Key Performance Indicators (KPIs) are critical for managed services providers (MSPs) looking to leverage data-driven decisions to enhance their operations and offerings. They help a business accurately measure and track key metrics that then enable them to make more informed decisions, rather than operating by traditional ‘gut feel’.
Because MSPs often have to make tough decisions on the fly, both for their businesses and also on the behalf of their clients, KPIs can help drive clarity into operational and performance metrics. In turn, this can help guide the MSP in making the right decisions.
Here is an overview of 12 MSP KPIs that can make or break your business.
Top KPIs that can elevate an MSP
- Managed Services Contract Profitability. Also known as Agreement Profitability, the Managed Services Contract Profitability is difficult to assess but can serve as a clear indicator of gauging the potential success (or failure) of an MSP. As a rule of thumb, these agreements must yield a 65% gross margin. Lower margins indicate that there may be inefficiencies involved in your service pricing, staff performance, or process efficiencies.
- Average Monthly Recurring Revenue (MRR). This can be calculated by taking the cumulative amount of monthly recurring revenue and dividing it by the number of active clients. The number you derive from this is what your average customer pays per month.
- All-In Seat Price (AISP). This is a very helpful metric that can help MSPs ascertain total expenses for every end-user they support. This can be calculated by dividing monthly recurring revenue with the number of seats you currently manage, and provides a baseline for evaluating client pricing options. It can also help you remain profitable in the long run.
- First Call Resolution (FCR). Simply put, FCR is the percentage of service request tickets where the problem is resolved within the first call. Some MSPs may wonder why they need to track FCR as a metric when they already have concrete response and resolution timeframes defined within their Service-Level Agreements (SLAs) with clients. But this metric can help you accurately assess customer satisfaction and meet and exceed client expectations above and beyond the SLAs.
- Managed Service Recurring Revenue Retention Rate. This simple but powerful metric trefers to the recurring revenue from the previous year that a MSP is able to carry forward into the current year. Simply take the total Managed Services recurring revenue for the current year with the obvious exclusion of any new recurring Managed Services revenue from the current year and subtract it from the total recurring Managed Services revenue from the previous year. Once you achieve the result, divide that number by the previous year’s total recurring Managed Services revenue. For convenience, you can turn it into a percentage.
- Customer Lifetime Value (CLTV) vs. Customer Acquisition Cost (CAC). For any business to remain profitable, their CAC needs to remain lower than the CLTV they expect to gain from that customer. If CAC is higher, you will lose money on every client acquisition no matter what your performance is. The ideal ratio is 3:1. If a company manages to achieve more than that, they should ideally invest more in marketing to achieve better growth.
- Mean Time to Resolve (MTTR). This is a service-level metric that calculates the total time spent from the start of a service ticket opening until it is closed. MTTR has a strong correlation with customer satisfaction. But remember that FCR takes precedence over MTTR in ensuring lasting customer satisfaction.
- Resource Utilization. Measuring resource utilization involves paying attention to performance vs. projections, resource scheduling, and visibility into hidden costs. MSPs should be able to accurately make service delivery time projections each month to assess resource allocation.
- Client Contribution (CC). This is the income received from customers after deducting expenses. This KPI calculates cumulative revenue from all sales of services, products, consulting fees, and fixed charges, and can help MSPs assess client investments, the efficiency of automation tools, and even determine if they need to end certain relationships.
- Monthly Recurring Revenue (MRR). This can be calculated by adding up all monthly service charges for a client and subtracting hardware and other on-time costs. Within the MRR figure, businesses should also try to assess new sales, up-sells, renewals and monthly churn.
- Net Promoter Score (NPS). Essentially a survey of your customers, this KPI gauges how likely they are to recommend your services to others on a scale of zero (not at all likely) to 10 (extremely likely). Based on NPS, you can choose to either get rid of negative customers or try to accurately gauge the cause of their dissatisfaction and improve your services. Improving your NPS results in lower churn rates and a reduction in customer acquisition cost per unit.
- Revenue Growth Rate. Used to track and quickly address negative trends, this should be calculated quarterly or monthly and indicates an MSP’s potential to improve sales over a given period.
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