MSP KPIs: How to Monitor Success & Optimize Performance
Did you know data-driven companies are 23 times more likely to outshine their competitors in lead acquisition and seven times more likely to retain customers? The answer lies in how well you utilize key performance indicators (KPI) metrics to measure the effectiveness of specific business aspects.
Mastering MSP KPI is crucial for success in the fast-paced IT space. Imagine being able to anticipate operational costs, predict customer needs, gauge your marketing prowess, or identify potential pitfalls in advance. This is achievable using the right MSP KPI tracking.
This blog explores the top essential MSP KPIs to help you optimize performance and monitor the success of your business. Let's dive in.
Part 1 : What Is MSP KPI?
A key performance indicator (KPI) is a quantifiable measurement or value used to gauge the performance of specific business objectives. Managed service provider KPIs are metrics, data, or insights that MSPs use to track their performance and evaluate service quality to boost their business.
Incorporating analytics and data in any business isn't just hype. MSP performance metrics aren't the only valuable tools for helping you make informed decisions. They are crucial for evaluating your operational efficiency, marketing strategies, and financial growth levels.
Think of MSP KPIs as a compass guiding your ship and preventing it from going adrift at sea. Established metrics offer the flexibility your business requires to strategize and get your business back on track. For instance, data from gross profitability tracking show if you're making profits or losses, guiding you on whether to go on with your marketing plan or change the goals.
Here are some benefits of using KPIs in your MSP business:
- Enhancing efficiency: KPIs help MSPs track service delivery and resource usage, exposing possible areas of improvement.
- Evaluating lead acquisition: These metrics allow you to quickly assess your lead acquisition and client retention strategies and determine what works best for you.
- Understanding revenue: Helps MSPs track their marketing streams and marketing strategies, enhancing the success of your business.
- Decision-making: MSP KPI metrics create a basis for insightful, data-driven decision-making.
- Promoting customer satisfaction: Using the right KPIs can help determine how well you met your client's expectations and areas requiring improvement.
Part 2 : Top MSP KPIs to Measure Performance
There are various categories of KPIs for MSPs, depending on the stage of your business. You can measure performance from onboarding clients to calculating revenue to evaluating security and compliance issues.
Some top MSP performance metrics KPIs include:
1Financial KPIs
To monitor the financial health of your MSP business and outperform your competitors, here are financial KPIs you can consider:
Cost of Goods Sold (COGS)
For MSPs, COGS refers to the total direct costs you incur when delivering a product or service. This includes the cost of staffing and paying licenses for various IT software.
COGS helps you evaluate whether your business is profitable or not. It involves tracking all expenses, including time spent on tech when delivering specific services, to ensure you make data-driven decisions and accurate MSP pricing strategies.
When calculating your COGS, handle each product or service individually to enhance accuracy. If the cost of delivering a product is too high, your business is set for a low-profit margin or even losses.
How to measure: To calculate COGS, add all service, material, delivery, and labor costs.
Monthly Recurring Revenue (MRR)
You'll need this KPI to determine whether your sales and marketing goals and client retention strategies are effective. Your MRR is the sum of predictable monthly revenues your business can expect from specific services and subscriptions.
MRR is like the revenue a subscription-based business generates within a given period. Think of it like the yield from a tech product launch—if your product has great adoption and retention, your income is sustainable, indicating a profitable venture.
Calculating an MRR is simply adding up recurring revenue from your various income streams. This could be from monthly subscription services, contract services, or renewals. By tracking these metrics, you can easily plan and forecast for your business, enhancing your financial health.
How to measure MRR: Sum up all recurring monthly payments from customers.
Average Revenue per User (ARPU)
Also known as average revenue per client, this KPI indicates the average revenue you generate from each client or service subscriber over a certain period. ARPU data helps you to differentiate ordinary high-ticket clients from average customers.
This way, you'll know if your pricing and client retention strategies are effective. Further, understanding your average revenue per user shows you areas for improvement for your business's future success.
How to measure your ARPU: To calculate the average revenue per user, divide your Monthly Recurring Revenue (MRR) by the number of clients, users, or subscribers.
