There is a lot to keep track of when managing your MSP. You need to make sure that your service offering is strong and that you are consistently meeting SLAs.
You also need to make sure that you make money on all those clients and that you have the funding you need to reinvest, grow the business, and train your staff. Again, having some quality MSP reporting at an organizational level will help you succeed.
There are several key reports for MSPs that every successful MSP business should be looking at and keeping track of:
- Monthly recurring revenue (MRR)
- Agreement profitability
They all provide critical data to help you manage the essential functions of your MSP. We'll touch on each.
Monthly recurring revenue
This is a key metric that helps you see the growth of your MSP. It can be interesting to look at your total MRR in comparison to other metrics like the number of supported seats and understand how much total monthly revenue, on average, is coming in for every supported user. This can also help you when planning budgets for other departments, salaries, and generally managing the expenses of the organization.
You would think that this would be on the very top of every business owner's mind, but all too often, MSP businesses that are started by engineers with a solutions mindset don't pay enough attention to profits. In a service business like an MSP, you should strive to have 30-50% profit or margin on every support contract. Keep a careful eye on your earnings as an organization; they help fuel the future. Here is the calculation for profit.
Profit = Revenue – Cost of goods/services sold (COGS)
Another important metric that is used to manage the helpdesk better is utilization. This gives you an idea of how efficiently you are operating as an organization. It not possible to have every technician at 100% utilization all the time. In fact, if you strive for that as an organization, you may find that you burn out quality technicians. If your techs are averaging 85% or more utilization, they're doing a good job.
Managers on the helpdesk can use this metric to incentivize staff to be efficient. You can also use it to root out those on the helpdesk that aren't pulling their weight. You can help put a plan in place to see improvement, and if that doesn't happen, you can use it to discipline where needed. Communicate clearly about your expectations with every new employee and train them on how to achieve their goals.
Utilization is calculated by taking the total amount of hours worked by a technician and dividing it by the number of hours applied to a ticket in your PSA.
This is a key metric to help you understand if you're keeping your promises to your clients. It can also be used to predict churn and help you know when you need to hire additional staff. Keep a close eye on your response times and do the calculations based on the data in your PSA to determine if your team is hitting SLA.
If you can see they are falling short and utilization is good, it's time to hire more staff. If utilization is poor, you need to train your staff and possibly replace the stinkers. When you boil things down, an MSP is a service organization that does IT. The experience you provide to your clients is paramount.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a great metric to give you an idea of the business's financial health overall. The very best MSPs in the business will make 19% or more EBITDA. If you're not there, get with your accountant to take a closer look at the financials and see what you can do to get things in line.
If you're not happy with your profitability and EBITDA numbers, you should dig in and look at each agreement. Some MSPs call this metric rate or effective rate. The idea is that you take the total amount of billings for this client and divide it by the hours spent to earn that money. This will give you clarity on which clients are either losing or not making you money.
Some consultants will tell you to slash your ten least profitable clients immediately. The idea is that this will free up resources for those that are more profitable and for new business.
Clients are so hard to come by in 2021 that you may want to see if you can find the root cause for the problem and discuss it with your client. Honest, open communication can allow you to either solve the problems that are making the agreement unprofitable or potentially raise your rates to where they are. Either way, this can be a win for your MSP.
There isn't anything sexy about reporting. It's not anybody's idea of a fun Saturday night. What is exciting is the impact that quality data can have on the profitability and ultimate success of your business. Take the time to dig into the numbers of your MSP, and you will find opportunities everywhere you look.