The ‘small client problem’ is one of the most common issues that MSPs (and indeed, most service businesses) come up against.
Small and medium-sized enterprises (SMEs) have far fewer resources than larger companies. They also tend not to fully appreciate the value that managed IT services offer – or the dangers it protects them from. This means they either:
- Would like to spend more on IT services, but can’t afford it.
- Know they need IT services, but want to reduce the cost as much as possible.
As a result, working with SMEs can impact your company’s profitability. So how should your MSP deal with this challenge?
Key takeaways:
- The market opportunity that SMEs offer MSPs
- Overview of the small client problem
- Practical tips to deal with this issue
SMEs Want to Work With Managed Service Providers
Make no mistake. Small businesses want to work with MSPs. A 2022 JumpCloud survey with 1,007 IT decision makers at SMEs found that 76% use an MSP for at least some of their IT support. And 67% were planning to increase their investments in managed services.
But there are obstacles. When asked about their top reasons not to use an MSP, 29% of the JumpCloud survey respondents said that cost was the main obstacle (others said they could do IT themselves in-house).
Another JumpCloud survey from 2024 asked SMEs why they stopped working with an MSP. No prizes for guessing what the main reason was (that’s right: cost).
The Problem With Small Clients
We have a ton of small clients… My boss keeps them on for… reasons. I think it’s mostly because he can’t tell people no, so isn’t capable of just “breaking up” with these clients.
Most MSPs began as SMEs themselves – perhaps your business still is an SME. And many MSPs primarily work with small and medium sized enterprises. There is nothing wrong with this model, but it can raise some issues.
In an article, prominent business consultant Andrew Sobel lists some of the common problems that arise from working with small clients:
- High project costs, low revenue: You spend money acquiring and working with customers, yet the profit margins are normally low.
- Go-nowhere: Some small clients may grow rapidly and become a big source of revenue. But most stay small and pay low fees.
- Drain on resources: Your small clients take up just as much time as bigger customers, yet pay far less – that could mean you miss out on more lucrative contracts.
While these drawbacks might make it seem sensible to ‘dump’ your MSP’s SME customers immediately, there are some convincing counter arguments too:
- Eggs in many baskets: Especially if your MSP is relatively small itself, it may not be sensible to rely too heavily on one or two large clients. They may, after all, have the budget to bring IT in-house and dispense of your services at any time. Having several SMEs on your books evens out the risk.
- Slow and steady: Working with SMEs is a reliable, tried and tested business model for MSPs. Sure, it might not make you millions overnight, but it represents a sensible way to build a long term, stable business.
- Benefits you can’t put a dollar value on: There are other reasons to work with SMEs. Sometimes it’s ‘pro bono’ work for a local school or charity. It could be a ‘prestige’ client whose name on your website attracts other business (e.g. a celebrity, or a maker of classic cars). You might feel an altruistic desire to help small firms in your town stay cyber-secure. Or perhaps you just really like the people at one of those SME firms and enjoy working with them.
Practical Tips for Managing Your MSP’s Small Clients
Are your MSP’s small clients starting to feel like a drain on your resources? Whether they just don’t have the money, or don’t see the value in paying enough for managed services, this can be a tricky situation to navigate.
Here are some practical tips for dealing with this scenario.
Do the Math
Working with small clients can feel like a drain on resources. But is it in reality? The only way you can be sure is to sit down and calculate profitability.
There have been entire business books dedicated to working this out, but fundamentally the aim is to calculate average monthly revenue minus average monthly cost per client. This will then tell you how profitable each of your SME customers is.
You can make the calculation more comprehensive by including things like onboarding costs (how much you spent on marketing to acquire each client) and how long they remain customers before churning (‘customer lifetime value’).
After you’ve figured out the true profitability of all your clients, your decisions can be guided by hard data.
Related: Top MSP key performance indicators
Use Tools That Can Scale Up And Down
In Heimdal’s recent MSP Cybersecurity Challenges webinar, we sat down with Nick Cavalancia, a former MSP owner and 4-time Microsoft MVP who now runs Conversational Geek. One of Nick’s tips really resonates here:
Find solutions that don’t just scale up, but solutions that scale down… Smaller business – let’s even say the very small businesses with like five people in an office – aren’t going to be exactly the same as a 50 person office. But if they’ve got some IT infrastructure there’s no reason why you can’t run those people and manage them in the exact same way – at least there shouldn’t be if you have the right tools.
