When looking to grow and scale your managed service provider (MSP) business, it’s best to develop a strategy that is guided by data and monitoring trends over time. Ten times out of ten, data-driven decisions will outperform choices that are based on intuition or gut instinct.
That said, choosing the right metrics to monitor is crucial if you want to:
- Drive accelerated performance
- Maximize your profit potential
- Increase operational maturity
But all metrics aren’t created equal. So, how do you determine what your key performance indicators (KPIs) are?
There are three areas of MSP KPIs, each of which encompass a variety of metrics to help track an MSP’s performance and growth potential. While different MSPs may choose to focus on certain KPIs vs. others, the core areas are:
- Productivity
- Client experience
- Profitability
Below, we’ll dig into these three areas with a dozen KPIs that successful MSPs often measure as they work to increase productivity, client satisfaction, and overall profitability.
Productivity MSP KPIs
Measuring your company’s productivity KPIs will help ensure that your team is working efficiently, your clients are receiving the best service possible, and your resources are being utilized to their fullest potential. Tracking productivity KPIs can also give you insight into what areas of the business could be made more productive with new processes and technologies. For example, you may discover that your technicians are spending significant time on very simple and routine activities. By automating routine tasks, your team could focus on more lucrative activities — and your KPIs will improve at the same time.
1. Average resolution time
Why measure: Clients today expect fast service. They don’t want to wait for a new password or to be locked out of their computer for long periods of time. Unsurprisingly, average resolution time plays a huge role in their satisfaction with your MSP’s service. By monitoring and working to improve your average resolution time, you can keep customer satisfaction high and free up more time to take on new clients — or identify opportunities to improve resolution times. It’s also worth noting that client Service-Level Agreements often include a benchmark for average resolution time, so tracking this KPI is essential for many MSPs.
How to measure: Total resolution time for all tickets solved / # of tickets solved = Average resolution time
2. First contact resolution rate
Why measure: In addition to overall speed, customers only want to ask for help once. The more they need to follow up for assistance, the more annoyed they become. That’s why tracking the percentage of client issues that are resolved after one inquiry can help gauge your team’s efficiency and workload. It can also determine which of your techs may need additional training and support.
How to measure: ( Total # of issues resolved on first contact / Total # of issues ) x 100 = First contact resolution rate
3. Resource utilization rate
Why measure: As an MSP, your number one expense will always be human resources. It’s important to staff and train top talent, but it’s equally important to make sure your workers are using their time wisely. Assessing your resource utilization rate will help you see how much of your employees’ time is spent on revenue-generating activities vs. tasks that don’t positively affect your bottom line.
How to measure: ( Total # of utilized hours / Total # of hours) x 100 = Resource utilization rate
4. Close ratio
Why measure: Setting your sales team up for success is critical, as they’re how your MSP wins new business. Whether your sales team is one person or a team of ten, monitoring their ability to turn first-time appointments into paying customers allows you to evaluate the quality of your leads as well as the efficacy of your sales process.
How to measure: ( Total # of first-time appointments / Total # of paying customers ) = Close ratio
Client-centric MSP KPIs
Happy clients lead to successful MSPs, which is why good customer relationships are the lifeblood of your company. A bad client experience can cost your MSP business, in both revenue and reputation.
MSPs need to understand how customers perceive the business relationship, as well as how well each client account is doing. Keeping an eye on this category of KPI will help you get a better idea of the quality of service that you’re providing for your clients and your ability to fulfill your service agreements. Plus, keeping clients happy impacts your business’ operations and long-term profitability.
5. Satisfaction rating
Why measure: Keeping customers happy is one of the cornerstones of any successful business, as it costs significantly less to retain existing customers than it does to constantly pursue new ones. Reviews and testimonials from satisfied customers can also be used as a powerful marketing tool.
How to measure: Regularly survey your clients with something like the Net Promoter Score (NPS) survey, which asks how likely they are to recommend your services to a friend or colleague. Use the following equation to calculate your NPS score: ( Total score of surveys / Total possible points ) = Satisfaction rating
6. Customer churn rate
Why measure: Client turnover can create serious headaches for MSPs looking to increase profitability, not to mention the negative effect it can have on employee morale. Also known as attrition or turnover rate, customer churn rate is another critical metric for monitoring your clients’ health and satisfaction. For subscription-based companies, working to keep your churn rate low is essential to maintaining consistent profitability.
