Key performance indicators (KPIs) for MSPs help you evaluate your service quality and operational efficiency and create benchmarks against which to improve. There are KPIs you can use to measure different aspects of the business, including financial health, productivity, efficiency, customer satisfaction, SLA compliance, sales and marketing performance, and security.
Leveraging KPIs for enhanced business success requires choosing a few to focus on at the outset, creating benchmarks, and setting goals. All of your team members need to be clearly informed about your KPIs for the best results.
Managed service providers must measure and monitor their financial health regularly because an unprofitable business can't survive. The following are some key financial KPIs to track.
The cost of goods sold metric tells you how much your product and service delivery costs your company. Add up your labor, material, and delivery costs for each product and service individually to find out how much they cost you to offer.
Your monthly recurring revenue is how much revenue you earn each month from subscription services. This figure will help you plan your monthly recurring costs. To calculate your MRR, add up your recurring client payments for the current month.
This metric tells you how much you make from each client (on average). Divide your total MRR by the number of subscribers to find your ARPU.
The client contribution is what each client adds to your MSP’s gross profit margin (on average). Subtract your per-customer COGS from your ARPU to find your client contribution. It's helpful to consider product sales and service revenue and costs separately.
This KPI tells you how much you earn per hour spent with each customer and hence which clients are more (and less) lucrative. Divide the fees you receive from each client by the number of hours you dedicate to those clients.
Your customer acquisition cost (CAC) is the average cost of acquiring a new customer. To calculate your CAC, divide the total amount spent on sales and marketing for a given period by the number of new clients acquired in the same period.
Your customer lifetime value is how much revenue you receive over the lifetime of each customer. You can find your CLV by multiplying the average monthly recurring revenue per customer by your average contract length (in months).
Your EBITDA is a useful tool for benchmarking because it is used across businesses and industries. To find your EBITDA, subtract all of your business expenses from your total revenue except for interest, taxes, depreciation, and amortization.
Tip: Find your net operating income by subtracting interest, taxes, depreciation, and amortization from your EBITDA.
Your gross profit margin is the profit you make on your product and service offerings, expressed as a percentage. This metric only considers the direct costs of product and service delivery. The formula for calculating gross margin is:
(Revenue - COGS) / Revenue x 100%
A healthy gross profit margin in the managed services industry is 50% or higher. Calculate your gross margin for product sales and service offerings separately.
Tip: If your gross margin is lower than you would like it to be, make a quick and easy gain by implementing Thread. MSPs can achieve an average 21% gross margin improvement by integrating our AI-supported communication and workflow solutions.
Thread achieves this margin improvement by adding capacity to the MSP’s service team and helping you retain managed customers without needing to grow the team. This improves the Service Multiple of Wages metric (see KPI #11). A 21% improvement in gross margin is a significant amount of money that you could be reinvesting in your business!
Your net profit margin is the profit your MSP makes once operating expenses are taken into account. The formula for calculating net margin is:
(Revenue - COGS - Operating Expenses) / Revenue x 100%
A healthy net profit margin for an MSP is 20-30%. Again, calculate your net margin for product sales and service offerings separately so that you can more accurately pinpoint areas for improvement.
The service multiple of wages measures how many times more you are making in revenue from your service offering than you are investing in labor to offer that service. The formula is:
Service Multiple of Wages = Total Service Revenue / Total Taxable Service Wages
Productivity is key to financial sustainability as a managed service provider. Use the following KPIs to measure the productivity of your team.
This KPI tells you what your team is achieving each month and helps you identify bottlenecks, training needs, and automation opportunities. Use your dashboard to aggregate data such as the number of tickets closed and time spent on non-billable tasks (such as administration, training, and meetings) and monitor changes in these figures over time.
This KPI tells you how many opened tickets each technician has pending at the end of each day. Add up the number of opened and closed tickets for the day and subtract the number of closed tickets from the number of opened tickets to find the difference.
The following KPIs provide insights into your MSP's operational efficiency and potential areas for improvement.
This metric tells you the average time it takes your technical support staff to respond to a new ticket. To find the average first response time, add up the total response time for a specific period and divide this figure by the number of new tickets for the same period.
This KPI tells you the average time it takes to resolve a ticket. To calculate the average resolution time, add up the total resolution time for all tickets in a specific timeframe and divide this number by the number of tickets closed in the same timeframe.
