools of managed service -- Autotask (ConnectWise before that), Zenith (Kaseya before that), and Reflexion (Exchange Defender before that) -- is about equal to 3% of our gross revenue each year. That's significant, but it's not unreasonable, especially when the cost is spread across hundreds of users. The result is, we can roll in some serious, top-shelf services at no extra cost.

- - - - -

Enough about money.

If business were just about money, I'd probably be into offshore gambling or doggy day spas).

But life isn't about money.

And, if you're honest with yourself, business isn't all about money either.

Life and business are about enjoying what you do, working with people you enjoy, and having fun.

So aside from money, we have our employees give feedback on the people at each client office. If we love working with "those people," then we definitely want to do what it takes to keep them. If they're a pain in the neck? Well, then we'll tow the party line on negotiations.

As I was telling Dave Sobel the other day, the result is that we come up with a handful of superstar clients that we'll work very hard to keep and a handful of losers who are a pain in the ass to deal with. At the high end we'll be willing to negotiate more. At the low end, we won't offer a contract, but simply drop them.

- - - - -

Robin Robins always reminds me that I can't have a "poverty" mentality. By that she means that there's no scarcity of money or clients in the world. So don't be afraid to ask more, charge more, and set yourself above the competition. As Microsoft tells us over and over again, there are millions of small businesses. At least in Sacramento, I believe it's an expanding universe. Bottom line: it's totally okay to say goodbye to clients who don't fit your model because there are always others who do fit, and they're just waiting around the corner.

If you haven't read Erick Simpson's last book, order that today. One of his best arguments is about A, B, and C clients. Keep those A clients. Try to convert B to A. And drop the C clients.

The funny thing is that you just have to ask. "Are you willing to turn your entire computer operation over to us, no questions asked?"

If they say "Sure," then you've got yourself an A client!

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