Episode 104: What’s the Average Lifetime Value (ALV) of an MSP client?

In this week’s episode

• Are you prepared to out-spend your competitors to attract new clients? You will be when you calculate the Average Lifetime Value (ALV) of a client to your business! This week Paul takes a deep dive into how you can link your marketing to the ALV of a potential new client
• It can be hard for a prospect to jump straight into a monthly recurring revenue relationship. Paul explains more about the special low-cost purchases that can help convert prospects into regular clients
• And, is the future of IT support in the hands of artificial intelligence? This week’s featured guest is working on a system to help your MSP shoulder some of the heavy lifting

Featured guest

Thank you to Lucas Meadowcroft from Tribu for joining Paul to talk about how artificial intelligence could be help you deliver IT support in the future.

Connect with Lucas on LinkedIn.

Show notes

• Out every Tuesday on your favourite podcast platform
• Presented by Paul Green, an MSP marketing expert
• Here’s a link to the book Paul mentioned Influence by Dr Robert Cialdini
• Paul suggested listening back to Episode 91 for more on the subject of risk reversals and guarantees
• Register for a free copy of Paul’s book
• Thank you to Stormie Andrews from the Yokel Local marketing agency for recommending the book Post Corona by Scott Galloway
• In the next show on November 16th Paul will be joined by Todd Kane from Evolve Management Consulting, talking about how to run your business instead of your business running you
• Got a question from the show? Email Paul directly: hello@paulgreensmspmarketing.com

Episode transcription

Voiceover:
Fresh every Tuesday, for MSPs around the world. This is Paul Green’s MSP Marketing Podcast.

Paul Green:
Hello, and welcome to the show. We only recently celebrated our 100th episode, but this week is the two year anniversary. Can’t believe it’s only been two years the podcast has been going. It started on the 5th of November, 2019. This is Episode 104, and here’s what we’ve got coming up for you this week.

Lucas Meadowcroft:
Well, the end goal over the next three to six months, all things level one IT support, completely solved end-to-end, using AI.

Paul Green:
That’s’ Lucas Meadowcroft. He’s going to be here later on in the show. We’ve also got a book suggestion from Stormie Andrews; such a great name, Stormie. He’ll be here at the end of the show, and we’ll be asking if the marketing concept of using an easy first purchase, something that makes it very easy to get into a transactional relationship with you, is this valid in our world? Let’s answer that question later on.

Voiceover:
Paul Green’s MSP Marketing Podcast.

Paul Green:
Inevitably, at some point, you’ve sat down, and you’ve started thinking about the business, and where you can take it, and what you should be doing with it. And you’ve thought to yourself, “I wonder how much we should be spending on marketing?” Or, maybe you’ve thought about it in terms of, “I wonder what our marketing budget should be?”

Paul Green:
It’s a very common question, to be honest. And I don’t really have a concrete answer for you, because marketing theory says you should be spending a percentage of your turnover. And that might be, I don’t know, 5%. It could be 20%. I guess it depends on how aggressively you want to grow.

Paul Green:
The thing is, actually setting a budget like that, that’s something that you have to do when you’re in a bigger business, and you’ve got managers. You’ve got to give them some boundaries, right? You’ve got to give them some limitations of what they can and can’t do, or can and can’t spend.

Paul Green:
But I recognise that most small businesses, most owner-operated businesses, they don’t really budget for anything. There’s just buying what you need. And just asking yourself, “Have we got the cashflow to afford this right now?” so I never recommend looking at marketing budgets.

Paul Green:
Instead, I recommend focusing on something called LTV; and this stands for lifetime value of a new client. What do I mean by lifetime value? I mean, someone who joins your MSP today as a new client. Let’s say they’re spending $1,000 a month. So, over a year, they’re going to spend $12,000. And let’s say they stay with your business for 10 years, which is not unlikely, let’s be honest. In the MSP world, 10 years is probably pretty much average for someone staying.

Paul Green:
So we’ve got $12,000 a year, times 10, that’s $120,000. So let’s say that client stayed for exactly that, for 10 years; their average… Well, the lifetime of that client, the lifetime value is $120,000. And you can add this up for all of your clients, and even do some forecasting. And you’re looking to work out that LTV, that average lifetime value.

