The MSP industry is unique when it comes to marketing for several reasons, the most important of which is the value of an individual client. You aren’t selling widgets for $5 apiece. You’re selling long term solutions that cost $2,000/month or more.
For this reason, you know how important it is to regularly evaluate and understand your core sales and marketing metrics. With this data you can make smarter business decisions and invest in long term success.
How Much Are Your Clients Worth?
When you win a new client, they are going to stick with you for a long time. Your proactive team, quick response time, and ability to build long term relationships mean low turnover rates and high lifetime value for each client you bring on board.
A single client probably sticks with you for years, which means the lifetime value of that client is exceptionally high. To better inform your future marketing decisions, look at your CRM and figure out what that average looks like. Are your clients with you for 3 years? 5 years? 10 years?
In addition to how long they work with you, what is the average monthly revenue for each client? Talk with your finance team and calculate the average monthly revenue for a client. Now that you know the average monthly revenue of your clients and the average time they remain with your company, you can calculate the Customer Lifetime Value. For example, if your average retainer is $5,000/month and the average customer stays with you for 5 years, the Customer Lifetime Value is $300,000.
And that is an incredible number. Even if your average MRR is a bit lower, $2,000/month/client still means $120,000 in revenue and $36,000 in profit assuming a 30% margin. This number will guide you in your marketing investment.
Closing a New Customer for Your Business
Exactly how many leads to you and your sales team need to close one new customer? Assuming an industry-average 20% close rate that means you need 5 new leads to generate $120,000 in revenue, meaning each lead is worth $24,000 in revenue ($7,000 in profit).
And these are industry average numbers. You may have an amazing sales team that closes at better rates or an incredible support team that keeps clients on board for 10 years instead of 5. If that’s the case, your value per lead may be double or more.
Calculating Success with Your New Baseline
Your value per lead provides a clear baseline for your lead generation efforts. Each lead may be worth $7,000 in profit, but how does that compare to your current marketing efforts? If you currently spend $3,000/month running a Google AdWords campaign and you’re getting 3 new leads per month from that spend, your cost per lead is $1,000. Assuming a 20% close rate, you’re spending $5,000 to generate one new client. If every client has a lifetime value of $120,000 in revenue and $36,000 in profit, that’s not too shabby.
Your numbers are going to vary, of course. The key is that you know your numbers, so you can make the best decisions for your business. There are many factors that are going to impact what your numbers mean. Competition is variable in different regions, for example. Your market might allow for a $3,000/month marketing spend to generate the lead volume you’re targeting, or you might need to spend $5,000-$10,000/month or more to reach the same goal if your region is more competitive.
Applying These Numbers to All Your Marketing Efforts
I’ve used Google AdWords in this example because it’s the easiest marketing channel to measure cost and return on. You can quickly gather data from a campaign and calculate ROI based on performance of your ads. The logic, however, holds true for all of your marketing efforts.
What we’ve found over the years is that the most effective marketing campaigns are those which include multiple marketing channels. You need to drive relevant traffic to your site, but you also need to engage with your visitors and move them through your sales funnel until they convert.
If you’re ready to get serious about your marketing this year, check out our MSP Marketing Programs – designed to leverage every available tool for maximum marketing effectiveness.
Reaching Your Marketing Goals in 2018 and Beyond
Nothing in this article should be too surprising or new for you. You know your business and know your customers better than anyone else. However, marketing is sometimes left as the thing you know you should be doing, but never quite get to. I’m here to tell you that the longer you leave your marketing on the sideline, the more money you’re leaving on the table.
By knowing your numbers, calculating the average value per new client and new lead, and building a marketing program that leverages that data, you can grow your business and your bottom line. If you’d like to discuss your marketing goals and plans for 2018, or if you’d like to see how Pronto can help, let’s jump on a call to discuss!