What gets measured gets managed.
You could be making a hundred million in revenue. But if you don’t know what worked, what didn’t, where you shine, and where you lack, you’re probably shooting in the dark.
How do you know if it’s time to stop that high lead generating but low converting campaign? How do you know if you’re burning more than you earn?
Metrics are the moment of truth. They are your ideas tested against reality. They are the necessary evil.
I didn’t mean to sound like some character from a Zack Snyder warfare movie, but let’s face it - I would’ve lost half of you if I’d said anything on the lines of business analytics or data or statistics. Time to get real here. Metrics basically show you where you are, where you want to be, and how to get there. Some metrics are more sought after, like revenue earned and recurring revenue. The sexy metrics, if you will.
Some are often overlooked, like client concentration, or customers retained vs. customers lost. You know, the unsexy ones people often overlook when compared to the dollars-and-cents metrics one loves to flaunt in business meetings.
Speaking of which, here are some overlooked MSP metrics you should be tracking right now.
1. Net new business
Net new business estimates the difference between revenue gained from new customers and the revenue lost from churned ones. Oftentimes businesses tend to focus on reeling in as many new customers as possible rather than nurturing the existing ones. They don’t know how much money they’re leaving on the table with their “fast sales” strategy. They pressurize their salespeople to seek and close new customers to keep the cash flow steady.
While finding new customers is imperative to business growth, putting a premium on net new business will tell you if your product has what it takes to make the customers stick. Are your customers churning at the same rate you’re gaining new customers? Boy, are you in for some reality check! This is a sign your salespeople are probably overselling or you are not focusing on relationship building as much as you are focusing on closing new customers.
2. Client concentration
Client concentration measures how your revenue is distributed across your customer base. If a sizable percentage of a company’s revenue relies on a single customer or a small pool of customers, then the company has a higher level of client concentration.
You are said to be at the risk of too much client concentration if more than 10% of your revenue comes from a single client. Big money’s coming; everyone’s happy. What can be bad?
If the major source of your revenue is one customer, and if the customer chooses to leave you, you will lose the revenue, and probably your business along with it. Do everything you can to retain the client. Maintain a strong relationship. But never let a single or a concentrated pool of clients monopolize your business success.
There’s also such a thing as industry concentration — which you’re at the risk of if more than 25% of your revenue relies on a single industry. Say if your business relied on the hospitality industry before the pandemic, the situation could have gotten dire.
Simply put, don’t put all your eggs in one basket. Diversify your customer base, your niche, your product offerings.
3. Cash conversion cycle
The cash conversion cycle is the amount of time it takes a company to convert its investments in inventory to cash. In other words, the ratio of cash on resources to cash on hand.
If both are not balanced, then your company could face a liquidity crunch where too much cash is tied to production and not enough on hand to meet short-term liabilities.
The same thing happened with Wise Acre Frozen Treats, an organic popsicle business when it went from contracting a 3,000 sq. ft. manufacturing facility to going bankrupt in less than a year. They achieved business success, but unfortunately, before they had the money to sustain the success.
The cash conversion cycle helps you understand if you have a steady cash flow to keep your business afloat.
4. Reactive hours per endpoint managed
Reactive hours per endpoint managed (RHEM) is the number of reactive or ad-hoc issues your technicians resolve out of the total number of endpoints you manage.
Most managed service businesses have a generally reactive approach where their technicians are forever “reacting” to issues and never getting ahead, especially if the business has come from a break-fix background.
The old adage “if it ain’t broke, don’t fix it” may be true in break-fix — but not in managed services — where succeeding is all about getting ahead of things, and not subjecting yourself to the whims of the present.
Understanding RHEM means you understand how much time as a business you spend on low-impact troubleshooting as opposed to high-impact service delivery. And how you can improve in the direction you want to.
5. Invoicing accuracy
Mathematically, invoicing accuracy as a metric is the percentage of invoices sent to your clients that are error-free.
The Credit Research Foundation suggests that 61% of late payments are due to incorrect invoicing. That’s a huge number, especially for small and medium businesses. Undercharge your customers and you’re losing money. Overcharge them, and you’re losing your credibility. And invoicing errors extend beyond that.
You may be incorrectly recording the time spent on projects because you can’t remember, you may not be penalizing late payment, or you may even be forgetting to send invoices. Measuring invoicing accuracy will help you reduce causes of error and gradually move towards error-free invoices.
You can achieve zero error invoicing with diligent tracking, and a cloud-based invoicing model in place where you can automate payment management and set up alerts when your invoices move through the payment cycle.
Measure what matters to you
Metrics help you gauge what has worked for you in the past and predict possible future scenarios. But again, there are hundreds of metrics out there, all made up to be equally important. Focusing on so many metrics at once can result in information fatigue.
So, measure only what matters — with the thumb rule that the best data is one that is understandable, accessible, actionable — and matters to your business right now.