Paul Green:
Someone who joins your MSP today could be worth $50,000, $100,000, $200,000 to you. And okay. Yeah, you’ve got to stick around for the next 5, 10, 15, 20 years to actually collect that cash. But also, when you come to sell the business, you’re selling on that future cash as well. You’re selling on the contract, and you get rewarded for that when you sell your business.

Paul Green:
Lifetime value of the average client in the MSP world is high. It’s a lot higher than it is in a lot of other industries, a lot of other sectors. So although it’s longer and harder for you to win a client in the first place, it’s a lot more rewarding to keep that client. And you certainly make a lot more money out of them in the long term.

Paul Green:
So if you haven’t got a marketing budget, I guess the opportunity here, is to spend as much as you can comfortably afford on marketing, with an eye on the average lifetime value. So the goal really, is to be able to outspend all of your competitors on acquiring highly qualified leads. This is really more a mindset thing than it is a budget thing.

Paul Green:
Let’s do a lifetime value calculation. So, as I said, imagine if that client pays you the $1,000 a month; they stay around for 10 years, so that’s an average lifetime value, and ALV of $120,000 pounds, dollars, whatever your currency is. So the questions to ask for this is, “How much would you be willing to spend to acquire $120,000 of revenue?” Let me say that again. Remember, if the client sticks around for 10 years, they will give you $120,000. “How much are you willing to spend to acquire $120,000 of revenue?”

Paul Green:
And that’s the key question with this. See, a marketing budget, it’s got nothing to do with it. You’ve got to ask yourself, is, “What would you spend for that?” Bearing in mind, you’re only getting $1,000 a month. So if, for example, you said, “Hey. I’m willing to spend $6,000 to acquire that $120,000 worth of revenue.” That is a fortune. That’s an absolute ton of cash, there. There’s loads of cash, and loads of things you can do.

Paul Green:
Now, it’s got a six month payback with it. I’m ignoring projects, of course. I appreciate you can often recoup some of the marketing spend with initial project spend. But if you are willing to spend six months worth of revenue to acquire a client. Well, first of all, that would allow you to outspend your competitors; but also, it would force you, focus you, on making sure you onboarded that client properly. Because who wants to spend $6,000 on a client that goes within two months, because they haven’t been onboarded properly? No one would do that.

Paul Green:
$6,000 is probably extreme. Me, if that was me, and I ran an MSP, and it was $1,000, a month and I knew I’d keep them for 10 years. I’d easily spend $3,000, easily. In fact, we do it in our MSP Marketing Edge. That’s 99 pounds or $129, US dollars a month. And we will happily spend three to four months worth of revenue to acquire a new client, because we know that we have incredibly high conversion rates from trial to new clients. And we know that we have incredibly good retention as well. We run that business on the numbers. We’re very confident on the numbers, because we’ve been tracking them over several hundred people for a number of years. And so, I will happily spend three months worth of revenue to acquire a new client. That’s the way to think about how much you should be spending to acquire a new client.

Paul Green:
But of course, most MSPs don’t think that way. And there’s the opportunity for you, because if all MSPs think one way, and you think a different way, that makes you a little bit different. That’s a good thing, certainly from a marketing point of view, because you’re tackling everything with a completely different mindset. The chances are, you’re more likely to thrive if you’ve got a different mindset to all of your competitors.

Voiceover:
Here’s this week’s Clever Idea.

Paul Green:
For some people, buying something from a new supplier for the first time is terrifying. Now, you might not see it that way, but maybe in a way you’re not normal. And no offense intended for that, because I’m not normal either. As soon as you’ve been the business owner of any business for a while, you kind of lose perspective on what it’s like to be an ordinary buyer, or a business owner, perhaps of just a couple of years in.

Paul Green:
I certainly found this with payroll. When my payroll was like, what was it? About $50, $60,000 a month. I kind of lost perspective of how much that was, because I was used to that much coming in, and I was used to that much going out. And I remember sitting, talking with friends once; and we were talking about the cost of a car or a holiday or something. And I’m like, “Oh yeah, yeah. It’s only $20,000.” And their jaws opened over, “Huh? You’re spending that much?” And it was because I had become desensitised to money. Anyway, I digress.

