On a coaching call with one of our MSP members, we pointed out that they really needed to raise their prices because, at the current rates they were charging, they were unable to take home a fair market salary as the owner and were generating less than 2% net profit.
Their reply was, “What do I need all that money for?”
While some of you might laugh and think that’s a ridiculous answer, trust me when I say there are a LOT of people running a small MSP who read that in agreement. What DO they need “all that” money for?
This is hard for some money-motivated entrepreneurs (like me) to understand, but the reality is, for ALL of us there is a set amount of money that, once we obtain it, we lose our motivation to get more and will stop hunting… A money “thermostat” setting.
I worked with a sales guy years ago who had his money thermostat set at $70,000 a year.
Every month, if things weren’t going well, he’d crank up the activity to get back to that level of earnings. However, if things started going too well and he started earning more, like clockwork he’d have a personal emergency or some other incident that would prevent him from selling and cool his jets back to the $70K mark. It was astonishing to watch.
I could never understand that in a salesperson. Besides being an entrepreneur, it’s the ONLY job where you can directly control your income and give yourself a raise.
Like Zig used to say about salespeople, “Your raise becomes effective the minute you do.”
So, if you could figure out how to have a $100,000 annual income instead of just $70,000, why on earth wouldn’t you do those activities every month to raise yourself up?
It’s because their income thermostat is set to $70K, and just like a real thermostat if the room gets “too hot,” and they start making a lot of money, their air conditioners kick in and lower the temperature in the room.
Back to the MSP world, the reason roughly 83% of MSPs are not profitable is not that they’re in a bad business model or that there’s no opportunity. Far, far from it. The IT services industry is one of the fastest growing in the world.
They’re not profitable because the majority of small MSPs are NOT run by real entrepreneurs with goals of extracting the maximum amount of money from their business. They are technicians who simply want to be their own boss, making just enough income to pay the bills.
That truly is the sum total of their ambition. It is not to secure wealth for themselves and their family or to grow a multimillion-dollar enterprise they can cash out one day.
To be clear, I’m not suggesting they’re bad people, but there is a healthy amount of gross ignorance and a little bit of stupidity out there when it comes to running a business, and to the pittance of earnings many MSPs will tolerate for all the work and risk they take on.
On a recent sales call, we had a guy reach out to us who ran a small break-fix shop generating less than $300,000 in revenue and had been in business for well over 20 years. He was in his 60s, nearing retirement. He’s talking to us because he wants to figure out how to convert his break-fix clients to managed services clients.
In the conversation, we ask a few questions – What’s your goal for your business? Are you planning on selling it? Do you have an exit plan? Do you know how many clients you have? What are your revenue and profits today? Where do you want them to be? Do you have a managed plan of services to sell? What is your gross margin on that new plan? Do you have any estimates on how many you can convert? A plan for converting them?
He had ZERO answers to all these questions. As in NONE. Zip. Zilch. He hadn’t even thought about it.
Of course, when we suggested he enroll in a program we’ve specifically designed for an MSP of his size that would give him a good, solid, proven plan to convert his break-fix to managed AND be coached by people who have started, grown, and currently run $5 million to $30 million a year managed services businesses, he had to “think it over.”
That’s not a knock against our sales process – that is entirely and completely HIS limitation. He’s been “thinking it over” (meaning, marketing, sales, and growth) for over two decades and will be thinking it over until they plant him in the ground and pat his face with a shovel. Nice guy, but a very, very low-money thermostat.
So, what would you do with “all that money”?
Well, for starters, I would suggest you get with a qualified financial planner – a fiduciary and not a salesperson – and really figure out your “enough is enough” number.
Specifically, what amount of money do you need to have “in the bank” of income-earning assets to be in a position where you don’t need earned income anymore, with all debts paid in full, including your home.
For most, that’s a number that is FAR greater than they ever imagined and many are shocked to discover they are woefully underinvested and nowhere near where they should be. “All that money” they are leaving on the table by not running a good, profitable business is money they actually NEED to not be a burden to their children or society later in life.
For quick math (and don’t take this as financial advice), take the current annual income you need to live off of and multiply by 40. For example, if you need $100,000 in income net, you’ll need at least $4 million saved.
If you need $250,000 to live off, you need over $10 million. Again, this is rough math to get you in the ballpark. This is a very rough estimate but will get you thinking more clearly about “all that money” your business isn’t making and why you actually DO need it.
Another reason for getting profitable is to create a buffer to risk.
Running a business IS a very precarious thing, rife with disasters that could quickly drain your life savings. Yes, insure yourself and your business – but often you need cash for emergencies, such as a worldwide pandemic you didn’t see coming.
Or, more commonly, a rogue employee who leaves and steals your clients, putting you in a long, drawn-out lawsuit that doesn’t remedy 100% of the damage done. What about a ransomware breach, or an aggressive, well-funded competitor who comes into your market and sucks up the total of good clients to be had? Or you have a personal emergency – a health crisis – that prevents you from working.
All of this can and does happen. Having money won’t prevent “life” from handing you a steaming pile, but it will allow you to stay afloat and survive instead of totally crashing and burning. It will also give you the ability to live life on your terms without constantly having to think about whether or not you can make ends meet.
If you think maybe your “money thermostat” is broken, and want help repairing it… Then maybe it’s time you consider putting in a little time to develop a more consistent marketing plan to start getting more and HIGHER-PAYING clients. There is a way you can put your marketing on autopilot and start achieving those types of results for your efforts.
Click below and you can get on the registered list to attend a FREE masterclass for MSPs where you learn how to put your marketing on autopilot AND consistently land 1-2 new high-paying MSP clients every single month.