Formula: (MRR/Number of users)
Gross Profit/Profitability Margin
This is another track metric every business should know. Gross profit margin is the percentage profit your business makes from various products and services after deducting the total cost incurred when delivering services.
In other words, a gross profit margin is the profit you retain after deducting direct service delivery costs. Assessing your gross profit margin ensures each product or service delivers expected profits.
Using this MSP performance metric, you can analyze the cost-effectiveness of your MSP services and make price adjustments appropriately. A healthy gross profitability margin indicates a sensible business model with an immense potential for growth and success.
How to measure: To determine the percentage gross profitability margin, subtract your COGS from total revenue, divide by the total revenue, and multiply by 100.
Formula: (Revenue - COGS) / Revenue x 100%
Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA)
EBITDA is a valuable benchmarking tool that is usable across various industries. It includes calculating a company's earnings before deducting interests, taxes, depreciation, and amortization.
This KPI metric offers profound insight into your business's operational profitability and is perfect for large MSP businesses. The data helps you know how your company compares to your competitors. Apart from monitoring profits, tracking EBITDA measures the efficiency of your business operations.
How to measure EBITDA: To find your EBITDA, subtract expenses (except interest, taxes, depreciation, and amortization) from total revenue.
Net Profit Margin (NPM)
Commonly referred to as 'bottom line,' the net profit margin is often a true reflection of your profitability. It is the after-tax profit you retain after deducting all operational costs and expenses of your business. What you make per every revenue dollar generated, after deducting taxes, is your net profit.
Net profit margins are calculated in percentages. For more accuracy, separate products or services and calculate the margin for each separately. This way, you can quickly notice weak areas requiring improvement.
A healthy net profit margin for MSPs ranges between 20% and 30%. Calculate your net profit margin regularly to know where your business stands.
How to measure: To calculate your net profit margin, subtract COGS and operating expenses from the revenue, divide by the total revenue, and multiply by 100.
Formula: NPM = (Revenue - COGS - Operating Expenses) / Revenue x 100%
Customer acquisition cost (CAC)
Acquiring a new lead or customer takes time, effort, and a budget. The customer acquisition cost is the average amount spent on marketing campaigns when searching for new leads.
How to measure: To get your CAC, divide the total amount you spent on marketing and lead nurturing by the total number of clients acquired within a certain period.
Formula: Total amount spent/Number of clients acquired = CAC
Product margin
Your product margin is the profit you generate after selling a product or service. For managed service providers, this is a crucial KPI as IT supports metrics that can tell you which profitable services to focus on, which aspects of your business you're spending too much on, and which products you should multiply.
Tracking your product margins helps you balance resource allocation and sales revenue. It clearly shows how much you spend on service or product creation, marketing, and sales. If a service has a small margin, you can abandon it to focus on high-margin ones or re-strategize your marketing goals.
How to calculate: Add up sales revenue and overall expenses (for a week, month, quarter, or year), subtract expenses from revenue, and divide the figure by the number of client accounts or units sold.
2Operational/Productivity KPIs
Service desk efficiency and productivity are crucial for the performance optimization of any MSP business. For effective service delivery, monitor these KPIs:
Average First Response Time
This is an important MSP KPI to assess how well your customer support teams perform. Clients hate waiting and can lose patience. This metric is the average time a customer waits before receiving a response from your team after contacting them with a concern—the shorter your response time, the better for your customers.
How to measure: To calculate the average first response time, add the total time over a certain period and divide by the number of tickets handled within the specific timeframe.
First Contact Resolution Rate (FCR)
What percentage of client issues does your customer support team resolve after a single inquiry? This is where tracking your first-contact resolution rate comes into play.
While clients appreciate speedy responses, they also love having their concerns resolved after the first contact and without subsequent follow-ups. Your team's ability to resolve queries once and for all shows efficiency. Additionally, monitoring FCR helps you determine specific areas of training and support for your tech teams.
How to measure: Sum up the number of issues solved after first contact and divide by the total issues received.
Aggregate Service Desk Productivity
Also known as aggregate service desk performance, it's an MSP KPI crucial for tracking employee productivity in your business. Your teams should focus on consistent, quality service delivery to reward your marketing efforts.
