Essential sales metrics and KPIs for MSPs
We live in a digital era where everything is quantifiable. Therefore, it's imperative for MSPs to keep track of various business metrics, such as revenue, marketing ROI, and customer satisfaction, to make more informed decisions and lead the business on the path to success.
To ensure that your business is going in the right direction and the money you're investing in different areas of your business is being utilized properly, you should track a few essential metrics and KPIs.
While there are hundreds of metrics and KPIs, you don't really need to track all of them. Pick and choose the metrics that are relevant to your business vertical and management style. The metrics and KPIs listed below are absolutely crucial for all MSPs to track.
1. Monthly recurring revenue (MRR)
This is the most important metric for MSPs, as it reflects the health of the business. This is the expected revenue that stems from recurring services each month. Most successful MSPs make money this way. You can also calculate the average MRR and minimum MRR to find out if additional effort is required by sales and marketing.
2. First-time appointments (FTAs)
This is the number of first sales calls made by an MSP as a first step towards revenue generation.
3. Time to close
This is basically the time taken to close a deal. It's calculated from the time a proposal is submitted to a prospect to when the deal is closed. This key metric can tell you a lot about the effectiveness of your proposals and pricing, as well as the typical buying cycle in an industry.
This metric also helps you determine when you should start looking for other clients in order to drive consistent revenue growth.
4. Close ratio
This is the percentage of FTAs that lead to landing a new customer. The close ratio is determined by looking at the value proposition, quality of leads, and the effectiveness of the sales process.
Close ratio = FTA rate / Number of customers
5. Cost per lead
You should look at this metric to find out whether the platforms you're using are viable and able to generate enough leads. The cost per lead can also be used to assess whether you're charging enough.
Cost per lead = Total marketing spend / Total new leads
6. Average deal size
This metric helps you find the average price of the contracts closed in a given period. Average deal size also gives you insights on the type of prospects that deliver the highest revenue for your business.
For instance, if the average deal size of contracts for cloud services overtakes the overall average deal size, then you can focus more on cloud services to drive consistent growth of revenue.
7. All-in seat price (AISP)
This is the cost per seat (user) that you charge clients. It's a great metric to keep track of, because it tells you whether you're charging enough.
AISP = Monthly recurring revenue / Total seats supported
8. Client effective rate (CER)
This metric helps you find out how much money you make on the basis of time spent providing services to clients. This basically gives the revenue per hour for a client.
CER = Fixed monthly charges / Hours spent provisioning services for that client
9. Cost of goods sold (COGS)
This includes the material, human resource, and service and delivery expenses you incur. COGS is one of the key metrics that influences pricing, and it provides crucial insights on service delivery cost.
10. Earning before interest, taxes, depreciation, and amortization (EBITDA)
This metric indicates how profitable your company is and its financial health. It's a key metric to track in case you're looking to sell your MSP operation. MSPs with a good MRR and other positive aspects of their business can get more than 10 times their EBITDA when they sell their company.