A growing number of companies are introducing new MSP playbooks and service catalogs. The idea: Help MSPs to further automate their businesses -- and, by extension, boost their valuations.
MSP playbooks certainly aren't new to the market. MSP software companies, coaches and consultants have evangelized playbooks and service catalogs for at least a decade. But something seems different about the latest round of offerings. And it involves a slight shift in KPIs (key performance indicators).
In the cloud services world, technology companies and MSPs are fanatical about such KPIs as:
- Average Revenue Per User (ARPU) per month.
- Churn rates --or the percentage rate at which customers cancel their recurring revenue subscriptions.
What happens when you drive up your ARPU, keep your costs under control and drive down your churn rates? Your valuation skyrockets and you also start taking vacations without worrying about your business.
The New KPI: Time to Customer Consumption (TtC)
Still, there's another KPI that MSPs need to embrace. ChannelE2E calls it Time to Consumption (TtC). It's sort of like quote to cash. And it goes something like this:
- How long does it take you, an MSP, to completely activate a customer after that customer signs up for a cloud or managed service?
Naturally, the best ways to accelerate the time to consumption is through proper documentation and automation. In many ways, RMM (remote monitoring and management) and PSA (professional services automation) software companies have helped MSPs with the TtC challenge for more than a decade. Similarly, peer groups, executive leadership groups and associations like CompTIA, HTG, Service Leadership Inc. and TruMethods have assisted MSPs with various service catalog efforts.
The Next MSP Service Catalogs: Here They Come
But now, a new generation of companies has entered the MSP playbook and service catalog market. Examples include:
- IT Glue, a documentation company focused on MSPs. Yes, the documentation can involve service catalogs.
- WorkRails, a startup platform that helps SaaS companies build standardized service catalogs for professional services organizations. The SaaS companies can offer the service catalogs to their internal teams or to channel partners -- including MSPs. The company's backers include former executives from OnForce and WorkMarket -- two very successful ecosystems for on-demand IT staffing.
- Xcellerate, an MSP accelerator that has developed an MSP playbook to help scale member and partner organizations.
- Teaser alert: More companies will join this bullet list in the days and weeks ahead...
It's All About Valuation
What's the end-game for MSP Playbooks, Service Catalogs and KPIs? The obvious answer involves MSP valuations.
TruMethods CEO Gary Pica has a pretty basic approach to explaining the MSP challenge: It's a math challenge. You need to understand your costs and several other KPIs (what he calls Picanomics). Work the math and you'll optimize your business performance.
For MSPs and CSPs, I tend to obsess about Average Revenue Per User (ARPU) per month, churn rates and EBITDA (earnings before interest, taxes, depreciation and amortization) profit margins.
Plus, you're gonna need a heavy dose of automation to speed your customers' time to consumption (TtC). MSP playbooks and standardized, documented service catalogs are critical to that effort.
MSPs that master automation and drive their EBITDA profit margins to 20% or more will enjoy the fruits of their labor. Company valuations for those best-in-class performers can fetch reach 5X to 7X annual EBITDA. MSPs with some of their own intellectual property can even push toward the 10X EBITDA valuation, though that's extremely rare. (See our FAQ on Valuations.)
I'll conclude this blog by asking the same question I've been posing for nearly a decade: Got a well-documented playbook and/or a service catalog? If not, the next round of options has arrived for you. And more will surface this month. For legacy MSPs trying to push beyond PC and server monitoring, this could be your last, best chance to get automation right...