Paul Green:
For you, spending a whole chunk of money on IT and technology, and all of that kind of stuff, it’s not unusual. It’s normal for you. So there’s less risk and fear in it. But for ordinary people, investing in a new partnership, or picking a partner, a new partner, can be a scary thing. For the everyday business owner or manager that you deal with, getting a new business in to look after their IT, whether it’s for the first time, or whether they’re switching partners, it’s a perceived risk, because they don’t know you. They don’t know if they can trust you. They do know that you can stop all the work from happening in their business for several hours, if you get something wrong. So they are aware how important you are, but there is an element of fear there.

Paul Green:
This is one of the reasons why people don’t switch MSPs very often, and why it takes them a long time to switch MSPs. We call this inertia loyalty; better the devil you know, better to sit with someone you don’t like, but at least, you know them, rather than switching over to someone brand new.

Paul Green:
So you can minimise the perceived risk of using you, using a whole series of influential techniques, things like Dr. Robert Cialdini’s Weapons of Influence. We’ve talked about these on the podcast before. He’s got six Weapons of Influence, things like social proof, authority scarcity; you can read all of these in a book called Influence, by Dr. Robert Cialdini. It really is a great book.

Paul Green:
I’d particularly look at how you can put in place risk reversal. We call risk reversals guarantees. In fact, if you wanted to absorb yourself in this, go back to Episode 91 of the podcast, where we spent a little bit of time talking about risk reversals and guarantees.

Paul Green:
The real opportunity here, is to do something to make someone’s first purchase with you really, really easy, and completely risk-free for them. So you make it as low a commitment as possible. Because the theory goes that once someone has purchased one thing from you, and it’s been a success, it’s been a good experience for them, then they’re more likely to go on to purchase something else from you. If your biggest business challenge is winning brand new clients; and for most MSPs, that’s pretty much their biggest business challenge. Then, consider ways that you can get a foot in the door.

Paul Green:
What can you do to reduce the perceived risk for the client, of buying from you? So you can get the chance to start a relationship with them. Because don’t forget. Most people are more motivated by the fear of loss than they are the opportunity to gain. We did this with our MSP Marketing Edge Service about three years ago. Instead of asking people to jump straight in, and pay for a month. And it’s only 99 pounds or $129, we did a free trial. Well, it’s free in the States, and it’s a pound in the UK, just because of the differences in the payment platforms we use, and the limitations in those. But that, as you can imagine, led to an explosion. In fact, we had a massive increase of people trying the service out. And, as I said earlier, the vast majority of those people love what they see, and they go on to become a full member.

Paul Green:
What could you do to do the same thing? Because you don’t necessarily want to offer someone a free month. In fact, that wouldn’t quite be right for an MSP; that would be the wrong way to get a relationship off to a start. But what if you could, for example, charge them for the audit, as part of your sales process? Now there’s an idea. What if you were to charge them money, even if it was just a few hundred or maybe even a thousand, depending on the size of the client, to actually do the technical audit needed as part of your sales proposal? “Hang on a second, here Paul. Are you suggesting that we charge people, to actually charge the money, in order to do a sales proposal?” Well, yes I am, actually. If you could get someone to pay for a good, proper, technical audit; and I mean a thorough technical audit, that you don’t make any profit on; that could be an incredibly powerful tool for you.

Paul Green:
Now, it’s got to be positioned in the right way. You’ve got to have some “roar,” some chutzpah, when you actually suggest it to people. But what a great, easy purchase. Because instead of asking them to get into bed with you on a monthly, recurring revenue basis, couple of thousand a month, or whatever it is, “Here we go. Sign the three-year contract.” Which is the right thing to do. You actually show them that working with you guys is really good fun. It’s a valuable experience. You know what you’re doing, and you do the job properly. Even if you could just get a couple of hundred from them, psychologically, that would be a very, very powerful thing to do. Get them to give you a little bit of money, so you can do that audit. Off the back of it, the chances of them becoming a client are so much higher.

Paul Green:
Now, you may choose not to do an audit, but there might be something else you could do. Maybe a piece of project work; maybe you do the project work, and the reason you’re doing it is because you know you’re going to ask them for some recurring revenue off the back of it. Although, I’ve got to be honest. Most of my clients won’t do project work, unless someone is making an ongoing monthly commitment.

