Smart Goal Setting for Managed Service Providers

By Gaidar Magdanurov | 7 August 2024

MSP owners and managers, often being technical people, struggle with setting business goals for their MSPs. Quite frequently, the goal sounds like “grew revenue by X% next year,” which is fine, yet without a detailed model behind it, the goal is just a statement.

Designing business goals

Let’s build a simple model to explain the goal design process. Let’s assume we have an MSP with 50 customers; each customer, on average, pays $15,000 per year, resulting in $750,000 in revenue for the MSP.

If the business manager wants to grow revenue by 20%, they will need to collect $900,000, which is $150,000 more than in the previous year. There are two ways to do this at a high level: increase collection from existing customers or add new customers.

A new customer brings $15,000 per year, and the MSP, from experience, is confident it can acquire two new customers per quarter. To simplify the model, let’s assume the customers start paying from the beginning of the quarter.

Therefore, the revenue from the 8 new customers in the next year will be $75,000 (the first 2 will bring 15,000 each, the second 2 only ¾ of that and so on…).

So, we assume we will make $75,000 from those new customers and have $75,000 to make on the existing customer base.

There are a few ways to grow revenue from the existing customer base: renegotiate the prices (as MSP agreements are most likely to have a clause allowing for price increase), upsell additional services, or offer higher-tier packages of services.

Getting $75,000 from the existing customer base would be a 10% price increase, leading to $16,500 per customer per year. From the price increase, adding additional services, and increasing SLAs. We assume that all customers will stay with the MSP in this example.

Therefore, the business goals for the MSP business will look like:

  • 20% revenue growth in the next year
  • 2 new customers at an average contract value of $15,000 acquired per quarter
  • 10% average increase in revenue per existing customer

Cascading the business goals to the organization

For the MSP technician, the goal of growing revenue by 20% makes very little sense. They don’t operate in terms of revenues. Their influence on business results comes from their day-to-day jobs, and their goals should be focused on supporting growth.

Let’s create a simplified model to estimate the team of technicians needed to support the business's growth.

Say we have 5 technicians who spend 20 hours a week each handling tickets from the existing customers, spending an average of  2 hours per customer. Assuming a similar workload, an additional 8 customers will require 16 hours per week. One way to handle the extra time is to recruit one more technician or reduce the time per customer to 1.7 hours a week.

The time spent on customers is determined by the number of incoming tickets and the time spent per ticket. For this simple example, let's say that a ticket takes 0.2 hours on average, and each customer generates 10 tickets per week.

Ticket volume may be reduced by increasing the reliability of the infrastructure, introducing new software packages, and implementing self-service capabilities like the ability to recover files and folders from the back to avoid contacting the MSP.

The time required to handle a ticket may be reduced by implementing an integrated tech stack, reducing the number of consoles to use.

Thus, the goals for the technicians can be to reduce the volume of tickets to 8 per customer per week or reduce the time of processing a ticket to 0.17 hours. Quite often, MSP managers choose to use the combination. Moreover, a reduction in ticket processing time can be connected to the price increase for the existing customers, given that they are receiving better SLAs, or it can be connected to the upselling of more expensive packages with additional tools to reduce ticket volume.

Therefore, the goals for the technical team can be:

  • 20% reduction in the number of incoming tickets
  • 15% reduction in the time spent per ticket

Discussion

The example above is simplified yet describes a fundamental principle. Setting the goals around improving the work that the team is doing focuses the team on finding solutions to improve while providing them guidance in terms they understand.

There is no guarantee that all targets will be achieved; therefore, a combination of targets should allow the final goal to be achieved—like reducing ticket volume and processing time per ticket.

Using the sports analogy, winning teams behave like winning teams. They don’t have goals defined for winning every competition; they have goals to show their top performance. They may lose certain games, yet they will ultimately achieve top results while working on their performance.

The same applies to MSPs. They may not be able to acquire as many customers as they planned or upsell to as many customers as they want, yet due to their higher operational efficiency, they will have the capacity to do so, and over time, that capacity can be used to achieve faster growth.