Metrics for Managed Service Providers

In a famous experiment, people are asked to slow down or speed up their heart rate using breathing techniques, and those who are provided with real-time data on their heart rate can do it much easier than those who have to rely only on their feelings. To understand, control and improve anything, we need to be able to measure it first. We can effectively influence what we can measure. Yet, many smaller MSP businesses have very few metrics defined and measured.

In this post, I will list metrics many successful MSPs find useful, grouping them into three categories — operational, technology, and financial.

Operational metrics

This group of metrics is helpful to understand the capacity and performance of an MSP business and forecast the ability of the team to handle more workload as the business grows, with reasonable degradation of the quality of the services.

• Ticket volume. Data measured and reported per time and per client. It is important to monitor trends in the volume as those can indicate degradation of the IT infrastructure or the impact of mismanaged updates and patches. Volume per client and trends per client allow MSPs to understand if there are specific customers experiencing a high volume of issues. Client ticket volume can also help to identify the non-profitable customers that may have to be discontinued.
• Response time. Average time to respond to a ticket and comments from the customers. In practice, quite frequently, this is the most impactful metric for the customer’s perception of the service quality. For larger MSPs with a variety of customers and types of tickets, it may be sensible to measure ticket response time based on the severity of the issue, or priority of the customer, frequently defined by the contractual SLA on the response and resolution.
• Resolution time. Average time to resolve the issue since it was reported. Issues should be grouped in similar types and severity to make sense of the metric.
• Service Level Agreement violations. The measure of how many times SLAs on response time and resolution time were violated. It is important to measure the metric by customer and technician to understand the risks for customer churn and technician performance degradation.
• Customer Satisfaction. Few MSPs focus on measuring satisfaction now; however, surveys started to be implemented more often in recent years after the ticket is closed, and technicians are offered bonuses based on the trends of improving customer satisfaction.

Technology metrics

This group of metrics is useful to evaluate the performance of the technology stack and infrastructure, spot degradation before it becomes an issue, and analyze the impact of the implementation of new tools on the overall performance.

• Uptime. Uptime of servers and applications critical for MSP and the customers. Incidents, patches and maintenance impact the uptime. The decline in uptime metrics may indicate that technicians have to spend more time on maintenance, and it is time to upgrade the infrastructure and consider implementing new tools or automation.
• Update success rate. This metric serves as an early indication of the potential volume of tickets related to updates of operating systems, applications and MSP tools. Failed updates lead to security vulnerabilities, ticket volume, and additional maintenance time.
• Backup success rate. Monitoring the frequency and success rates of backups is extremely important, as there is nothing more disappointing than discovering an unusable backup after a major incident at a client’s site.
• Security incidents frequency. It is important to track all types of incidents, including false positives. A growing number of security incidents may indicate the need to review the security architecture and implement additional measures. Growing false positives that usually annoy customers and technicians indicate that it may be time to consider switching to another security vendor.
• Automation coverage. Share the scenarios covered with scripts and automation. More sophisticated MSPs measure the number of steps required and time required per technician for routine tasks; however, even simply assessing how many of the usual scenarios are automated and making automation a priority leads to significant long-term improvements in the MSP efficiency and capacity.

Financial metrics

Operational and technology metrics are directly connected to efficiency and influence most of the financial metrics. Yet, it is important for a successful business to monitor and optimize the metrics related to customer acquisition and retention besides looking only at the revenue and expenses.

• Revenue. It is important to measure revenue per client and trends over time and understand the structure of both revenue and expenses. Revenue from long-term and short-term contracts, revenue from on-time jobs, revenue from direct customers and from sub-contracts. Knowing the structure allows MSPs to understand and forecast their income.
• Expenses. Expenses per employee, expenses per client, technology expenses per vendor, one-time payments, short-term and long-term agreements, and lease payments. All of it is important to understand the cash flow and avoid getting into a situation when an MSP has to pay expenses now while revenues from the customers are coming in the future, leading to business loans and paying interest on the loans.
• Recurrent revenue (monthly — MRR or annual — ARR). Recurrent revenue is so important that I put it as a separate line here. Recurrent revenue comes from long-term contracts and is committed by the customers. Recurrent one-time jobs for customers, even if those are coming in steadily, are not recurrent revenue and can be tricky for long-term planning.
• Customer lifetime value (LTV). For MSPs that have been in business for multiple years, it makes sense to track the average time customers spend with the MSP and the average value they bring per year to understand the value of each new client MSP acquires.
• Customer acquisition cost (CAC). Understanding the sales and marketing costs required to acquire a new customer is crucial to drive business growth. Knowing the LTV and cash flow of the business, MSPs can estimate the amount of money they can invest in sales and marketing. Calculating CAC per the activity, MSPs do to acquire customers — offline and online events, digital ads, marketing agencies, offline ads — helps guide marketing efforts and focus on the channels that deliver profitable customer acquisition.
• Sales cycle length. The time it takes to sign up a new customer since the beginning of the negotiations allows MSPs to predict how quickly the business can generate revenue from sales and marketing activities. It is extremely important for MSPs with low margins to know how quickly they can replace a customer after losing one.
• Customer churn. How frequently and quickly customers churn is important to predict the revenues and plan sales and marketing activities.
• Employee churn cost. The metric is sensible for larger MSPs, yet many don’t pay enough attention to it. Knowing the cost of recruiting and replacing an employee allows one to make business decisions when the competition or corporations are pouching employees. For smaller businesses, some owners try to retain everybody, while others look only at the average cost of the employees. Yet, the cynical view of comparing the employees’ compensation to the market and the costs of recruitment and onboarding to the expense of retaining employees makes business decisions easier.

Of course, this is not the comprehensive list of metrics for the MSPs, yet it may be a good start for an MSP owner just starting up the business or for MSPs who are looking into optimizing the efficiency of operations.

There are many MSP businesses whose owners want to exit the business by selling their MSP to a larger competitor or private equity. The acquirers will be interested in metrics, and having current numbers and historical data may be extremely helpful to increase the value of the business.