The biggest problem for most MSPs is there are too many things to keep track of today, and it is easy in the midst of their chaotic weeks, especially during a pandemic, to let sales slip down a few notches on the priority list. Between various internet outages, system reboots, patch updates, and the other issues associated with running a small business, providers can have a hard time balancing it all. There are only so many hours in the day and never enough skilled staff to ease the load and lessen the chaos.
On the other side of the equation is revenue expansion; one of the most critical objectives for managed services firms. MSPs often push the sales process to secure new contracts and sell additional services to existing clients to meet revenue goals for the current month, quarter, or year. While periodic rate increases undoubtedly provide a cash boost, IT services firms must continually expand the customer base to replace natural churn and avoid overreliance on a handful of companies.
Thankfully, MSPs have access to tools and reports to help put everything in perspective and set their business priorities. Sales management systems designed specifically for IT services firms provide owners and leaders with more control and insight into their teams’ activities. MSPs can track and assess vital metrics and review account details for prospective clients with customizable reporting capabilities. That information not only aids management in planning new hires and resource procurement, but it enables team members so they can fine-tune strategies for closing new business.
Key sales metrics help MSPs assess and enhance those plans and provide the insight they may need to make tough decisions, such as walking away from unfavorable deals or holding firm on proposal negotiations. With so many unknowns in the current economic environment, those KPIs provide the information IT services companies need to sign profitable new clients.
Which sales metrics should MSPs be tracking? Here are some of the industry-specific KPIs that let IT owners benchmark their teams’ performance and identify potential improvement areas.
- Monthly Recurring Revenue (MRR) measures the total income generated from an MSP’s ongoing services. This number starts the monthly service charges for each client and subtracts the cost of hardware and one-time or infrequently billed deliverables. This metric measures the company’s financial health and value, a key indicator for suppliers, investors, and potential M&A partners.
- Inbound Lead Velocity is the growth percentage of vetted sales opportunities month over month. This KPI measures the high end of your company’s pipeline development, those with the greatest potential who are most likely to convert to actual customers. Calculate this metric by subtracting the number of qualified leads the previous month from the opportunities your team is working in the current month, then dividing by the number of qualified leads last month and multiplying by 100 to produce a percentage.
- Quote to Close is the percentage of customers team members meaningfully engage in discussions that end up signing a contract or making a purchase. This metric is measured by dividing the actual paying clients (or those who agree to a deal) by the number of prospects receiving quotes.
- Leads to Close Ratio measures the percentage of opportunities that the sales team converts to actual clients. The value of the lead and the salespeople's efforts can influence this number, so MSPs should regularly audit sales calls and work closely with marketing to validate the quality of their prospect lists and their people.
- Contract Profitability is, quite simply, the margin derived from each client agreement. This is a critical calculation for the sales team and tracking measure for MSP owners who need to ensure the revenue generated from a contract provides a good return on their investments.
- Client Lifetime Value allows providers to evaluate the worth of acquiring and retaining various customers. MSPs can use this KPI to assess the potential income from onboarding a new client, considering the cost of acquiring, onboarding, and retaining that business over the proposed contract's life. An elaborate formula involving sales, marketing, and support expenses, this metric also incorporates the cost of goods and services to be delivered and any revenue that will accrue during that period. Some MSPs use a five-year baseline to best approximate the long-term value of prospective clients.
- Revenue Growth Rate shows how well an MSP can increase its sales over a given period. This KPI is more useful if calculated more frequently, quarterly or monthly, so providers can identify and quickly address negative trends before they significantly affect operations and long-term cash flow.
- Average Deal Size is the amount of revenue generated from the typical sale. MSPs frequently use this metric to set sales projections based on the funnel's qualified leads and their standard win rates. Adding valued services and increasing rates should positively impact the average deal size – if those changes align with clients’ expectations and competitors' actions.
- Upsell Rate tracks the number of additional products, services, or support programs a team sells to existing clients beyond the initial commitment. MSPs often experience annual revenue increases from customers hiring additional workers (requiring more workstations, applications, and support). However, existing clients are usually more receptive to adopting new solutions and support options from people they know and trust, creating new opportunities for sales pros and account managers.
Metrics Must be a Continual Focus
How can MSPs best leverage the numbers in their business? Putting more focus on the sales metrics listed above can help providers boost deal size, lead conversion, and revenue growth? These stats are moving targets that provide MSPs with the insight needed to adjust sales plans and the lead generation process.
These metrics also allow providers to identify gaps in hiring training. MSPs need to stay on top of negative trends that can affect their MRR and profitability, from declining deal sizes and close rates to drops in inbound lead velocity.
Now is the perfect time for providers to put a greater focus on sales metrics. With industry benchmarking and sales automation tools like Zomentum to track activities and key indicators, MSPs can close more business in much less time.
Strengthen your sales intelligence and metric management today. Let the Zomentum team show you how at www.zomentum.com.