Paul Green:
But you’ve got to look at this from their point of view. It is a risk to buy from you. What could you do to minimise that risk, and talk directly to the fear that is so motivating for them? How can you take that fear away, make them feel that, “Hey. The worst thing that happens here, is we lose a few hundred. I can sleep well if I lose a few hundred, but not so much if I’m trapped in a 36 month, monthly recurring revenue commitment with someone that I don’t get on with.” Make it easy for someone to buy from you. And just maybe, more people will try it out. And I’m pretty confident they’ll like working with you. Aren’t you?

Voiceover:
Paul’s blatant plug.

Paul Green:
You do know that I’m on a mission to make your life as easy as possible, right? And that’s why I want to give you a copy of my free book, a physical copy of Updating Servers Doesn’t Grow Your Business. Completely free, you don’t even pay for the postage. And I want to give it to you so you could, for example, use it to prop open a door. You could use it to, for example, to swat flies. “Ah, gotcha.” Also, the other thing you could do, is you could actually read it, and you could get an insight into how to get the basics of your MSPs marketing right. Maybe you would do that. Maybe it’s more valuable for swatting flies. Anyway, if you want a copy, we will ship a copy to you if you’re in the UK or the US. Everywhere else in the world, we’ll send you a PDF. And you can get that completely free right now at paulgreensmspmarketing.com.

Voiceover:
The big interview.

Lucas Meadowcroft:
Good day, guys. Lucas Meadowcroft, CEO and Co-Founder of Tribu. I’ve been in the MSP game for 17 years. I’ve owned and operated and run two MSPs based here in Australia, one on the Gold Coast. And I still actually own one here in Brisbane.

Paul Green:
And thank you so much for joining me on the show, Lucas. Now, we’re going to talk about Tribu a little later on, because I think you’ve got something very exciting, which our listeners will think be intrigued to hear what you’ve put together. But let’s first of all, talk about your MSP journey, because it’s always fascinating to hear how someone has started up, built, and I assume you’ve exited an MSP along the way, as well.

Lucas Meadowcroft:
Yeah. It has been an interesting ride. Going back to the original days of when we initially went to use offshoring services, and that original conversation with our team. Well, actually, it was 12 months after we started implementing offshoring services based in India and Philippines. Then we’re like four months into the journey, we’re like, “Okay, we’d better tell our team about it. They’ve got to be scared they’re going to lose their jobs.” Yeah. So everything, all the way back then to, I guess, all things automation, artificial intelligence these days. So I’ve been definitely on a little bit of a journey over the years.

Paul Green:
And as you look back over your MSP journey, what are some of the things that have made the biggest difference to the growth and the increase in net profitability?

Lucas Meadowcroft:
Systematisation, automation, and sales; they’re three core, I guess, pillars. Saying it out loud now, it’s like, if we can systemise a process that we go through on a daily basis, from operational perspective, all the way through to then… Well, I guess what potential systems or automations available in the market at that point in time. And then, sales. Sales is everything. If you don’t bring sales into the door, your MSP is always staggering, dropping behind, or won’t be running for much longer.

Paul Green:
Yeah. And I guess it’s easy for you to look back now, and get the systems, automation, and sales, as your key things. But I bet when you first started up, it wasn’t that clear to you.

Lucas Meadowcroft:
Yeah. The customer service has always been a key for me. And it wasn’t really about building businesses, and building MSPs back in the day. It was more about the, “How do I solve that particular problem for that client? And the problem that I’m solving; is that actually solving a bigger problem within the business, or is it just helping that one individual person?” Yeah. And then, my journey was all… In the beginning, it was all about customer service, and helping that particular person at that point in time. I loved the idea around entrepreneurship, or the idea about building businesses; but when you’re starting out, it’s about that client that you’re working with at that point in time.

Paul Green:
Yeah, absolutely. So, did you build one MSP, sell it, and then start a second one? How have you had to, kind of a couple of MSPs?

