How Much Should MSPs Spend on Marketing?

 Thursday 15 December, 2022
How Much Should MSPs Spend on Marketing?

It's a great time to be an MSP and almost 100% of MSPs think so. The managed services market in the U.S. was valued at $44.75 billion in 2020 and is expected to reach $72.88 billion by 2026. This growth was accelerated by COVID-19, when demand for cloud services and MSP solutions increased. The biggest challenge for MSPs is to channel this short-term boost and leverage it to achieve long-term growth and success.

Need for marketing

Most MSPs begin with a client list made up of family members, friends and professional contacts. Due to this, the cost of acquiring customers tends to be low at the start, which is why many MSP owners never realize the need for marketing until much later when the revenue from known sources begins to dry up or doesn't stimulate growth. To sustain and grow your MSP, you need to move outside of your social circles and start selling its services to a wider audience.

This is where marketing becomes important. Marketing helps you reach potential customers and educate them about your service. It helps you build your reputation so that people outside of your circles can begin to trust your MSP business and engage your services.

Needless to say, marketing alone won't work. You can't consistently deliver poor service and expect marketing to work wonders. You will only end up developing a bad reputation, which will catch up with your business sooner or later. However, if you consistently provide quality service, marketing can help you build on that to ensure your MSP business keeps running and growing.

Setting an MSP marketing budget

To decide your marketing budget, let's consider what you are selling, your unique circumstances and what your clients are worth. You are not selling $5 dollar widgets; your solutions could cost $ 5,000 per month, if not more. To win a new client, you need a proactive and highly responsive team that provides excellent customer service. Plus, you need to genuinely build mutually beneficial relationships so your clients retain your services and you increase the lifetime value of each client.

How much are your clients worth?

The lifetime value of your customers is probably high if your customers tend to stick with you for at least a few years. How long does a client stick with you on average? How much revenue does each client generate per month on average? Find out how long a client sticks with you on average and how much revenue they generate each month and you can calculate the lifetime value of one customer.

Let's say, on average, your customers spend $3,000 on your services per month and they stick with you for a period of five years. The lifetime value of a customer for your MSP business is $180,000. This is a good number to start thinking about how much you should spend on marketing your MSP company.

Let's say your recurring revenue — the amount of money you expect to make based on contracts — is lower at $2,000/month/client. That's a revenue of $120,000 per client over five years. If we assume you make a profit of 30% on each client, your net profit from each client is $36,000. How much money are you willing to spend on marketing to make this profit?

How much should you spend on marketing your MSP company?

If we assume an industry average closing rate of 20%, you need five leads to get one client and make a profit of $36,000. Let's assume your cost per lead on Google Ad Words is $1,000. You need to spend $5,000 to make a profit of $36,000. Does that sound feasible?

Of course, you can optimize your cost per lead and increase the value of your customers (and profits from them) over time, but you can only do that if you track these numbers and take definite steps to improve them. The idea here was to give you a sense of how you can use data to decide your marketing budget and make smarter decisions while marketing your MSP business.

The element of risk

Keep in mind that marketing is an investment, and as with any other investment, there is an element of risk involved. You may expect to make a profit of $ 36,000 from a client over their lifetime and spend $15,000 to acquire them, only to realize that things didn't go according to plan and that you only profited by $10,000 from them, resulting in a net loss of $5,000. This is possible, because after all, investments do fail.

However, marketing is still a pretty good way to grow your business. That's why most businesses invest in it regardless of how big or small they are. If you can manage your risks, optimize campaigns and increase efficiencies, your MSP marketing will most definitely help you achieve your goals and grow your MSP business. 

Nailing down the basics

Apart from using data to optimize your campaign performance, taking these steps will help you get the most out of your marketing budget.

