How to double down on MRR growth as an MSP
Peter Savereux | 08/12/2020
If you want to grow your MRR (monthly recurring review) you need to do three things:
- Make sure your sales teams prioritise recurring sales.
- Find new and creative ways to upsell and cross-sell to customers.
- Retain customers and differentiate your service.
Here, we’re going to look at how this can be done and how you can expand your business in a more sustainable way. 2020 has been extremely disruptive, and finding new strategies to accommodate market change has been important across the economy. Making the right choices now is important, the processes that get put in place today are likely to define your industry and business for years to come.
Part of building a more sustainable future for MSPs is thinking about long-term customer relationships driven by recurring revenue. But it also requires thinking carefully about network commoditisation, and growing margin-rich services with differentiated outcomes, and delivering a more holistic experience for clients. Ultimately, both of these elements go hand-in-hand, and we are going to explain how. Let’s get started.
Why MRR growth is important
A business with a healthy MRR will enjoy more stability. Predictable income means more certainty when planning, better investment and optimised capacity management. It also means that you aren’t always out there chasing new projects just to fill a hole.
MRR delivers a more accurate view of the resources available and you can spend more time delivering quality services to existing customers. Fundamentally, it allows new business deals and new projects to actually grow your business — if you can also keen churn rates low.
MRR and overall profitability
There are three key factors to consider when looking at overall profitability:
- How to add new paying customers.
- How to drive upgrades from existing customers.
- How to minimise churn rate.
Knowing your MRR helps you:
- Balance between execution and winning new business.
- Identify great opportunities to upsell and cross-sell.
- Provide sustainability — combined with low churn means that customer acquisition will grow your business.
Here are the four vital metrics you should be tracking:
- New MRR from new customers.
- New MRR from account upgrades.
- Lost MRR from account downgrades.
- Lost MRR from customer churn.
To grow MRR, you need to sell retained contracts in the first place. You then need to manage churn. Here, we’re going to look at strategies to do just that.
The fundamentals of MRR growth
MRR growth is founded on four pillars. They are interdependent, and you need to focus on each in turn to ensure success.
Pillar 1: Make it a goal
If your sales teams are focused on selling projects, they aren’t ever going to land recurring customer retainers. This is obvious, but it’s a critical first step. If you are going to expand MRR, your sales teams need to prioritise long-term customer conversations and focus on selling recurring services.
Pillar 2: Upsell and cross-sell
One of the most effective ways to grow your business (full stop) is to focus on upselling and cross-selling. Existing customers with recurring services are a great starting point for expanding your current MRR. Your customers already know who you are and trust your ability to deliver services. This is one reason that you are much more likely to close a deal with an existing customer than a new one, and the sales cycles are shorter.
Pro tip: To be effective at upselling and cross-selling, you need to understand your customer’s needs. Tools that can provide real insights about how your services are (or aren’t) being used can help identify new or unexpected upselling and cross-selling opportunities. Critically, however, these tools need to focus on business-level insights in a format that can be understood by sales teams (without technical expertise) to be of any practical use.
Pillar 3: Retaining customers
On average, it costs 6x more to acquire a new customer than retain an existing customer. According to Bain & Company, a 5% increase in customer retention can yield more than a 25% increase in profit. Each customer is hard-won, and replacing them is just as hard. If you want to double down on MRR growth, customer retention needs to be a part of your strategy.
Pro tip: You’ll only know for sure whether a customer is happy enough if you have regular contact with them. You should have excellent tools at your disposal to start the conversation about how your customer’s network is performing and how it could perform better.
- Continuously look to improve your customer service.
- Proactively go out of your way to improve your service offerings.
- Engage customers with tailored service performance updates.
Pillar 4: Provide a differentiated and holistic service
Services are almost always combinations of the tangible and the intangible. Customers attach value to a service in proportion to its ability to help solve their problems or meet their needs. Network connectivity is an interesting product category. On one level, networks are highly commoditised. If you look at the network as a “box of bits”, most of those pieces are interchangeable and it’s easy to price compare and drive down margin.
However, network services are also an essential part of how modern businesses operate, and selling the outcomes of a smoothly operating and efficient network system is far more valuable than each individual component. Rather than focusing on selling a commoditised product, you should sell a differentiated outcome. This will help you grow MRR by increasing margin, and expanding the number of services you provide. It will also help reduce churn by making you a more valuable part of the team…
Become part of your customers’ IT teams
A big reason that selling a holistic service will directly impact MRR is your ability to increasingly integrate yourself into your customers’ IT teams and workflows. If you can supply monitoring, alerts and communication tools that deliver superior visibility and price control functions over the network services you provide, you become an invaluable part of your customers’ business. This will cement long-term relationships, reduce churn, help grow service provision, and even provide the insights needed to engage in real whitespace analysis and expand the types of services you offer.
It’s all about using data in the right way
The strategies we’ve set out can be boiled down to better use of data, analytics and communication — and directing these components towards focused business outcomes. But this is easier said than done.
Data vs analysis vs insight
It’s a shame that reporting often seems to be an afterthought. Data is typically provided from engineering logs with a few graphs supplied as PDFs. This is a significant failing in differentiation, and part of what limits the value of traditional monitoring software.
Reporting needs to follow a single-pane-of-glass approach — with insights provided at the right level of detail for the target audience. To drive MRR growth, that means providing business-level insights to sales teams and customers that they can actually understand.
A critical point here is the definition of an “insight”. We like to divide information into three important categories:
- Data: The individual piece of information in raw form.
- Analysis: Data that has been sorted into discrete and meaningful categories.
- Insights: Contextualised analysis that places information in the real world and can be used to direct action.
What sales teams really need to drive effective conversations are insights focused on meaningful components of the network. For existing customers, that should draw on the data that is regularly generated about those customers. For new customers, you need the ability to quickly and effectively conduct a network audit in order to deliver insight-driven sales conversations to close new business deals.
Suggested reading: How Service Providers Can Re-Imagine Sales Enablement in 2021.
The right technology can help you do this
Ultimately, your ability to harness insights comes down to deploying the right technology and tools to get the job done. If your teams spend all of their time trolling through spreadsheets, they won’t ever be able to apply that information. And if your tools are too technical, sales teams won’t be able to use them at all.
Delivering information analysis and insights that provide meaningful commercial outcomes is what we do at Highlight. We’ve worked with service providers for more than two decades, and have created tailor-made technology to solve many of these business-level challenges.
By using tools in your sales process that show not only how your service works but why it’s better, you can create positive customer experiences. By deploying the right technology, in the right way, it’s possible to differentiate, reduce churn and grow MRR. We can help.