Lucas Meadowcroft:
That was the plan in the journey, but it’s actually not what happened, to be honest. But in essence, I had a opportunity to take over an existing MSP. The owner of that MSP was going through a divorce. And so, I had an opportunity to take that company over, which I had put my blood, sweat, and tears into. I was with that organisation for over eight years, went through a transition period over a three-year period; took over the running of the organisation, built up the company to 19 staff members. Back then, it was mainly onsite engineers. Yeah. So I had the opportunity to take this company over. So I went, “Hey. You’ve got nothing to lose.”

Lucas Meadowcroft:
And then when we came to the end of actually progressing the full sale of the business over to myself, that’s when it all went haywire. We ended up being in court and litigation for over 18 months.

Paul Green:
No. Oh, dear.

Lucas Meadowcroft:
And this is when I was 27 years old. So, it was a bit a journey to go through, at such as an early age. I wouldn’t recommend it to anyone. But yeah. So that was the first journey of owning and operating a MSP.

Paul Green:
That sounds like a hell of a journey for you. So, let’s talk about Tribu. So, tell us what was… Actually, first of all, give us a brief idea of what Tribu is. Literally, give me the ten-second version you told me before we recorded our interview.

Lucas Meadowcroft:
Yeah, absolutely. Yeah. So we are automating IT support using artificial intelligence.

Paul Green:
Okay. So, that’s the perfect description of it. So, I assume that Tribu is something that you built as a result of problems that you had when you were running the MSP.

Lucas Meadowcroft:
Yeah, absolutely, yeah. So, we knew we could bring in sales. We knew we could help more and more customers. But what we kept failing to do in our MSP, was keep that customer service that we want to provide as founders. It was hard for us to then train up our engineers, to provide that customer service that we really wanted to instill into them. And then, the Level 1 engineering aspect, which is the main, I guess, tickets that were coming into the help desk on a daily basis. Those Level 1 engineers that were doing those tickets got bored really, really quickly. And so, we kept finding ourselves on this bit of a rotation of getting more Level 1 engineers in, on a daily basis, or every 3, 6 months. But then, also, “How do we train up continuous revolving door around the engineers on amazing customer service?” So they’re the two things that we kept coming up against. So that’s how Tribu was born. “How do we provide amazing customer service, and not needing to keep recruiting Level 1 engineers?”

Paul Green:
So, tell me how Tribu actually solves those problems for you.

Lucas Meadowcroft:
Have we fully automated IT support right now? No. Our first goal is Level 1 IT support. The first AI function we’ve got live today, is around service delivery. So what’s next is our first release. And this allows engineers to stay on their task on a daily basis, so they know what tickets they should be working on. They don’t need someone breathing down their necks. Our platform tells them how, “You’ve completed this ticket. This is the next ticket that you should be working on.” But the end goal, over the next 3-6 months, is that all things Level 1 IT support. So, password reset, printer not working, computer running slow; all the mundane tickets that we get as engineers on a daily basis. They’re the ones where I need to completely solve end-to-end, using AI.

Paul Green:
Sure. So give me a practical example of how the AI can jump in, and keep the engineers focused, or save them some time.

Lucas Meadowcroft:
Absolutely. So right now, a ticket will come in, whether it’s via our platform, or via your normal process: by email, through and to PSA, ConnectWise, Autotask; whatever you might be using. Our system understands that information from machine learning, natural language processing; processes that’s that through the old ticketing system, and then starts the action items off the back of that, whether it be communicating back with the customer, or providing an update, all the way through to solving that actual problem.

Lucas Meadowcroft:
We also have a customer-facing scenario. So if they wanted to roll out customer facing, I guess, interface, rather than email, via Microsoft Teams, they can do that as well. But yeah, the idea is, how do we gather that data really quickly, process that through our platform, and then provide the entity with the next steps on how to solve it.

Paul Green:
And let me put my sceptical head on here, because I’ve spoken to enough MSPs, where we’ve looked at, and I’m going to put it in quote marks here, “AI solutions.” And often, the AI isn’t as intelligent as perhaps people would say it was. Is this the hardest thing for you, is actually getting the AI right, so that it’s not just a series of processes, but there is actually some kind of learning going on?

