Take The IT Service Contracts Recurring Revenue Quiz

2.

How much of your monthly revenue comes from your three biggest clients?
- 0%
- 1%-49%
- >50%
Correct Answer

A. 1%-49%

Explanation

At the risk of being repetitious to drive home an extremely important point, don't put your firm in a situation where your three biggest clients are responsible for more than 50% of your firm's monthly service revenue.

If any of these clients are aware of this control they have over your monthly numbers, it gives these clients too much leverage...especially for jerks who choose to abuse this power. But even when that information is successfully kept under wraps, it's just too risky for your firm to be in situations where the loss of one or two of your biggest clients could potentially put your company out of business.

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3.

If economic conditions made it impossible to close any new sales for 90 days, would your existing clients' IT service contract commitments be enough to keep your firm from going under?
- Yes
- No
Correct Answer

A. Yes

Explanation

Sometimes, depending on seasonal issues, natural disasters, or macroeconomic conditions, it can be next to impossible to close new business. Your portfolio of clients on IT service contracts is in many ways your firm's safety net and insurance policy against hard times. Make sure your firm invests adequately to build up this extremely important asset.

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4.

What percentage of your company's annual revenue is service revenue from clients on IT service contracts?
- 0% (I'm still partying like it's 1999.)
- 1%-49%
- >50% of my company's annual revenue is recurring service revenue from clients on IT service contracts
Correct Answer

A. >50% of my company's annual revenue is recurring service revenue from clients on IT service contracts

Explanation

It's very difficult to grow a business if you're forced to start from scratch every single month. While many small business technology providers don't really think about why it's so difficult to consistently hit their sales targets each month, recurring revenue is often the missing piece of the puzzle. A portfolio of small business clients on annual IT service contracts can do wonders to give your firm a big running head-start each time the calendar flips over to the first of the month, the first of the quarter, or the first of the year. If your firm isn't there already, make it a goal within the next 12 months to get at least half of your company's annual revenue coming from clients on IT service contracts.

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5.

How much service revenue does your average small business client generate each month?
- $0-$499 (or the local currency equivalent)
- $500-$999 (or the local currency equivalent)
- >$1,000 (or the local currency equivalent)
Correct Answer

A. >$1,000 (or the local currency equivalent)

Explanation

Small business technology providers can have a very hard time profitably acquiring new clients if (a) their target prospects are too small or (b) their target prospects don't believe in investing properly in IT. As a result, when the lifetime value of clients is too low, your firm really can't afford to invest much time or money on marketing and lead generation.

So make sure, when you define your firm's target marketplace and ideal client profile, that your small business clients on your firm's IT service contract program are large enough and IT-intensive enough to justify investing at least $1,000 per month (or the local currency equivalent) on outsourced IT services.

Perhaps for your smallest clients, with just a handful or two of workstations, it might make sense to offer an IT service contract level with a $500 per month minimum (or the local currency equivalent) on outsourced IT services. However at any amount less than that, you'll generally have a very hard time building a profitable and scalable business.

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6.

How many IT service contract clients does your firm have that you see at least once a month?
- 0
- 1-9
- 10+
Correct Answer

A. 10+

Explanation

It's very difficult to build a profitable technology provider business around the needs and whims of one-shot-deal customers. To grow a sustainable, forecastable, and scalable business, build your client list with small businesses that need outsourced IT services at least, at the absolute minimum, once a month.

However, that's only half of the challenge. For very small technology providers, revenue is often highly concentrated among the firm's two or three biggest clients. This intense revenue concentration exposes the business to big risk if, for example, the loss of the firm's two biggest clients equates to an overnight loss of 80% of the firm's monthly revenue.

While it's nice to have small business clients that generate a lot of recurring service revenue, it's even better when your recurring service revenue is diversified enough to minimize risk.

Even if your firm is just starting out with IT service contracts, try to ensure that your biggest clients aren't causing you to put all of your eggs in one basket. In much the same way that many build their retirement accounts or kids' college accounts with diversified holdings in stocks, bonds, mutual funds, and cash, strive for at least 10 distinctly different clients that you see at least once a month, even if some of these clients are relatively small.

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Take The IT Service Contracts Recurring Revenue Quiz

How do you sell your IT service contract program?

Quiz Preview

How much of your monthly revenue comes from your three biggest clients?

If economic conditions made it impossible to close any new sales for 90 days, would your existing clients' IT service contract commitments be enough to keep your firm from going under?

What percentage of your company's annual revenue is service revenue from clients on IT service contracts?

How much service revenue does your average small business client generate each month?

How many IT service contract clients does your firm have that you see at least once a month?