While many IT service providers use PSA (professional services automation) software to handle blocking and tackling functions such as service desk, project management, and CRM, these software tools also can provide valuable reporting data to manage your business and measure its operational efficiencies and performance.
Depending on the PSA you use, some reports may be standard, and already present in a report library, while others may need to be custom built, using the reporting engine. Here are 12 KPI reports the best MSPs use to build thriving recurring revenue businesses:
1. Revenue Sources
If you’re not tracking this metric you can easily fall into the trap of spending too much time on unprofitable clients and income streams and not enough time on more profitable ones. Tracking your revenue sources also helps with cash flow predictability and making your business better positioned for a higher cash valuation. To calculate this metric, divide the specific revenue source amount by your total revenue.
2. Business Offering Margins
This KPI helps MSPs identify the profitability of each product or service and can help guide decisions such as where to spend your marketing dollars. According to research from ConnectWise, MSPs should strive for 30%-plus margins on professional services, 40%-plus margins on third-party managed services offerings and 50%-plus margins on services.
3. Effective Rate Per Customer
Which of your customers has the highest per-hour value? With recurring revenue being a significant initiative for financial stability, it’s vital to optimize each customer’s revenue per hour for the services you’re providing. Knowing this information will give you the confidence to promote your best customers and to take appropriate actions (e.g., education, training, automation) for underperformers.
4. Effective Rate Per Offering
Service offerings are often initially based on assumptions and “gut feelings.” Once data is available; however, you can make fact-based decisions about which service offerings to prioritize, provide, or even remove from your catalog. This indicator also can reveal the effectiveness of product development and lead to better product management.
5. Customer Distribution
Resilience is essential to success in a changing industry. Having a sizable percentage of revenue segmented to a small number of customers puts your financial stability at risk. You need to prioritize which clients are most important to keep happy and be prepared to rebound quickly if any customers leave.
6. Labor Utilization
Are your employees being utilized properly throughout the workweek or is there an excessive amount of unbillable downtime? Labor hours comprise your top expense, so it makes sense that you should be tracking it to determine how much of your employees’ time spent at work is financially beneficial to your company. Industry averages for labor utilization are around 60% (calculated by dividing billable hours by total hours worked) whereas best in class MSPs achieve 80% and above, per ConnectWise’s research.
7. SLA Compliance
There’s nothing worse than guessing whether your customers are going to renew their managed services contracts. If you can show that you’re delivering the services, you promised at the start of the relationship you can eliminate a lot of guesswork. Plus, if you notice that your company is trending below 90% in meeting its service requirements, it serves as a warning that you need to identify the root causes and make immediate corrections before your customer brings the matter to your attention.
8. Percentage of Billable Hours
While every business has to spend money training employees and doing other non-billable activities, it’s important to keep these kinds of events in check. Another critical point to keep in mind here: Although you may be charging your customers a flat rate each month regardless of the services you’re providing, it’s important that your technicians are capturing all activities associated with fulfilling a contract as billable hours. As a guide, average billable hours out of total time is around 70% whereas best-in-class MSPs exceed 75% billable hours.
9. Tickets Per Customer
The number of tickets generated by a customer gives your potential cost of goods (COG) sold, including product and services. As the number of tickets increases, your potential revenue decreases. While many factors can affect ticket count goals, including size, field, maturity level, and territory, the goal is to keep them low. If any customer has a high ticket count, you should try to identify why and consider whether employee training or a technology review may be needed.
10. Tickets Per Service
With technology evolving so quickly, it’s possible to sell and implement a new offering before it’s been thoroughly vetted. A high number of service requests for that device should sound the warning bell that it may need to be removed from your offerings. These technologies should be discussed at the QBR (quarterly business review) with your customer, and a plan should be put in place to retire the legacy or problem technology. Other factors may be having an impact, including the number of devices affected, the complexity of the devices, and the tech savvy of the users. If these issues are discovered, they should also be discussed with customers during the QBR.
11. Average Resolution Time
Customers want their issues solved as quickly as possible. Any tickets that are perceived as taking too long to resolve can damage customer satisfaction ratings. Too many lingering tickets and unhappy customers is bad for business. Your goal should be minimizing resolution time. Remember, if the outcome is positive, there’s no such thing as having accomplished it too fast.
12. Satisfaction Rating
How happy are your customers with your service? Lots of MSPs base their answers to this question on informal feedback from one contact within a company. But, top performing MSPs formalize this process and solicit input from multiple decision makers and influencers within an organization. They track performance ratings, and they respond quickly to anything that hints at a customer not being happy (e.g., any grade below an “A”).
The KPIs listed above help illustrate not only the value of using a PSA to its full capacity but the value of running a metric-based business. The adage still stands: Only that which can be measured can be improved. The more aspects of your recurring revenue business you’re tracking will help you make adjustments along the way rather than merely reacting after something goes wrong such as a customer going away unexpectedly or finding you don’t have enough cash flow to cover payroll.
When you leave the world of break-fix behind, you want to leave behind all the stress and uncertainty that went with that business model, too.