What would your business be worth if you were no longer in charge? That’s a question many entrepreneurs fail to ask until they get close to retirement or simply need to cash out quickly. All too often they find the organization is far too dependent on their particular expertise or their hours of effort to be of value to prospective investors, or to a new owner with little to no experience. In some cases, clients put more value on their relationship with the owner than they do on his or her business. That’s common when consulting is a major part of the company’s revenue.
Few really care what drives sales during first couple of years of operations ─ as long as the cash flow is strong. After that, it’s time to start focusing more on building a perpetually valued business than relying as much on personal relationships. Those connections are always important to the organization, but clients have to become more reliant on your company’s services and support, as well as your team’s collaborative efforts, than they are on a particular individual.
That’s why IT services business owners have to distance themselves from the day to day operations as their organizations grow. They stay connected with clients, but their role in the relationship becomes more strategic as they support, not drive their team’s customer-related activities. If problems arise, they offer advice to help others work find solutions. Successful MSP business owners learn how to delegate. They put the right people in the right positions and give them the training and support required to execute to the highest degree.
The real trick is to identify what real success looks like. In order to do that, you have to have a solid understanding of the KPIs (key performance indicators) that align with your top business goals. Tracking those metrics closely helps you understand where your business is succeeding and where it needs work. That insight allows your team members to make more well-informed decisions. When you have the information they need to pinpoint potential problems and identify positive (or negative) trends, it gives everyone more time to affect the outcome.
IT service providers who track their company’s KPIs closely are also better prepared to tell their company’s story, to explain its strengths and value to prospective buyers. Of course, that tale has to be a positive one with the prospects of many new chapters.
The Metrics of a Good MSP Story
Many IT services entrepreneurs spend little or no time evaluating their business equity ─ unless forced to sell or they start preparing for retirement. They may know the common sales ratios for MSPs (typically based on annual revenue combined with other factors), but not the specifics that affect their own, particular situations.
Business owners should focus on high-level metrics such as sales and expenses, as well as customer satisfaction levels. Individual client stats are still crucial and should be reviewed periodically by the entire management team, but the daily analysis usually falls to department heads or group leaders in larger organizations. Owners should be focused on metrics such as:
- Net Promoter Score: on a scale from 0 to 10, how satisfied are your customers with your company’s services? This statistic helps MSPs identify potential issues and gauge future client retention rates. High net promoter scores can boost the value of your business
- Monthly Recurring Revenue (MRR): Divide the total number of customers served by the company’s total monthly income from recurring services. Consider this a long-term health check for MSPs, an estimate of the income the organization would bring in if its more cyclical projects and break-fix work were to slow or go away entirely. The more clients and services under contract, the more valuable the MSP business.
- Overall Revenue Growth: annual sales results are a crucial component of a business’ value, so steady increases are what may prospects look for. If those numbers are strong, without a significant rise in associated costs, it should be easier to command a higher premium when you sell.
This is, of course, just a small list of the KPIs an MSP business owner should be tracking on a regular basis (at least monthly, if not weekly). Most IT services PSA (professional services automation) platforms have customizable dashboards each team member can use to view metrics relevant to their particular role in the organization, from the founder to the new help desk technician.
Remember, the metrics tell only part of the story. You have to show prospective buyers that clients truly understand and value your business proposition. If customers work with your team mostly due to their personal relationship with you as the owner, the organization could be worth little if you were to leave. Most would be very reluctant to invest in a business if the owner was its biggest asset.
Value comes from your entire team’s ability to understand and address customers’ needs better than your competitors can. If they can develop solutions that forge close alliances with clients, your continued involvement will be no concern to prospective buyers. That’s what most IT services investors are looking for ─ and what they will be more willing to pay a premium price for. In the end, the metrics really do matter, as long as the results are driven by your team (not you alone).
Brian Sherman is Chief Content Officer at GetChanneled, a channel business development and marketing firm. He served previously as chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at [email protected]
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