Lucas Meadowcroft:
Yeah. It’s been a long journey. So, we’re probably getting close to three years, but from an AI journey, just over two years in. We’ve spent $1.7 million so far on our AI technology. It’s not easy, I’ll be completely honest. But we’re so close. To give an example, we’re over 90% success rate now, on Level 1 tickets. So I say Level 1, keep that in mind; the mundane, the top 11 Level One tickets that come into your help desk everyday. We’re over 90% correct now on those particular tickets. So, we’re so close to solving these top Level 1 tickets, which is pretty exciting. But yeah, it’s been a long journey.

Paul Green:
And what’s the goal? If you’re at 90% right now, what’s the point at which the product is as good as it’s going to get? Is it 100%?

Lucas Meadowcroft:
That would be absolutely amazing. But I think in this world, it’s never going to be the case. We initially set out to achieve 98% accuracy in English; but now, we’ve got customers or partners, MSP partners using our platform in 18 different countries. So you could imagine, we’ve got different languages, different slangs, different algorithms that we’ve had to build.

Lucas Meadowcroft:
And then on top of that, I guess the information that we’re processing, needs to then not just understand tech, because early next year, we’re going live with voice, right? So text is an amazing goal. If we get to 98% in multiple, different languages within the next three to six months. But then, we have to start all over again, when it comes to voice. So a customer can call in, and it takes the information all from a phone call. So, I can’t see us getting to 100%. 95%, 98% is definitely an amazing goal, once you’re across all those platforms, and different ways that customers love communicating with us.

Paul Green:
And without giving too many trade secrets away, what’s next? Will you be looking at second line tickets, or is there something else you’re going to apply that technology to?

Lucas Meadowcroft:
Yeah. That would be amazing around, I guess, cognitive thinking, and getting the platform to think out of the box, literally. But to be honest, it’s the training aspect of what our site is. So VR and AR technology on helping Level 1 engineers skill up to be a Level 2. Level 2 engineers skill up to be a Level 3. If we’re going to add, it is part of our roadmap over the next three to five years, is then add a massive training functionality, to improve customer service and skill up engineers on all fronts. That would just absolutely be amazing.

Paul Green:
Okay Lucas, thank you so much. Tell us where we can find out more about Tribu, and how we can get in touch with you.

Lucas Meadowcroft:
Yeah. If you go to tribu.ai, it’s a pretty unique way to find it. So, Tribu means “tribe.” We’re putting together a tribe of amazing, innovative MSPs globally. So yeah, tribu.ai. And the cool thing about being unique, Lucas Meadowcroft. If you Google me, I’m the only one in the world. So, you better find me on LinkedIn, Facebook, Twitter, whatever platform you use on a daily basis. You’re more than welcome to reach out to me. Send me an DM there. Add me on any of those platforms, and I’m more than welcome to get back to you.

Voiceover:
Paul Green’s MSP Marketing Podcast. This week’s recommended book.

Stormie Andrews:
Hi, this is Stormie Andrews, author of The World’s Best Buyer Persona System. The one book that I believe is a must read, is Post Corona, by Scott Galloway, a NYU business professor, created and funded and sold numerous businesses for multi-millions of dollars. He explains effectively how the world has changed, post-Corona, and how your business should change right along with it.

Voiceover:
Coming up next week.

Todd Kane:
Hi. I’m Todd Kane, with Evolve Management Consulting. And I’ll be joining you next week to help you understand why your business might be running you, instead of you running your business, so that we can help you grow more profitably, and reduce the stress in growing your MSP.

Paul Green:
We’re also going to be looking at whether or not you and your team have a growth mindset. It is a very specific way of thinking about things, and people with the growth mindset get more done in life. We’ll look at what that is next week, and how you can introduce it to your staff.

Paul Green:
We’re also going to look at some very cool toys. In fact, we’re looking at notepads. You don’t just need a normal paper pad. Now, maybe you don’t use one right now. Maybe you prefer using OneNote. I like physical notepads. They have a value, in a way. I think it’s more tangible when you put notes in a physical notepad, but just because it’s a physical note pad doesn’t mean it has to be a boring old tree one, as in a paper one. There’s some very cool note pad toys you can get, and we’ll look at what those are next week. Have a great week in business. I’ll see then.

Voiceover:
Made in the UK for MSPs around the world. Paul Green’s MSP Marketing Podcast.