As a Managed Service Provider (MSP), you have to balance the need to grow and evolve your business, without changing so much that you drive your existing customers away.
Many companies hyperfixate on winning new clients (a found that 44% of companies focus on acquisition, while only 18% focus on retention). But while new customer acquisition is the key to growth, retention may be the key to sustainable profitability.
In this article, we鈥檒l talk about why MSPs need to retain customers, what retention challenges MSPs are currently facing, and how to hang onto your clients for the long haul.
Customer Retention Benefits for MSPs
Nobody likes losing clients. But for MSPs, without clients, you have no business 鈥� which makes keeping them happy extra important. And when it comes right down to it, your retention is a reflection of how good you are at keeping your customers happy. But beyond the obvious, retaining your existing customers has additional benefits.
- The possibility of referrals: If a customer chooses a long term relationship with your MSP, they鈥檙e likely happy with your service. And happy customers will likely tell their friends and colleagues about you. In fact, 鈥� which means the key to growth may be in maintaining your current customers.
- Cheaper to retain customers than finding new ones: Research shows that it costs to attract a new client as it does to retain an existing one. Investing in keeping your current customers offers a better return on your investment than all the marketing, sales, and onboarding costs of chasing new leads.
- Potential for higher monthly recurring revenue (MRR): Loyal customers are more likely to invest further in your MSP with additional services, a larger package or other scalable solutions. And once they鈥檙e embedded in your tech stack, they鈥檙e less likely to churn.
What Challenges are MSPs Facing that Can Affect Customer Retention?
The benefits of keeping your current customers happy are obvious, but the roadblocks you have to overcome to get there may be less straightforward. Let鈥檚 talk about a few customer retention challenges today鈥檚 MSPs must contend with.
- Workforce-to-Workload Balance: To retain clients, they need to receive a customized support experience each time they work with your MSP. But on your side, you must balance having enough staff to make each client feel supported without breaking your budget with payroll.
- Supply Chain Shortages: MSPs have to access the technology their customers need to retain them as clients. But the COVID-fueled supply chain disruption is expected to continue into 2023. Kaseya鈥檚 found that 92% of respondents said the shortages are 鈥渟omewhat鈥� or 鈥渟ignificantly鈥� affecting their ability to sell solutions to their customers.
- The Need for New Technologies: Finally: MSPs have to offer competitive and modern tech stacks to keep their clients鈥� loyalty. While many MSPs began reactively offering add-on services like remote support or compliance options during COVID, these tech stacks are often complicated and unwieldy when compared to modern, digital-native solutions. Today鈥檚 customers expect remote work support, compliance solutions, and increased security to contend with cybercriminals鈥� more sophisticated attacks.
MSP Customer Retention Best Practices
Now that we鈥檝e discussed the challenges your MSP needs to be aware of, let鈥檚 talk proactivity. There鈥檚 plenty of steps you can take to overcome today鈥檚 roadblocks and hit your retention goals. The key is taking deliberate steps to counteract these challenges so you can continue delivering an exceptional client experience.
Lead with Data and Metrics
First thing鈥檚 first: get a handle on your current retention rates so you know where to focus your efforts.
Since most MSP business models are subscription-based, you need to track your customer satisfaction and retention statistics proactively. Otherwise, you may not know that a customer is unhappy until after you鈥檝e lost their business. But a shocking 97% of companies surveyed in Customer Service Collective鈥檚 report said they only track retention rates once a year. Get ahead of your competitors by tracking your retention quarterly instead. Here鈥檚 a few metrics to consider:
- Customer Retention Rate (CRR): This metric measures how many existing customers are staying with your MSP. The value shows you whether your retention tactics are working. Aim to increase this metric over time.
CRR = [# Customers at the End of a Quarter – # New Customers Acquired] / # Customers at the Start of the Quarter
- Churn Rate: This metric measures the rate at which your clients churn (both new and existing). Low churn rates indicate a stable, satisfied customer base 鈥� which is key for company stability.
Churn Rate = [# Clients at Beginning of Quarter – # Clients at End of Quarter] / # Customers at Beginning of Quarter
- Monthly Recurring Revenue (MRR): MRR measures how much repeat revenue you鈥檙e bringing in month over month. In a business like MSP where each client has a scalable subscription plan, the number of customers does not automatically equal a linear amount of revenue. MRR offsets these variations by using a per-subscriber revenue average, and therefore may be a more appropriate gauge for MSPs.
MRR = # Monthly Subscribers x Average Revenue per Subscriber
Utilize Net Promoter Scores Quarterly
The best way to further gauge your customer mood for retention purposes is simple: ask them. Encourage your clients to fill out (NPS) quarterly, which asks one simple question: on a scale of 0-10 with 鈥�0鈥� being 鈥渘ot at all likely鈥� and 鈥�10鈥� being 鈥渆xtremely likely鈥�, how likely are you to recommend this business to others?
NPS scores are broken down into 3 different categories:
- 0-6: Unhappy Customers. Called 鈥渄etractors,鈥� these customers not only won鈥檛 recommend you, but can do damage to your business image.
- 7-8: Satisfied Customers. Called 鈥減assives,鈥� these customers are unenthusiastic but feel like you鈥檙e meeting their basic needs. This group is highly susceptible to competitive offers and are at high risk of churning.
- 9-10: Enthusiastic Customers. Called 鈥減romoters,鈥� customers will not only remain loyal to your MSP, but it鈥檚 highly likely they鈥檒l encourage their friends and colleagues to use your services, too.
Once you have your clients sorted into the three NPS groups, it becomes much clearer what you鈥檒l have to do to retain them. For detractors, you need to be all hands on deck. If they don鈥檛 already have a dedicated customer success manager, assign them one. Institute weekly check-ins and do your best to use their feedback to make big changes if you want to retain their business. For passives, figure out what could push them from satisfied into enthusiastic, and pay close attention to what your competitors are offering that you鈥檙e not. For promoters, keep doing what you鈥檙e doing 鈥� and leverage their positive feedback with video testimonials or online reviews.聽聽
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Invest in Top-of-the-Line Software
Perhaps the biggest challenge MSPs face in retaining customers today is the competition from competitors who have already invested in cloud-native software that can easily adapt to new customer needs, like increased security, compliance requirements, and remote work.
There鈥檚 no shortcut to solving this problem. The best way forward 鈥� and, indeed, the solution most companies will be converting to in the coming years 鈥� is investing in cloud native software now.
A comprehensive directory platform like 探花大神 works seamlessly with remote organizations thanks to its MDM and policy options, and offers top-of-the-line security like multi-factor authentication (MFA) and single-sign-on (SSO). You can easily manage and enforce compliance across users and devices 鈥� all from one single pane of glass.
An investment in a cloud directory is an investment in the future of your MSP and your customer retention. But don鈥檛 take our word for it! . Your first 10 users and 10 devices are free.
