KPIs: Monitoring VAR business metrics for a better bottom line

Find out how your peers are monitoring their VAR business metrics, identifying trends and making operational changes to improve the bottom line.

Monitoring business metrics can help channel partners improve their operations, but many companies find the multi-faceted task a difficult pursuit.

Resellers, systems integrators and managed services providers (MSPs) interested in keeping the business score must identify the appropriate key performance indicators (KPIs), which will vary by department and job category. They also need automated tools for collecting performance data and displaying KPIs for management review. Finally, the solution provider or VAR business needs to interpret the data, cull out the actionable insights and make appropriate adjustments.

Lawrence Cobrin, director at MSP CFO, an Englewood, N.J., financial services management firm that specializes in MSPs and VARs, said that an interest in metrics comes naturally to service providers.

"They have a dashboard they use to manage client systems and want a dashboard to manage their own businesses," he said. "That is the easy part. The hard part is to effect change based on KPIs."

The channel, for the most part, has stumbled when it comes to business metrics, industry executives say.

"Organizations that have concentrated on this are ... getting better and improving," said Dave Sobel, director of partner community at Level Platforms Inc., an Ottawa, Ontario-based company that makes remote monitoring and management (RMM) software for MSPs. "But as a whole, the industry isn't getting better."

Sobel cited time -- or the lack thereof -- as the primary obstacle to getting a grip on KPIs.

"Most solutions providers are small to mid-sized organizations and they are pulled in so many different ways," noted Sobel, who was previously CEO of Evolve Technologies, an IT management company. "They are ... struggling to figure that all out."

Channel companies that have stepped up to the VAR business metrics challenge find the process valuable.

J. Michael Drake, chairman and CEO of masterIT, an IT services provider based in Memphis, Tenn., said tracking KPIs provides "real-time information to make decisions from, rather than looking in the rear view mirror at the end of the month or quarter."

What to track?

Industry executives said channel companies should focus on a handful of KPIs.

"A lot of people want to look at a ton of metrics," Sobel said. "They want to look at as many things as possible. That is good, in theory, but it can quickly become data overload."

Steps for using VAR business metrics to improve your bottom line

1. ID three to five key performance indicators (KPIs) to be tracked for each employee role.
2. Implement automated tools to collect data and present to company management.
3. Interpret data from the KPIs.
4. Take action based on data from the KPIs.

Sobel said the most successful companies limit the scope to small sets of KPIs -- with, ideally, three to five in each set -- that are applied to individuals with different roles in the organization. A VAR business owner/CEO, for example, might focus on the profitability of individual customers, while a service manager tracks team utilization and service-level agreement (SLA) delivery numbers.

Drake noted that masterIT tracks metrics and KPIs by department: centralized services, network administration, remote end-user help desk, on-site end-user help desk, technology consulting, inside sales, outsides sales and finance.

"We use a dashboard approach, and each department reviews [its] KPIs on a daily/weekly basis," Drake explained.

As for specific KPIs, MSP CFO's Cobrin suggests companies consider such measures as client effective rate (CER), which provides a revenue-per-hour number. An MSP would divide a customer's monthly subscription fee by the number of hours devoted to a particular customer to arrive at that figure.

Cobrin, meanwhile, pointed to client contribution as a useful measure for channel partners with multiple lines of business. A reseller may offer a mix of hardware, maintenance, project services and managed services. Client contribution tracks the revenue generated by each business line at each customer account. It also takes cost per business line into account. The approach provides a more holistic view of the business with interesting findings. A company may identify itself as an MSP, for example, but may pull in significant project revenue each month.

"People are very focused on the managed services side of it," Cobrin said. "They should be focused on how much money they are earning off the client."

Corinne Sklar, chief marketing officer at Bluewolf Inc., a cloud-oriented business consulting firm based in New York, said the company concentrates on its Net Promoter Score (NPS), among other metrics. A company compiles an NPS score by asking its customers how likely they would be to recommend the company to others. NPS, developed by Satmetrix, Bain & Company and business strategist Fred Reichheld, rates customers as promoters, passives and detractors. The result is taken as a measure of company performance.

Channel companies also study customer metrics as an extension of their in-house measures.

"A lot of the time, we really tie back our metrics to our clients," Sklar said.

On large engagements, Bluewolf meets with the client to identify five to 10 KPIs and holds back a certain percentage of its billing until those metrics are met, Sklar noted. The idea, she said, is to encourage the customer to focus on business metrics, as opposed to core IT metrics. For example, a customer may say it wants a 360-degree view of its customers, which Sklar said is more of an IT-driven metric. The same customer, however, could focus on improving cross selling and up selling as an outcome-oriented business metric.

"Business metrics drive profit and growth -- IT metrics are just a means to the end," Sklar explained. "Forward-thinking CIOs are focused on showing their impact on growth and profit, not just efficiencies and 'keeping the lights on.' By aligning to business metrics, they show the deeper value of how IT is driving innovation in the organization."

Other channel firms emphasize technical metrics. Unified Office Inc., a Portsmouth, N.H., company that provides small and medium-size businesses with a business communications managed service, provides one such example. In offering business-class VoIP, Unified Office pays close attention to jitter and latency, the latter in terms of both the IP traffic plane and SIP trunking providers, noted Ray Pasquale, CEO and founder of Unified Office.

He said Unified Office tracks 35 to 40 different KPIs.

Tools and interpretations

The object of selecting and tracking KPIs is to identify trends and react accordingly. When monitoring CER, for instance, an MSP may discover, among other things, that larger clients generate lower revenue per hour than smaller customers. Cobrin said that is often the case, because larger clients can negotiate better rates on a per-user basis than their smaller counterparts. In response, an MSP may increase customer training or perform technology upgrades to reduce the amount of time engineers spend with customers.

An efficient, up-to-date network will result in fewer customer calls to engineers. In contrast, a network in which older technologies fail to integrate effectively with more current hardware and software will result in higher support costs, noted Michael Kraner, director at MSP CFO. Making sure a customer's hardware and software is under warranty can also help improve revenue per hour.

But before a reseller or MSP can glean those kinds of insights, it must have mechanisms in place to collect and analyze KPI data. Professional services automation (PSA) software often plays a role here. Kraner said using a PSA tool is critical for tracking a channel organization's business by revenue stream and understanding the contribution margin per client.

"It all begins with working with a PSA tool and integrating the tool into an accounting package," Kraner said.

PSA provides a central hub for collecting metrics, which would otherwise be scattered across various business systems. The tools also offer dashboards that graphically display the KPIs a company wishes to track. But to get the most out of the tools, channel partners must understand the software and, critically, how to interpret the data.

Channel companies can look to vendor partners of specialized consultants for help in understanding KPIs. Level Platform's channel program offers MSPs education around KPIs, Sobel said. And MSP CFO serves as a financial coach to help its service provider clients interpret their KPIs.

"Many MSPs are run by very talented engineers, but they are not necessarily CFOs," Kraner said. "We help them analyze their numbers."

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