WAYNE HUNTER is an admitted “propeller head” who happens to be good with numbers, something he has focused on since starting his business in 2004. “Every year, every quarter, every month, I'm looking at something and trying to figure out, how do I improve on what I'm doing?” explains the president and CEO of AvTek Solutions, an MSP in Allen, Texas. “Customers change, markets change, business changes, and if you don't know how to recognize it, then you're going to get left behind.”
Hunter is somewhat of an anomaly, according to Rex Frank, vice president of Academy for Pax8 and formerly head of MSP coaching firm Sea-Level Operations, which Pax8 acquired. “It's disappointing how low the number is of the companies that do know their numbers,” he says.
Yet the ability to understand key performance indicators that show if prices, payroll, profits, and more are where they should be is critical to not only staying in business but growing.
Knowing your numbers and monitoring them regularly serves two key purposes, says Allen Edwards, president of Eureka Process, an MSP consulting firm. First, metrics enable you to make data-based decisions. “You think things are going a certain way and it's not always the reality the numbers speak,” he notes. The second factor is psychological. “That which gets measured and reported on gets improved exponentially,” he says, adding that once MSPs start diving into the numbers “that is usually when things begin to take off.”
He cautions, though, that while KPIs and other metrics are key to growth, a number measures a process. If your numbers are not providing an accurate picture of your company’s health, it’s because there is no clearly defined process for your team to follow. That’s the reason your data “is crap,” he says. Once you define your processes and everyone in the company is aligned and clear on what’s important, your numbers will start to improve even before you set targets, he says.
High-Margin Financial KPIs
What revenue and profit metrics should you track, particularly if your MSP is just starting to focus on the numbers or you want to dial up growth? The three most critical are gross profit margin, net profit, and breakeven, according to Rayanne Buchianico, owner of ABC Solutions, an accounting, tax, and Autotask consulting firm in Clearwater, Fla.
“By determining your breakeven sales number, it allows you to set a monthly target of how much you need to sell in order to start making a profit,” she says. To determine your breakeven point, she explains, start with your fixed expenses. For example, say it costs $45,000 a month to keep the lights on, including rent, utilities, payroll, etc. Next, say your gross profit margin is 50%. If your margin is 50%, and your fixed expenses are $45,000, you need to have $90,000 in monthly revenue to cover your 50% gross margin and your $45,000 in fixed expenses, she explains. That’s your breakeven. Every dollar above $90,000 is net profit.