Our house is old, and not in the historical way. We are upgrading the structure, but it’s going to be a long process. In addition, the lack of good soil forced us to install a complete mini sewer plant in our side yard—changing the use (and value) of almost 1/3 of our property. The county assessment documents failed to note those distinctions, essentially comparing our home with a new build on a pristine lot. We love our house, but the market value wouldn’t come within $50,000 of their figures. So we used the metrics we had available (comparable real estate prices, value-restricting attributes, and local trends) to successfully dispute the assessment. In effect, we bench-marked our home with the greater community to accomplish our goal.
Our experience serves as a great lesson for solution providers, who need to assess the “true value” of their business on a fairly regular basis, and compare them with the industry to achieve their long-term objectives. Of course, evaluating a VAR or MSP business every 10 years just doesn’t make sense, so many employ an ongoing assessment process and review the metrics frequently. That’s especially important if executives leverage the value of the organization to secure credit or obtain certain contracts (government or financial industries, for example).
Having real-time access to the company’s latest financial and service metrics is critical, and benchmarking those figures with the industry allows an owner or manager to focus on the areas that need the most attention. A weekly review of the business’ KPIs (key performance indicators) and trends can be enlightening, helping a solution provider identify potential problems and make quick course corrections—and hopefully preventing major issues from occurring.
KPIs can cover a number of areas of a solution provider’s business, including:
- Services
- SLA compliance-includes a variety of measures
- Call resolution rates
- Bench utilization
- Customer satisfaction
- Client renewal rates
- Cancellations rates (by service)
- Sales/Marketing
- Sales call metrics
- Lead close rates
- Financials
- Cash management
- Cost of goods sold
- Return on investment
The individual business metrics are important, but benchmarking to industry or smaller peer communities is more essential. It’s the best way to measure the organization’s true performance and it allows the management team to identify the areas that need the most improvement. Understanding the company’s financial and service metrics is crucial to keeping the business profitable, but the recipe for real growth includes the benchmarking process. The CompTIA Financial Dashboard by Corelytics is one of the tools solution providers can use to measure their performance, with benchmarking and collaborative group options available to help the company maximize their fiscal condition.
Of course, to actually be of any value, comparisons have to be between companies with similar business models and of comparable size and sales. Consider two businesses with $1 million in annual revenue: one an MSP with a low cost-of-goods-sold, and the other a traditional VAR with significantly more expenses and more overhead. Other factors may play a part in valuation as well, including vertical market and technology specialties, and location. VARs in some regions have a tougher time recruiting good technicians and often pay more for labor than their peers in other areas. Service pricing also can vary significantly in different locations and markets. These are all factors in benchmarking, so use caution when selecting an organization or tool that provides these metrics and support services.
When MSPs compare their operational results with those of their peers (typically in confidential, membership required communities) it highlights where real improvements can be made. For example, a solution provider may be ecstatic with a 20-percent margin on managed services contracts, only to find (through benchmarking) that the industry norm is 25 percent. If company executives want to go from “good to great,” they need to start comparing their results with peer organizations…and embrace the most successful industry best practices in their growth plans.
Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and industry alliances director with Autotask. Contact Brian at Bsherman@techsuccesscommunications.com.
