As service providers seek to institute the optimizations, initiatives, programs and services that improve the fortunes of their businesses, a critical question arises: How do you know if the changes being made are yielding the dividends desired?
Ongoing measurement and analysis of the right key performance indicators (KPIs) is a critical way to gain an objective understanding of what’s happening in the business and how to improve performance. However, identifying the right KPIs for your organization isn’t that straightforward. The reality is that there are a lot of measures to consider, and no single metric or set of metrics is going to be right for every service provider.
With that said, following are some key strategic considerations that cut across all organizations and KPIs:
- Consistency. On a consistent basis, whether daily, weekly, monthly or quarterly depending on the metric, service providers need to be gathering performance data and continue to do so over time. It is only by gathering this multi-interval data that managers can start to spot trends and truly understand the trajectory of the business.
- Communication. The best KPI tracking is meaningless unless it is communicated to the right audiences. Both with customers and among internal teams, KPI reporting needs to be useful, relevant, consistent and timely.
- Actionable. KPIs need to help identify problems and strengths and inform actions that can improve performance.
Types of KPIs
KPIs fall into several key areas: service delivery, financial, sales and customer satisfaction. Following is an overview of each area, and some specific KPIs within these categories:
- Service delivery KPIs. In tracking service delivery KPIs, a good rule of thumb is to use metrics that meet the Information Technology Infrastructure Library (ITIL) definition of “SMART”: specific, measurable, achievable, relevant and timely. Often, optimal service delivery KPIs will be based on the service level targets set in your service level agreements (SLAs), which helps ensure you’re looking at a measure that’s relevant to you and customers. These KPIs are instrumental in helping your service delivery team ensure they’re providing effective services, and they offer a solid basis for communicating performance to customers. There are many metrics in this area to consider, including infrastructure capacity utilization, availability rates, SLAs and days of project backlog.
- Financial KPIs. Clearly, financial KPIs represent a vital indicator of a service provider’s health. In this area, monthly recurring revenue represents one very common and strategic measurement. Building monthly recurring revenue is one of the significant advantages of moving to a managed services model; with each new contract signed, the amount of predictable, ongoing revenue increases. Rather than billings contracted, this KPI should track the sum of revenues actually received. Other important financial KPIs include earnings before interest, taxes, depreciation and amortization (EBITDA); non-recurring revenue; average revenue per user; gross profitability and cost of goods and services sold.
- Sales KPIs. In the service provider industry, profitability is predicated on the continual and increasing flow of revenue coming from new sales. To ensure your business is doing what it takes to increase new sales, it is important to track sales activity, including the number of sales leads, meetings and deals closed on a monthly and quarterly basis. While it isn’t a trivial effort to track this activity, this can be a fruitful effort in identifying what’s working and what isn’t within the sales organization, and ultimately altering approaches and behavior in order to boost productivity in the future. In addition, customer retention and renewal ratios are another important KPI. This KPI is a percentage based on the number of accounts with contracts expiring during a given period and the number of accounts lost.
- Customer satisfaction. Customer satisfaction is critical for any business, and is a vital KPI for the service provider to track. Unlike a lot of other KPIs, which are more objective in nature, when it comes to customer satisfaction, the only thing that matters is the customer’s perception of your business and its services. Consequently, it’s critical to do surveys on a consistent basis to track how customers feel about your company. Tracking perceptions of customers is critical in identifying potential problems—before you lose the customer. If you’re only tracking churn rates, you’re only finding out about problems when it’s too late; once the customer leaves, there’s not much you can do to get them back.
Taking the time to identify an organization’s most important KPIs, and tracking those KPIs consistently, is a critical success factor for every service provider. While some metrics, such as system availability or infrastructure utilization, will only be relevant to specific types of service providers, other metrics, particularly cost of goods sold, gross profitability and EBITDA will be relevant to all businesses. For complete information on tracking the right KPIs for your business, be sure to download our white paper, entitled “Key Performance Indicators: Establishing the Metrics that Guide Success” http://www.ca.com/us/~/media/Files/whitepapers/key-performance-indicators.pdf
This guest blog comes from The CA Service Provider Center of Excellence. The CA Service Provider Center of Excellence delivers the proven strategies and insightful resources that can help your business boost its efficiency, profitability and maturity. No matter where your service provider business is in its evolution, count on the Center of Excellence to provide the guidance you need to more fully leverage your technologies and investments, optimize your operations, enhance your go-to-market capabilities and scale intelligently. To access CA Service Provider Center of Excellence resources please visit http://www.mspzone.com