How to measure: ( # of customers at the beginning of X time period - # of customers at the end of X time period) / # of customers at the beginning of X time period = Customer churn rate
7. Service level agreement (SLA) compliance rate
Why measure: Service-Level Agreements (SLAs) define a standard of performance by specifying metrics used to measure service quality and defining penalties that will occur if a certain threshold is not met. Keeping track of SLA compliance will help you maintain customer satisfaction and reduce turnover by consistently living up to (and exceeding) those expectations.
How to measure: ( Total # of tickets that met SLA / Total # of tickets) x 100 = SLA compliance rate
8. Customer lifetime value
Why measure: Repeat customers are great for business. Gauging customer lifetime value helps your organization consider the long-term value of repeat business instead of focusing on short term wins and transactions. Used in conjunction with customer acquisition cost, this KPI also allows the relative value of different customers to be compared.
How to measure: ( Average revenue per customer x Average length of contract ) = Customer lifetime value or ( Average revenue per customer / Customer churn rate) = Customer lifetime value
Profitability MSP KPIs
At the end of the day, MSPs all have one core concern: profitability. Without generating profits, MSPs cannot invest in their business, expand services into growing areas of client demand (such as cybersecurity), or create a great career ladder internally for employees.
Tracking profitability KPIs is another useful way to understand the financial health of your MSP. Of course, both the core areas above — productivity KPIS and client-centric KPIs — support profitability and are, in a way, also profitability KPIs. After all, the productivity and client KPIs above help you recognize:
- Areas where your operations are most efficient.
- Which customers provide the highest value.
- Offerings that may need to be streamlined to generate more revenue.
That said, there are additional KPIs focused on profit-specific elements — such as goods sold and revenue structures — that provide additional information. Measuring those in combination with productivity and client-centric KPIs will give you a holistic view of your MSP’s financial situation and what adjustments you might make in order to maximize profitability.
9. Cost of goods sold (COGS)
Why measure: In COGS, “goods'' refers to labor, material, software, infrastructure, and any items that are directly related to how your MSP delivers its services. Measuring the cost of delivering services is crucial to understanding how much profit your company is making. It can help inform important decisions, such as MSP pricing strategies.
How to measure: COGS takes into account all expenses involved in producing your product, including labor, material, and service/delivery costs. The exact formula will differ depending on your different cost categories, but this simple-to-calculate metric might looking something like: License costs + Labor costs + Delivery costs + Fees = Cost of goods sold
10. Effective rate per offering
Why measure: Sometimes an MSP’s decision to offer or expand a certain service is based solely on a hunch or feeling that it’s a good idea. Instead, calculating effective rate per offering enables you to make data-backed decisions about which services to prioritize and potentially expand vs. time-draining services that could be replaced with a more profitable offering. For example, cybersecurity has become an area of increasing opportunity for MSPs, as 91 percent of SMBs are willing to change their MSP for the right cybersecurity offering.
How to measure: ( Total revenue for offering / # of hours applied to offering ) = Effective rate per offering
11. Recurring revenue rate
Why measure: Adding streams of recurring revenue is a reliable way to reduce the risk of relying on upfront sales to keep cash flow running. Often tracked in terms of monthly recurring revenue (MRR), recurring revenue is the income that your business produces through subscriptions, renewals, and other recurring contracted services. Monitoring your recurring revenue rate will help you more accurately predict your revenues and make future projections based on hard data.
How to measure: ( Average revenue per account x Total # of accounts ) = Recurring revenue rate
12. Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Why measure: Calculating your MSP’s earnings before interest, taxes, depreciation, and amortization (EBITDA) will help you better under your company’s operational efficiency and profitability. Many organizations use this KPI to compare how they are performing compared to other companies in their market.
How to measure: Net Income + Interest + Taxes + Depreciation + Amortization = EBITDA
Develop a data-driven plan for success
For your business to scale quickly and reach the highest level of operational maturity it can in 2021, keeping track of productivity, customer-centric, and profitability MSP KPIs is a must. Monitoring the right metrics will help you determine what's working, what areas of your business need to be improved, and what needs to be measured for a longer period of time before a definitive decision can be made.
Make sure your KPIs and strategy are on track today to plan smartly for 2021 and beyond.
Author April Taylor is vice president of ConnectWise Manage at ConnectWise. Read more guest blogs from ConnectWise here.
