Selecting the right key performance indicators to measure can go a long way towards providing your managed IT services firm with the correct metrics to track your financial data.
KPIs are essential statistics or measurements that can help you identify, track, and analyze the success and potential expansion of your business and allow you to make better, more intelligent, more informed, and strategic business decisions.
1. Cost per ticket
Your cost per ticket is an indicator of how efficient your service is.
A higher cost per ticket usually correlates with increased customer satisfaction. One of the keys to managing cost per ticket is to resolve each of your tickets as soon as possible and to avoid unnecessary support-tier escalation.
2. Total recurring revenue growth rate
Revenue is an important metric, and as a managed service provider, you want to focus on the core revenue generator of your business.
Total recurring revenue growth rate = [(Current year’s total recurring managed service revenue - previous year’s total recurring managed service revenue) / previous year’s total recurring managed service revenue] * 100
Looking at your monthly recurring revenue, which excludes one-time transaction revenues which are unpredictable, will show your company's growth rate for recurring revenue from one year to the next.
3. Recurring revenue growth rate (Top-line growth rate)
Your recurring revenue growth rate, also known as top-line growth rate, is an indicator of your total recurring growth in one year. In contrast to the total recurring revenue growth, the top-line recurring revenue growth focuses exclusively on new recurring revenue that was signed in a given year.
Top-line recurring revenue growth is valuable because it indicates the market’s current propensity to buy, the effectiveness of your sales team, and the perceived value of your offering.
This KPI focuses mainly on current revenue, so you can use this metric to measure the efficiency of your sales team, the market's willingness to purchase, and the value of the services you are providing. A major red flag is a low growth rate or a major negative fluctuation in top-line recurring revenue growth year-over-year. Such a trend indicates a significant problem you need to address, such as inadequate sales skills or offers in the market.
4. Recurring revenue retention rate
The recurring revenue retention rate is simply the amount of recurring revenue from the previous year that you were able to carry forward into the current year.
It is crucial to track this in order to measure brand performance level. A low retention rate means that you are not carrying forward a sufficient amount of recurring revenue from the previous year, and your business needs to address its customer service levels and work towards creating a more loyal following of clients.
5. Gross margin
Gross margin is often used to gauge profitability in the tech industry.
However, it may not be the best metric to evaluate the profitability of a Managed Service organization because they tend to rely heavily on indirect expenses like sales and marketing, R&D, and depreciation expenses. Despite this, many tech investors will still want to know your gross margin figure.
6. Net operating margin
Net operating income takes into account the indirect expenses and is a more accurate gauge of your business's profitability.
Compared to Gross Margin, this metric is more balanced, which helps measure the firm's profitability rate. The Net Operating Income refers to the metrics account (bottom line only) of the company's indirect and direct expenses.
In the context of managed services, a lot of indirect operating costs are necessary. They include Research and Development (R&D), General and Administrative (G&A), Sales, and Depreciation and Amortizations. Therefore, managing these departments incurs extra expenses, and this falls within the net operating income measurement.
Tracking these KPIs will give you significant insight into your Managed Services business's financial health. They will help you determine how well your business is performing and can help you identify areas in which you can improve.