Service performance metrics provide insights about the type of incoming tickets, resolution time, and notable service desk trends. This KPI exposes your team's monthly performance, learning gaps, automation needs, and potential bottlenecks.
How to calculate: There's no specific formula for measuring aggregate service desk productivity. However, MSPs leverage technology and modern software to display data of certain services from your dashboard.
3Client-based KPIs
Here are some top client-based KPIs:
Customer Satisfaction Score (CSAT)
Making and keeping your customers happy is one of the key ingredients for a thriving MSP business. Your client satisfaction score gauges how satisfied your clients are with the goods or services you offer.
Client satisfaction boosts your customer retention rate, saving you from spending more money pursuing new leads. This KPI is a percentage between 0-100 per cent and depends on your client's answers.
Research your client's feedback using a Net Promoter Score (NPS) survey to assess the likelihood of the client recommending your services to others. For instance, a sample question would be "Rate your overall satisfaction with a specific product or service on a scale of 1-10."
How to measure: To calculate CSAT using NPS scores, divide the total survey score with possible points.
Formula: Total score of surveys/ Total possible points = NPS Score Survey Rating
Customer Churn Rate (CCR)
Customer retention is a critical factor contributing to your growth as an MSP. As per the Harvard Business Review, increasing retention rates by just 5% can boost profitability by 25% to 95%.
Unfortunately, businesses are still struggling to contain their customers' churn rates. Tracking your customers' churn or turnover rate helps you understand their satisfaction levels and overall contentment with your MSP services, hence lowering the rate.
How to measure: Add the number of customers at the beginning of a specific timeframe (day, week, month, or year), subtract the total customer number at the end of a certain period, and divide the figure you get by the total number of customers you had in the beginning.
Formula: Total customers at the beginning – Total customers at the end)/Total customers at beginning = CCR
Customer Retention Rate
Also commonly known as the 'service renewal rate,' this metric measures how many clients renew contracts. It helps you understand whether you're maintaining or losing clients often after their contracts lapse.
How to measure your customer retention rate: Take the number of renewed contracts and divide by the total contracts you had at the beginning of a week, month, or year. Then, multiply the resulting figure by 100.
4Security and Compliance MSP KPIs
Data and security breaches are increasingly becoming threats to any business. If you want to protect your MSP business and clients against this nightmare, focus on the metrics below:
Number of Security Breaches or Incidences
The number of security breaches or incidences means the measure of malicious, illegal, and unauthorized that may compromise the security of your data, servers, systems, and networks. Tracking this KPI ensures the timely identification of potential threats, allowing the application of suitable interventions to safeguard client private data and MSP business systems.
How to measure: Sum up the number of security breaches noted within a week, month, or year.
Approximate Time to Detect and Respond to Security Incidences
Speed is of the essence when dealing with security incidents. Monitoring the approximate time to detect and respond to security breaches ensures you resolve issues promptly to avoid escalation. The metric assesses the time taken from when a security incident occurs to its detection and, finally, when an MSP responds.
How to measure: To calculate the detection time, take the time the incident occurred and subtract the time an MSP detected the security breach. To determine the response time, take the time the incident occurred and subtract the resolving time.
While all the above KPIs are suitable for any business size, various metrics are more useful for startups than large MSPs. KPIs such as time taken to onboard new clients, number of clients successfully onboarded, and customer onboarding process satisfaction help startup MSPs acquire and retain new leads.
Large businesses require MSP performance metrics, which point more to weak areas of improvement and client retention. Unlike startups, such established MSP businesses track KPIs focusing on profitability, scalability, productivity, and client satisfaction, as listed above.
Conclusion
MSP performance metrics are critical to navigate the competitive tech market successfully. Like a ship at sea, you require a compass to guide you through the challenging business terrains. Reap the various benefits of monitoring performance by choosing the right KPIs to enhance performance and MSP success.
Hot FAQs about MSP KPI
Some standard KPI metrics for startups and large MSPs include:
- Monthly recurring revenue (MRR)
- Average first response time
- Aggregate service desk performance
- First contact resolution rate
- Client efficiency rate
- Customer lifetime value
- Product margin rate
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