Bottoms up to Revenue Growth
MSPs have a reputation for being great at technology but not so good at sales and marketing. Sometimes, that reputation it is well deserved. Far too often, MSPs take a “top down” planning approach where they set an arbitrary revenue goal, but don’t understand the leading metrics required for achievement. A “bottoms up” plan lays out key performance indicators that are measurable and actionable, and become the roadmap to success. Here’s a recommendation around four metrics that are critical to your business plan.
1. Number of Leads per Month
Let’s start by defining a lead: a good reason to contact a customer. Leads are often generated from marketing activities such as social media, events or trade shows. But they can also be generated from data-driven business intelligence campaigns to narrow down your customer focus based on specific criteria and delivering custom content to engage them in a potential sales opportunity. The important part is getting all stakeholders aligned on the lead goals and actions to turn these into opportunities. Measure this metric monthly and adjust your actions to stay on track.
2. Lead Conversion Rate
This metric determines the quality of the leads and measures how many convert into pipeline opportunities. If you’re not sure of your conversion rate, set a goal of 15 percent and track progress over time. Add more activities that produce higher conversion rates and replace the ones that fall short. The number of pipeline opportunities produced per month becomes a lag indicator based on the first two metrics. You can’t change the number of opportunities without changing the number of leads or the lead conversion rate.
3. Win Rate
Win rate is the percentage of opportunities that close as a win and measures the quality of your sales organization (assuming your product is relevant). If you’re unsure of your win rate, set a goal of 33 percent, which is typical in a successful sales organization. The best way to impact your win rate is to use a CRM system to track the reasons customers did or did not make a purchase and provide the right training to your sales team improve results. As with the number of opportunities, the number of wins becomes a lag indicator since you can’t impact this result without addressing your win rate.
4. Average Monthly Deal Value
This metric will help you forecast your revenue when used in conjunction with your win rate and number of wins. Set a goal based on either your past history or target customer profile, depending on the maturity of your product.
Here is an example of a simple planning tool that can be used to implement this methodology (email me at firstname.lastname@example.org for a copy of the full planning tool):
- Make changes to the blue shaded boxes (“lead indicators”) to impact the model (“lag indicators”).
- Track results each month and make it the topic of discussion in your weekly execution meetings.
- Do your best to stay on track to the lead indicators by taking appropriate actions, but adjust the model going forward based on actual results as required. (You may have set the bar too high or too low.)
Revenue growth is the lifeblood of a successful MSP, so build and execute your plan. Bottoms up!
Jason Bystrak is the vice president of worldwide channels and distribution at Axcient/eFolder. In this role, he is responsible for managing and executing the company’s channel strategy, identifying and cultivating technology alliance partnerships, and enhancing and evangelizing partner programs. Prior to joining Axcient/eFolder in 2018, Bystrak spent over two decades at Ingram Micro, and was a founding executive within their global Cloud business unit.