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By choosing MSP tools that are able to scale up and down, your MSP can use the same tech to manage different customers’ environments. That means activities are repeatable, no matter what size the customer’s network is, or how many seats or devices you manage. And repeatability equals profitability.
For example, scalable patching software should allow you to roll out patches to a customer with 100 devices at the click of a button. But it should equally allow you to do that for a customer with three devices.
Automate Where You Can
Automation also allows you to keep serving small customers, but without having to spend so much time on tasks. Choose MSP tools that allow you to automate tasks associated with endpoint management, email security or DNS security. That lets you onboard more customers of all sizes, without needing dozens of extra employees.
Read more: Top 3 MSP cybersecurity challenges
Periodically Review Service Level Agreements
If you want to grow your MSP, it’s not always possible to offer SMEs the same level of service as you offer to bigger clients. Periodically review SLAs with SME customers and your own staff. Find out how many hours employees are spending with SME clients. If it’s not profitable, then it’s reasonable to review the contract.
Educate SMEs About What You’re Really Offering
The problem is that you’re going up against the mentality that IT services is frequently viewed as a red-line expense in a company’s accounting books.
As the above quote highlights, many SME owners do not fully appreciate the value that your MSP brings. They tend to think of IT as an expense to minimize as much as possible. It’s worth reminding them of the value you bring.
Take cybersecurity, for instance. In our webinar with Nick Cavalancia, he suggests first showing them published data on the risks of cyber breaches. If that doesn’t work, ask them to imagine the financial hit were their business to be out of action for one, three or five days due to ransomware.
Drop Them
Ending a client relationship can be hard. But if the SME simply cannot afford your services – or doesn’t value you, your time and your people – it’s sometimes best to drop them.
Of course, it’s always preferable to find a compromise or renegotiate the SLA, but if it’s just not working, terminating the relationship may help avoid a lot of frustration for both parties. Try to do this on the best possible terms – news of ‘bad breakups’ can spread and can damage reputations.
Be Selective About Who You Work With
We only consider taking 10 or less seats if they are either very technology progressive and onboard with our program or poised to grow rapidly towards our desired size.
Many MSPs choose to set a minimum number of seats or devices when choosing to work with a new client. This can help avoid the ‘small client problem’ in the first place.
Raise Your Fees
If you feel that your MSP’s SME customers are not profitable enough, raising your fees can also be an effective way of weeding unprofitable customers out. Those who can afford the increase (and who value your work) will likely continue paying. Those who can’t will simply have to go elsewhere.
Running a Viable Business
Working with SMEs can be a great option for MSPs, especially when you’re just starting out. Nevertheless, they can affect your profitability, and it’s wise to continue monitoring the relationship and your business strategy to ensure this is still working for you.
Heimdal®’s cybersecurity platform is an ideal solution for MSPs who provide security services to SME clients.
The solution allows you to scale your services, add as many customer networks as you wish to your dashboard, and manage dozens of customers’ environments using automation. That means you can grow your business, whatever size of customers you work with.
Frequently Asked Questions
Should an MSP work with small business clients?
It depends on your business strategy, niche and skills. For some MSPs, the SME market can be a lucrative, interesting and sustainable sector with a huge amount of potential. However, it really depends on how your business’s processes are set up, the tools you use, and your people. Sometimes, the SME market can constrain an MSP’s growth, or ‘bog them down’ with small projects and clients that are unable to pay larger fees.
Should MSPs aim to work with large corporations?
Sometimes this can be desirable, but not always. Again, it really depends on your strategy and ambitions. While large corporations can be a great source of revenue for MSPs, they can also be very challenging customers to work with too. They may demand far more resources than a smaller MSP has available, supplier onboarding and payment processes can be complex, and there’s no guarantee that they won’t replace you at any time.
How to decide whether or not to work with an SME?
If an individual SME has approached you to enquire about managing their IT, there are a few things you can do that can help decide if they’d be a good fit. Spend some time talking with them to get a feel for if you’d be a good cultural fit. Ask about their previous outsourcing history – have they ever worked with MSPs before? What did or didn’t work? Also gauge their profitability and growth plans. It’s also valuable to gather their perspectives on IT – do they see it as essential, or is it something they view as a costly afterthought?
Cristian is a Content Editor & Creator at Heimdal®, where he developed a deep understanding of the digital threat landscape. His style resonates with both technical and non-technical readers, proof being in his skill of communicating cybersecurity norms effectively, in an easy-to-understand manner.
