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How To Identify Underperforming Clients and Next Step Actions to Take

Managing your Portfolio of Clients

You can make meaningful improvements to your business by fixing the clients in your portfolio that are causing problems.

When managed service providers talk about their performance, we frequently hear something along the lines of “my margin is such and such. I am a few points below best in class.” This is both good and bad. Knowing your numbers is important. Having a measurable goal is great. The problem arises in that this information is not actionable. Where are those extra points of margin going to come from? 

"The problem arises in that this information is not actionable. Where are those extra points of margin going to come from?"

How to Discern the Most Effective Next Steps to Take

The answer lies in your portfolio of clients. The margins mentioned above are a combination of the performance of each client. We have worked with hundreds of MSPs and have found one truth to exist within all of them. Every MSP of medium size or larger (say, five or more client-facing resources) has a distribution of clients. Some clients are highly profitable and these offset the less profitable ones. When someone talks about the margin of their business, they are talking about the average margin across all clients. Averages obscure individual addressable issues. 

If you determine where each client falls in the distribution, you can then focus on the underperforming ones. Let’s take a moment and think about the opportunity this provides. 

Let’s say you have 50 customers.  In all likelihood 3-5 of them are underperforming in a meaningful way. How much are they underperforming, you ask? Well, typically, if the revenue collected was in line with the amount of work delivered for managed services clients for these 3-5 underperformers then you might be able to see up to 10% in monthly recurring revenue. 

This could be done by increasing the pricing or by reducing the hours delivered through targeted service improvements and reselling those hours elsewhere. We have seen this opportunity for growth as high as 20% for some of our partners. Think about what that will do to your bottom line, not to mention your valuation.
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Want to Be 20% More Profitable, Fast?

So how can you grow your business by 20% without necessarily bringing in new work? You need to know which clients to address so you can right-size their agreements. By understanding which clients make up a portfolio, you can know which agreements/contracts in that portfolio have the most opportunity for improvement.

By understanding the parts of your business that comprise the whole, you can get an outsized return on your efforts. 

Remember, this is potentially a 10% boost to MRR from working on only up to 10% of your clients. Of course, the trick is knowing which 10% to focus on and what the problem is with those clients…next time!

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MSPCFO is the leading business intelligence platform designed specifically for managed service providers to identify opportunities for improving profitability and efficiency.

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