By David Wilkeson, CEO, MSP Advisor
In a managed services operation, profitability hinges on how effective and repeatable your processes are. The best way to know that your processes are working is to use well designed key performance indicators (KPIs) to measure the outcomes of your processes. KPIs need to be the compass that you and your employees use to steer your business on a daily, monthly, and quarterly basis, which means they need to be constantly visible and up to date. Everyone in the organization needs to understand the KPIs they are responsible for, and indicators that are headed in the wrong direction need to be focused on early and often. Here are some universal indicators that every MSP operation should be closely monitoring:
Mean Time To Resolution (MTTR)
MTTR is the average amount of time it takes to resolve a managed issue. It should be broken down by the issue severity and the specific managed service offering, if you have more than one. Your professional services automation (PSA) application should readily report these numbers. The goal for your MTTR will vary by the product you are selling and the severity issue, so there is no magic target number. The key is to establish and achieve your target, and then monitor the trend, which should be relatively flat. If the MTTR begins to trend up, investigate and resolve the cause. Your client satisfaction numbers are surely trending down as your MTTR trends up.
Open Ticket Count
Your open ticket count trend is a good measure of the health of your MSP support operations, and is easily reported by PSA software. This number should also be broken down by the issue severity and the specific managed service offering. The maximum acceptable count will vary by the quantity of managed services products you are supporting and the number of support resources you have. Once you have established your maximums, your focus should be on the week to week trends. If the number is trending upwards, you have a problem in your support team.
Open/Closed Ticket Ratio
If you divide the number of tickets opened by the number tickets closed (as reported by your PSA), you get a significant ratio that is another good indicator of the health of your support team. While it is important to know what this number is on a daily basis, it is critical to know this number on a rolling weekly basis. If your rolling weekly ratio is consistently greater than 1, it indicates that you are either understaffed or have a significant problem within your support team or support process.
Labor Loaded Gross Margins (LLGM)
LLGM is typically calculated on a monthly basis by taking your MSP recurring revenue and subtracting the direct costs associated with your MSP labor and MSP operations like tools, licenses, and travel, then dividing by your MSP recurring revenue. Your goal should be an LLGM of 70 percent or greater. Lower LLGMs indicate problems with your managed services processes, labor costs that are too high, incorrectly priced managed services offerings, or (most likely) a combination of all three.
Effective Hourly Rate (EHR)
This value is calculated by taking the MSP recurring revenue for a particular client and dividing by the number of MSP hours used to support that client during the timeframe covered by the fee. This number is usually calculated on a monthly basis and the target is an EHR greater than $125 for every client. A single client with consistently low monthly EHRs indicates a poor fit with the managed service they have been sold. An occasional low monthly EHR for a single client is typical and to be expected. If the overall average of the EHRs of all your clients is low, it either indicates that your managed services pricing is too low or you have managed service process issues.
David Wilkeson is CEO of MSP Advisor, a consulting company focused on helping MSPs achieve operational excellence and a stronger balance sheet, with fewer headaches.