March 1, 2023
As the IT channel increasingly shifts towards cloud services, resellers, MSPs, agents, and channel partners must keep an eye on business metrics to ensure their operations are improving and revenue continues to grow. This can be a difficult task for even seasoned cloud providers, as there are a variety of factors involved in measuring the financial success of cloud services.
Different departments in your organization will have different Key Performance Indicators (KPIs) that you can track and report to management. Keeping an eye on KPIs is vital to adjust your operations and maximize profitability of your channel sales.
Collecting too much data can end up being a distraction. You still need to be able to digest and glean insights from your metrics. Choose three KPIs — five max — for each employee role and zero in on making meaningful adjustments as needed. Here are a few key KPIs to watch.
This is clearly a sales-focused category. How many new clients are being brought in? And maybe more importantly — are your existing clients adding additional resources and services?
This one is pretty obvious, but you should be tracking your opportunity:close ratio in your sales pipeline. If a lot of leads aren’t signing on the dotted line, it’s time to reevaluate your sales process or your sales team.
Many channel partners only spend a few percentage points out of their entire expenses on marketing. Successful sales-driven organizations often spend closer to 10 or even 15 percent. At the same time, you’ll want to compare the amount you are spending in marketing to the amount of leads that marketing is delivering to your sales people. This spend:funnel ratio is a great way to measure marketing effectiveness.
You should also track the revenue from marketing-sourced leads. As long as annual revenue attributable to marketing outweighs your spend, you’re on the right track.
Average Revenue Per User hinges on landing those longer-term contracts. Clients love the cloud because they can scale up and down, requesting resources at a moment’s notice. But that doesn’t always work for multi-year contracts. This KPI is focused on building long term relationships so your clients keep coming back for more.
Your C-Level and finance teams should also keep an eye on the profit per customer. There are different strategies: you could have a large customer roll each with a lower spend, or a small roll with higher spend. But profit or revenue per customer should ideally be growing alongside your business.
Many organizations shoot for less than 10% annual churn, or the rate at which customers cancel their services. At Green House Data, we aim for under 5%, and usually land under 2%. As you scale up, you’ll face a naturally higher churn rate. But focusing on customer satisfaction and service goes the furthest towards reducing churn. We’ll get to customer-facing metrics below.
You likely offer a variety of cloud services, from public cloud instances to private, fully managed clouds. Each managed service, IP address, bandwidth charge, virtual machine, disaster recovery deployment, and onsite visit comes with a different profit margin depending on how much employee time is spent, what kind of capital expense overhead is involved, and so forth.
One rule of thumb is that managed services should have a 40% return, project services should reach a 30% return, and cloud services should reach between 15 and 50 percent — a wide range, but one that depends on if you are a reseller or a cloud provider that must juggle more overhead.
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