As a Managed Services Provider (MSP), your goal is to provide efficient IT services and support to your clients while maintaining a profitable and sustainable business. While client retention and growth are two major factors in determining the valuation of a business, there are certain situations where it might be better to fire or not sign up a client. Here are some scenarios to consider:

1. Unrealistic Expectations: If a prospect has unrealistic expectations that cannot be met within reasonable bounds, it may be better to avoid taking them on as a client. Unmet expectations can lead to dissatisfaction, negative reviews, and strain on your resources. You are better served letting a competitor deal with the stress and headaches a customer with unrealistic expectations will bring.
2. Scope Mismatch: If the prospect’s needs and requirements significantly deviate from your core expertise or the services you offer, it could lead to subpar service delivery and unhappy clients. It’s essential to focus on areas where you excel to maintain your reputation.
3. Constant Price Negotiation: While it’s natural for clients to discuss pricing, if a prospect consistently tries to haggle down the prices significantly and is unwilling to pay a fair value for your services, it may not be worth taking them on. Maintaining strong gross margins should take precedence over serving barely or unprofitable clients.
4. History of Difficult Relationships: If the prospect has a history of challenging relationships with other service providers or negative reviews about how they handled previous IT support, it might be a red flag to avoid taking them on.
5. Non-Payment Issues: If the prospect has a reputation for not paying bills or delaying payments with previous service providers, it could lead to financial issues for your business.
6. Unethical Practices: If the prospect engages in unethical or illegal practices, it’s better to avoid any association with them as it can harm your business’s reputation, or worse.
7. Constant Micromanagement: A prospect who consistently micromanages every aspect of your services might make it challenging to work efficiently and effectively. You’ve been hired because of your expertise; if a client doesn’t trust that, the relationship may not be worth salvaging.
8. Cultural Misalignment: If there is a significant cultural mismatch between your company and the prospect’s, it may lead to communication issues and misunderstandings.
9. Extensive Resource Requirements: If the prospect’s needs demand resources that significantly exceed what you can reasonably allocate, it could strain your business and negatively impact other clients.
10. Unresponsive or Uncooperative: A client or prospect who is consistently unresponsive or uncooperative during the sales process might exhibit the same behavior once they become a client. The strongest MSPs view their clients as partners (and vice versa).  It may not be worth continuing forward if their unresponsiveness makes providing the services and security your MSP strives for an impossibility.

Sophisticated buyers will understand that not all churn is bad.  In fact, it is often necessary to protect both your company’s profitability and culture.  Understanding the general profitability of each client can make these decisions easier, and also provide context and comfort for a buyer.  In the managed service ecosystem, the squeaky wheel often gets the grease, but those customers may be at odds with your overall service delivery and profitability goals.

Before making a final decision, consider having a candid conversation with prospects ahead of time to clarify expectations and assess whether your services align with their needs. If you find that a prospective client does not align with your business values, expertise, or potential for a mutually beneficial relationship, it’s better to decline the engagement politely. If a challenging customer snuck through that screening process, your account managers and support team should maintain a list of difficult clients whose engagement should be revisited when coming up for renewal.  At the end of the day, maintaining a solid client base built on trust and effective communication will lead to better long-term success for your MSP, manifested in sticky, trusting, and strong clientele.

If you are an IT Services business or MSP thinking about undertaking a transaction, we’re happy to hop on a call to discuss how retention and possibly terminating problem clients impacts valuation, or any other questions you have.  Please don’t hesitate to reach out to Chris Weingartner (cweingartner@foundersib.com), Founders’ Managing Director who covers the MSP sector.