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Due Diligence 101: How Buyers Evaluate the MSP Customer Base

Bruce Teichman, EVP and Partner
Cogent Growth Partners

Your customer base is a key factor that influences the value of your MSP when you sell it. This article will explain what buyers want to see in your customers and why. You will learn about different aspects of our customer base, such as how they are grouped, how well they match your services, how satisfied they are, how diverse they are, and how profitable they are. By the end of this article, you will know how to optimize your customer base to maximize the value of your MSP.

Is there consistency to your client base?

You can’t say no job is too big or too small, because selling to a 10-user environment is very different from selling to a 200-user or a 2000-user environment. What value are you offering to each of them? When I ask MSPs how big their customers are, they often give me a wide range, from one-person shops to 5000-person enterprises. That doesn’t tell me anything. You need to be more specific and target a segment that fits your capabilities. For example, you could focus on 25 to 100 users, or 50 to 150 users, or whatever makes sense for you. Don’t try to serve everyone, because you won’t be able to do it well.

Do your capabilities match your customers’ needs?

Another thing to consider is how you fit with your client’s organization. We always say opportunity first, money last. Money is important, but opportunity is what drives growth and value. And opportunity depends on fit, especially customer fit. You need to have a clear understanding of who your ideal customers are, what their needs are, and how you can meet them. You also need to avoid customer concentration, which is a big risk factor for buyers.

Ideally, no customer should account for more than 10% of your revenue. Sometimes, you may have customers that are 20%, 30%, or even 40% of your revenue. We’ll show you some examples of how to deal with that, but you should try to diversify your customer base as much as possible. Sometimes, you may have to fire a customer, if they are not profitable, or if they are too demanding, or if they are not aligned with your vision. That’s a sign of maturity, and it can actually improve your business

Are you measuring the right customer feedback?

Customer feedback is another key indicator of customer fit and satisfaction. Most buyers won’t be able to talk to your customers before closing the deal, so they will rely on other sources of information. One of them is the ticketing satisfaction, which is the survey you send out after every ticket. That’s a good practice, but it’s not enough. It only tells you how happy the users are with the technical support, not how happy the decision-makers are with the overall relationship.

You need to survey the CEOs or the main contacts, and find out how they perceive your value, your service, and your partnership. You can do this through different methods, such as QBRs, phone calls, emails, etc. But don’t just rely on the ticketing satisfaction, because it may not reflect the true state of your customer relationship.

Who are your most and least profitable customers?

Finally, remember that not all customers are created equal, regardless of size. Some customers may be more profitable, more loyal, more strategic, or more enjoyable to work with than others. You need to identify and prioritize those customers, and focus on delivering the best value to them. You also need to be willing to let go of the customers that are not a good fit for you, or that are costing you more than they are worth. This may seem counterintuitive, but it can actually improve your profitability, your efficiency, and your attractiveness to buyers. We’ll talk more about this later, but for now, just keep in mind that quality matters more than quantity when it comes to customers.

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