You may know of the following standard managed IT services metrics:
- Recurring Revenue Rate (R3)
- Average Revenue Per User (ARPU)
- Cost of Goods and Services Sold (COGS)
- Gross Profitability
If you're one of our blog regulars, you know we stress making data-driven business decisions, and regularly tracking key performance indicators (KPIs). But if you're like many MSPs, you're either neglecting to nurture your client relationships or failing to recognize when they turn sour. No, by this, I don't mean clients that flood your inbox with hate mail.
Either way, if you're letting the following health metrics escape your radar, you could be missing key opportunities to maximize service delivery and strengthen relationships with the right clients...
Notice how I said the "right" clients. Just like you have to be the right fit for customers, customers have to be the right fit for you. What many MSPs and IT service providers get wrong, a SNAFU in and of itself, is that not every client is a profitable client.
Related: Are Your Clients Costing You Money?
Sometimes you have to ask yourself...
What Am I Getting Out of This Relationship?
The more customers, the better - right? Wrong! This can be hard for many MSPs to accept, but that extra revenue doesn't come without its healthy share of costs. It's your job to determine whether the benefits exceed these. When judging the sustainability of your client relationships, make sure you keep these two metrics in mind.
Client Contribution (CC):
This number will tell you how valuable each of your clients are to your managed IT services practice. Can you afford to provide some clients the latest and greatest offerings if they bill you into the red?
= Revenue per Customer - Cost of Goods and Services Sold to That Customer
Client Effective Rate (CER):
Ever find yourself thinking "there aren't enough hours in the day"...every hour of the day? You have limited time and resources, and you can't divide them equally amongst clients. You have to prioritize your most profitable clients first.
Unfortunately, some of you make the mistake of letting clients tap you for additional services without additional compensation. It can't be all give and no take Like many other MSPs, you might not be aware of how many hours you spend devoted to clients that are actually breaking the bank.
With CER, you can measure how many of your hours are spent in support for a given client. Are you paying more for this support than that client is in receiving it?
= Monthly Billling per Customer / Number of Hours Spent Supporting That Customer
Keep Reading or Click Here to Download MSP Guide to Managed Services SLAs
Do My Clients Feel the Love?
Like any other relationship, your Partnership with clients takes work. If you expect to generate future business through positive referrals you better hope you're tracking whether your clients' needs are met.
Net Promoter Score (NPS)
NPS indicates how likely a client is to actively recommend your services to peers. Measured on a scale from 0 to 10 (0 being not likely at all, and 10 being extremely likely), this customer satisfaction KPI also reflects degree of customer loyalty. To calculate, survey clients and categorize participants as either promoters (those who give you 9 or 10), passives (those who give you 7 or 8), or detractors (those who give you 6 or below). Then, find your score by calculating:
= (% of Promoters) - (% of Detractors)
Score positively, and you may have the ability to upsell clients on a new product. Score negatively, and you could be facing client churn.
Client Churn Rate
I'm sure you're familiar with the concept of losing business, but are you tracking this figure over time? It's an important one when you consider that managed services follows a subscription-based business model.
= Customers That Rescind / Total Customer Base
If you're client churn rate is steadily increasing, this could mean you should keep a closer watch on your competitors. Additionally, a high rate could suggest overall customer disatisfaction. Either way, actively monitor this KPI to ensure your business stays in sound financial standing.
These are just 4 of several KPIs that MSPs should be measuring, but they highlight the need to constantly check up on the health of your client relationships. Not all customers are profitable, and unless you're leveraging outside help desk support, you don't have the staff, time, or budget to cater to clients that cost you more than they bill. At the same time, you and your MSP peers have to meet clients halfway in order to have a true Partnership. Can you expect customers to generate new business for you by being being a brand champion and recommending your services? Are you retaining the right clients through your unparalleled customer service? If not, track your client churn rate over time so you can take proactive measures to enhance your service delivery.
By Carlos Borges
By Ray Vrabel