Sramana: Based on what you were charging customers, what was the cost of acquiring hours from providers? Did you have a fixed price or were costs variable?
Jeff Leventhal: We tried to make most of our deals paid out at around $55 an hour. However, we billed our clients in 30 min increments and we paid in 15 min increments. That made a big difference in the margin. We did not learn that immediately but we did figure that out. The margins of the business were very good and the business was profitable almost from day one.
Sramana: How many customers did you need to achieve the $12 million revenue mark that you hit in year 2?
Jeff Leventhal: We focused on very large companies. We probably had 400 of the Fortune 500 companies.
Sramana: What was your acquisition strategy?
Jeff Leventhal: We used to call up IT infrastructure managers and present them with our value proposition. All of these IT managers have that problem. We offered them $1,000 of our time and made ourselves available to them as a backup service. We knew they probably had a full-time service, but there are cases when someone is out sick or on vacation. The hours they bought from us could be used against cabling people, networking people, or whatever they needed.
Out of every 100 people we spoke to, we would have 15 to 20 who would buy from us. Once we sold that, we would wait until we had done 2 or 3 hours of service for them. We would then call them back and ask how the service was. First we wanted to make sure they liked the service they received. If they did, then we offered them an upgrade to $5,000 and we offered a reduction in our hourly price. We had a 90% conversion rate.
Sramana: It’s nice that you had a fairly concentrated customer base and did not have to cater to thousands and thousands of customers. You worked directly with those customers and focused on upselling the deal size.
Jeff Leventhal: Once we understood how many employees were at a company, we were able to estimate the number of network devices that they would have. If they had 10,000 employees, then they would probably have at least 8,000 computers and 2,000 printers. We would know that a company with that kind of infrastructure would have a specific number of incidences a year. We were able to predict how often a company of that size would call us and use our service. We knew who to go after. We were able to build a great business in that manner.