Alright, bring it in. We're kicking off the managed IT services season with Continuum Coach's Corner, a new educational video series designed to teach MSPs the business strategies and best practices needed to succeed in the ever-changing IT world. Huddle up with host, Coach Raymond Vrabel, Director of Technical Account Management at Continuum, as he maps out play-by-plays to increase your revenue and profitability. In this first episode, Coach Ray walks through key performance indicators (KPIs) you should be tracking.
In today’s increasingly data-driven business landscape, everything is measurable. Businesses with a strong analytics program in place have a competitive advantage over those that do not because they are able to monitor what does and doesn't work and make adjustments to plays as necessary. So what are you waiting for?? Watch our whiteboard walkthrough to stay ahead of the competition, determine your KPIs and plan out the next steps to take to grow your MSP business!
Below you'll find a still of today's whiteboard with a transcription of the lesson:
Hi. My name's Raymond Vrabel director of technical account management here at Continuum, and I want to talk to you today about KPIs you should be tracking. We'll start with the importance of effective analytics.
In today's increasingly data driven business landscape, everything is measurable. Businesses with a strong analytics program in place have a significant advantage over those who don't. If you aren't able to track the success and performance of various aspects of your business, how can you identify what's working and what's not?
The first question is, what should you measure. Understanding which metrics and key performance indicators that are most important to your business is critical to the success of any analytics initiative. Don't try to measure too many areas at one time. Focus on maybe five or six key areas.
Nevertheless, remember, measuring your KPIs is just the start of the process. To gain any benefit, you'll need to act on what you find. This is the first Coach's Corner in a series designed to provide MSPs and IT solution providers with a general overview of the KPIs they should focus on when implementing or refining an analytics strategy.
So let's start by talking about revenue and profitability KPIs. Understanding where your profit is being generated, which of your customers provide the greatest value, and how much it costs to actually deliver products and services are all essential considerations when trying to maximize your profitability. The first of these is R3, or recurring revenue rate.
This represents the value a business is generating through subscription services, renewals, and recurring contracted services. To get this calculation, we simply take the sum of all recurring payments collected divided by the revenue within that current month.
Another key performance indicator is average revenue per user, or ARPU. ARPU is a measurement of the average revenue generated by each user or subscriber of any given service. This provides your company a granular view at a per user or unit basis that allows you to track the revenue sources and growth. It reflects the average amount of sales a company generates per subscriber or unit in any given time period. This is usually done over the course of a month.
The ARPU provides an idea of how much the business brings in per customer. The higher this figure is, the better for the company. Let's take a look at an example.
To get this calculation, simply take the total revenue and divide it by the total number of subscribers. Step one, determine the total gross revenue for the period based on the sales records. So let's say, for example, the company generates $18,750 in revenue in one month for that customer.
Step two, you really want to determine the number of total users for that time period. So for this exercise, we'll use an average of 125 users.
Step three, divide that $18,750 in revenue by the number of users. We used 125. That brings us to an average revenue per user of $150. This average revenue per user figure may also help you determine a per user price if you were considering that type of pricing model.
Finally, we have cost of goods and services sold, or COGS. It can be difficult to estimate in a service business, so make sure you're tracking your technician's time very closely so you can be more accurate in your COGS calculations. There are a few professional service automation tools, or PSAs, that are available in the marketplace that can help you improve the visibility into the true cost of your client services.
COGS is the total cost of producing and delivering products and services. This includes things like labor, material, service, and delivery expenses. This number can also influence pricing strategies.
Every business is unique, so it's important for you to consider every aspect of what goes into the cost of delivering goods and services to your clients. To get this calculation, simply take your labor cost plus your material cost plus your service and delivery cost. So we talked about a few KPIs, but there are many more, such as customer satisfaction, profitability by customer, profitability by contract or even service, billable resource utilization, SLA performance, and even opportunity pipeline. KPIs and metrics benchmarking are integral to ensure your business maintains profitability and competitiveness in your market.
Thank you for tuning in to Continuum Coach's Corner. If you have any tips or KPIs to share, be sure to log on to Collaborate, which is our online community, and share them with your peers. Also be sure to subscribe to our blog to stay up to date with the latest business practices and find new ways to help you improve your business.
We'll see you next time. Thanks for tuning in.
Looking for more business best practices guidance?
By Carlos Borges
By Ray Vrabel