This metric tells you the rate of tickets that are resolved on the first contact. To find this value, divide the number of tickets resolved on the first contact by the total number of tickets received in the same period. Multiply this figure by 100 to see it expressed as a percentage.
This KPI tells you the rate of tickets that are resolved at the first level of technical support, without needing to be escalated. Divide the number of tickets that are resolved at the first level by the total number of tickets received in the same period. Multiply this by 100 to see the rate as a percentage.
The resource utilization rate tells you how much of your agents' and software's capacity is being used. This is especially valuable because it tells you if you can increase your revenue without increasing your costs (and by how much).
To find your resource utilization rate, divide the total number of utilized hours (or software users) for a given period by the total number of available hours (or potential software users) for the same period. Then multiply that number by 100.
This metric tells you the extent to which your team is complying with each service level agreement. Divide the number of tickets that meet the SLA criteria by the total number of tickets completed for each client. Then multiply the result by 100%.
Employee satisfaction is important to measure (or at least gauge) because happy employees are more productive and perform better.
It's possible to have your employees answer the same survey questions regularly for comparable results. However, it's usually most effective simply to ask for feedback on the things that are and aren't working well and invite suggestions for improvement.
Client satisfaction is key to ongoing revenue and growth through word-of-mouth advertising. The following KPIs allow MSPs to measure customer satisfaction and hence your company’s customer service quality.
The customer satisfaction score measures how satisfied each client is with your products and services. It is expressed as a percentage between 0% and 100% and is calculated based on the client’s answer to the question (or a variation of): “On a scale of 1 to 5, how would you rate your overall satisfaction with the [product or service] you received?”
This score provides an indication of how easy or difficult it is for a client to get an issue resolved, on a five-point scale of “very easy” to “very difficult.” A 2010 CEB study found that customer effort can better predict loyalty than the Net Promoter Score, showing just how critical this metric is.
The net promoter score (NPS) survey allows you to measure how likely your current clients are to recommend your services to a colleague or friend, on a scale from 0 to 10. Divide the total survey score by the total number of possible points to find your overall net promoter score.
The service renewal rate measures the percentage of your clients who renew their contracts. Divide the number of renewed contracts by the total number of contracts at the beginning of the same period and multiply the result by 100.
This measures the opposite of the previous KPI: the rate at which you are losing (rather than retaining) customers. Divide the number of lost customers by the total number of customers at the beginning of the same period (multiplied by 100) to find the customer churn rate.
Client referrals are the most cost-effective form of marketing and show you that your current customers are satisfied with your service quality. Referred customers also buy more and bring in more new customers than customers who join through other channels, according to research from Harvard Business Review. To see how your MSP is performing in this area, add up the number of client referrals over a given period and compare this to comparable periods before and after.
There are various KPIs MSPs can track to measure the performance of their sales and marketing efforts. The following are some of the most common.
The quote-to-close rate tells you the percentage of quotes prepared that result in new clients. This figure can help you identify issues with the sales process. To find the quote-to-close ratio, divide the number of new clients for a given period by the total number of quotes prepared in the same period. Multiply the result by 100 to find the rate expressed as a percentage.
This metric is similar to the quote-to-close rate except that it considers the number of clicks on the call to action (CTA) on your website instead of the number of quotes. You will need to use a plugin to obtain accurate click data. Then, divide the number of website conversions for a given period by the total number of clicks on your CTA during that same period. Multiply the result by 100 to see the rate expressed as a percentage.
Security KPIs show you how well your team is preventing and dealing with security issues. This is important for helping your clients understand the value and importance of your services (as well as calculate the ROI of partnering with your MSP).
You can measure your security performance by tracking:
Add up the total number of security incidents over a given period and compare it to the number of incidents during comparable periods before and after.
Add up the time taken to detect and respond to security incidents and divide the total by the number of security incidents that occurred in the same period.
Tracking KPIs requires an investment of time (and hence money), so it's essential to use them strategically.
The managed service provider metrics provided above are examples of KPIs you can use to measure and improve your MSP's performance. To take a metaphor from archery, you can't hit a target unless you can see where it is, and that's why KPIs are so powerful for helping businesses grow and improve.
While there are endless possibilities as far as metrics you can track, it's most effective to choose a few strategic KPIs, establish benchmarks, and set SMART goals for each KPI selected. Clear communication and regular reviews should then lead to measurable improvements that make a real difference for your MSP.
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