  • Identify your target audience: Create buyer and user personas that include keywords, behaviors, interests, etc., of your target users so you can effectively target them through various offline and online channels.
  • Define your value proposition: Describe your services, identify what differentiates your MSP company from competitors and clearly describe how you help clients solve their problems. As an MSP, you also need to be mindful of the fact that you are not selling a product, you are selling a promise. You want to communicate that you are trustworthy and competent, so your customers can rely on you to get help when they need it.
  • Set KPIs: Define goals for marketing metrics like cost per lead, cost per acquisition, customer lifetime value, etc. You can set KPIs for each of your marketing channels and work to improve them over time too.
  • Measure performance and optimize: This will help you continuously optimize campaigns and increase marketing efficiencies.

Focus on the right marketing channels

Once you decide on your budget and nail down the basics, get to work on these marketing channels. Research and evaluate your competitors so you stand out with your marketing communications. 

Your website

Since you are an MSP, it's highly likely that your potential customers will look you up online. Invest in a professional website that doesn't look homegrown or amateur. Your website is the best channel for you to build your brand and image because it is entirely in your control. You have complete freedom to represent yourself the way you want. Make sure your website has a good interface — that your visitors can easily access the information they need and that all your content is easily readable and understandable. Describe your offerings clearly and highlight any discounts, product bundles and other benefits. Communicate how you solve the problems of your potential customers. You could include free resources like eBooks, reports and whitepapers that act as a lead-capturing mechanism while establishing your credibility as an expert and helping you with your marketing. Project an image of reliability and competence so your visitors are convinced you can help them with their problems and partner with you.

Get referrals or word of mouth

Companies that have structured referral programs experience higher revenue growth and have better conversion rates. Your MSP company is no different. Referrals work well for MSPs because your potential customers are looking for someone they can trust. When your customers recommend your MSP business to their friends or peers, it's your MSP business that wins the confidence of your potential customers. Referrals can be free when they come from the goodwill of your well-intentioned customers. Nonetheless, you could also incentivize referrals to make it a mutually beneficial relationship for all parties involved. Be transparent in all your referral dealings to build trust and credibility. 

Go local

It's not necessary for your MSP business to stay local since cloud services and remote monitoring tools allow you greater flexibility and scalability. Having said that, if you do have a lot of local businesses who could be potential customers or if you want to target local businesses, you could adopt and experiment with more traditional and possibly cheaper marketing methods like using flyers and leaflets. 

Go niche

If you sell services for a niche market like doctor surgeries or finance, you could look to sponsor events (online and offline) that bring together people from that niche. Alternatively, you could partner with influencers and experts to promote your services. Keep an eye out on the market — see what your competitors are up to and what channels they use to market various services. Be where your customers are. Identify what websites they visit, what content they are interested in, etc. Going niche will help you be relatable and visible to your potential customers. It will help you engage in meaningful conversations and form relationships with them.

"Free" channels

Some marketing channels are naturally cheaper than others. Leverage free or relatively cheap channels marketing channels like organic content, search engine optimization, newsletters, emails, sales proposals, etc., to grow your MSP business. These require minimal investments — mostly just your time or the time of your employees. And although time is an invaluable resource, these marketing channels could help you steadily grow your client list in the long run without shelling out cash on your marketing efforts. It's good to invest time in these “free” channels even if you have money to burn and achieve quicker results with the other channels. 

Paid online advertising

Since you offer managed services, it's highly likely that your potential customers are online. Supplement your “free” digital efforts with paid advertising or pay-per-click ads. The good thing about advertising online is that it's highly targeted. You can reach your potential customers using keywords or by describing their interests and behaviors, etc. You can even target or re-target leads based on actions they have taken like visiting your website or downloading one of your marketing collaterals. Plus, you get accurate data to monitor and optimize your campaigns. Online ads are a great way to quickly get leads and build your client list.

Ending note

Marketing your MSP business is not a sure shot way to success. It can only aid your MSP business if you consistently deliver quality services to your clients. Having said that, marketing can help your MSP business diversify its revenue streams by helping you reach a wider audience and steadily growing your client list. It can help you make your MSP business more profitable if you rely on data to make smart marketing decisions and optimize your marketing efforts in the long run. 

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