“ Taking a metrics-based approach to running your MSP business can help you avoid surprises and make better decisions about your service offerings , your clients , and your staff to drive both revenue and profits .”
1 . Annual Revenue Growth ( YoY %)
Tracking revenue growth seems straightforward , but Farr says the vast majority of MSPs don ’ t know this number . “ If I ask them , they ’ ll say , ‘ I don ’ t know . It was maybe 10 %.’” He attributes some of the uncertainty to the recurring revenue model . “ We tend to ride bad months or bad quarters or just don ’ t push . And I think that ’ s one of the reasons that the growth is lower ,” Farr says .
Farr recommends measuring your revenue growth monthly .
Your Goal : 20 % or better “ Really well run MSPs will grow 30 %,” he notes . 2 . Recurring Revenue % ( MRR / ARR )
Industry opinion varies on what the ideal split is for MRR vs . projects / product sales , Farr acknowledges . However , he recommends 85 % MRR / 15 % projects because that level of MRR is more predictable and puts less stress on your business . Plus , he adds , in general , “ MSPs are not very good at projects . I would much rather include some of those projects in my recurring revenue . And instead of trying to sell gear like firewalls and things like that , I would rather rent those to [ customers ]. And all of that ’ s going to help bring up your recurring revenue percentage comparatively .”
Your Goal : 70 % MRR / 30 % projects ( 50 % MRR minimum )
3 . Gross Margin ( Gross Profit )
Gross margin is a multifaceted metric , and Farr recommends drilling down into the percentage for each category : Service , product , sales , marketing admin , and overall gross margin will all differ . For example , your margin on service will be higher than what you get for products . Your PSA can aggregate this data and calculate your margins . If you ’ re not hitting your targeted percentages , you need to make adjustments .
“ There ’ s tons and tons of factors that go into gross profit , and that ’ s both a good thing and a bad thing ,” Farr says . “ The good part is [ there ’ s ] lots of ways to find where you ’ re bleeding out — death by a thousand cuts . But the bad part is it ’ s also an easy way for them to get caught up in the minutia . In the end , you need to be hitting the top number .”
Your Goal : Overall Gross Profit of 50 % 4 . EBITDA
Farr likes to boil down EBITDA ( earnings before interest , taxes , depreciation , and amortization ) to net operating income ( NOI ), basically your net profit . “ All the [ factors ] there that go into true EBITDA , for most MSPs , it ’ s not relevant and they don ’ t have any control over it . For instance , they can ’ t change their tax rates . So the only things you can control are gross profit and net profit . That ’ s where they need to stay focused .”
Your Goal : NOI of 20 % plus 5 . Customer Satisfaction
There are a variety of tools that measure customer satisfaction ( CSAT ), but Farr recommends keeping it simple with green / yellow / red indicators for help desk tasks and tickets . “ The key is , if you make it simple for the customer , they ’ ll actually do it ,” he says .
Farr also uses net promoter score ( NPS ), a more complicated assessment and “ something you do more with the ownership or leadership of your customer , and it ’ s less frequent ,” often done as part of a QBR .
Your Goal : CSAT 98 %+; NPS 80 ( 50 minimum )
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