Managed Services and the Case for KPIs

By Continuum Guest Blog 1

MSPs typically maintain broad business goals: double revenue, boost client retention and pursue cross-sell opportunities to name a few.

But while they keep these general, big-picture goals in mind, they may be short on specifics on how to achieve them. That’s where key performance indicators — or KPIs — come in. KPIs, when properly devised, provide a useful tool for gauging performance. But here’s the rub: MSPs, grappling with the day-to-day demands of running a business, may feel they don’t have time to devise performance metrics and then collect and analyze business data.

The press of business is indeed daunting, but MSPs should still make the time to manage KPIs. Companies from startups to seasoned operations all have that next mountain to climb. KPIs can serve as guideposts along the way, helping MSPs as they make progress toward their most important goals.

Types of KPIs

A business can pursue any number of performance measures. So, an MSP’s first task is to narrow down the list and focus on those KPIs that best support its objectives. An MSP manager concerned with improving customer satisfaction, for example, might use Net Promoter Score (NPS) as a KPI. With NPS, a company polls its customers on how likely they are to recommend it to others. Customers are asked to rate companies on a scale of 0 to 10. The percentage of customers in the “promoter” range — 9s and 10s — gives an MSP a window into customer sentiment.

Churn rate provides another way to measure client happiness — or displeasure. This KPI describes the percentage of a customer base that defects over a period of time, is an especially relevant metric for subscription-based businesses such as managed services.

From a revenue perspective, an MSP could start rating its sales pipeline, distinguishing tire kickers from prospects and sales opportunities, which might require re-defining your sales funnel. Other financial metrics include effective hourly rate. With this measure, an MSP takes its monthly billing for a given customer and divides that amount by the number of hours spent support that customer. MSP CFO, a financial services management firm that targets MSPs, describes this KPI as client effective rate, as noted on Ulistic.com. This measure can help an MSP gauge customer profitability and adjust rates if need be. MSP CFO, via Ulistic, also points to client Contribution as a KPI for MSPs. This measure takes into account all the dollars an MSP generates from each client — including service, product and fixed-fee revenue — and the costs associated with providing those offerings.

Similarly, the gross profitability KPI looks at an MSP’s recurring revenue rate and subtracts the cost of providing good and services over a given timeframe. The result is a basic view of profitability.

In addition, MSPs can adopt service delivery-oriented metrics that track a company’s success in meeting its SLAs. What percentage of the time are you hitting or missing your SLA terms? Is there room for improvement?

KPIs let an MSP know how it’s doing. But it may also prove useful for an MSP to compare its results to others. Peer groups play a role in that regard, providing a forum where MSP managers can compare notes on operations.

Tracking KPIs

Software tools can help MSPs keep tabs on their KPIs. Professional services automation (PSA) products provide a central mechanism for collecting business metrics. In addition, a PSA package may include a dashboard for KPI reporting. Continuum integrates with a number of PSA vendors.

Automation, in general, can help MSPs boost efficiency and meet their performance objectives. Products such as Continuum’s remote monitoring and management (RMM) software automate ticketing, patch management and other MSP chores — thus reducing the cost of providing services.

To sum up, KPIs inject greater discipline into MSP management. The practice of tracking performance indicators can put a company on a surer path toward its strategic targets.

Ray Vrabel is director of technical account management at Continuum, a leading provider managed services solutions that power MSP growth.