Take The IT Service Contracts Recurring Revenue Quiz

Most owners of computer consulting businesses, VARs, network integrators, IT solution providers, MSPs, system builders, and computer repair businesses make their sales cycle unnecessarily long because they only try to close sales on large ticket purchase commitments.

If you've ever heard marketing professionals refer to a front-end sale vs. a back-end sale, where you have a small initial purchase that opens the door to a much more substantial purchase, you're on the right track.

If not, just understand that it's much easier to get a small business owner to commit to a small, initial proving ground project than it is to get the same small business owner to commit to a $12,000 per year IT service contract (or the local currency equivalent).

However once your firm has done a great job on the initial proving ground project, you'll find a much more receptive decision maker open to discussing your big question of, "Gee, have you given much thought to how you'd like all this supported on an ongoing basis?"

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.

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.

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.

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.

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.