When you evaluate the health and success of your business, there are several KPIs to measure. Are you tracking your tech utilization? Are you evaluating your overhead costs? Are you leveraging automation as much as possible?
While these metrics are important ways to measure business success, there may be one area you overlook: your customers. Are you able to determine which of your customers deliver the most value to your business?
Here are a few ways you can determine who brings you the most value—and why that’s so important.
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Determining the Effective Rate Per Customer
When evaluating your overall profitability, it’s not only important to know the monthly recurring revenue (MRR) you earn from your customers, but also which customers deliver the highest per-hour value. This is the effective rate per customer and is determined by calculating the total revenue you receive from each customer, divided by the hours your team spends delivering services for them.
For example, if your company receives $10,000 from XYZ Company and your technicians log 100 hours supporting them, the effective rate for XYZ Company is $100 per hour.
Tip: While the calculation is fairly simple to execute, it’s only made easier when you leverage a tool like a PSA that allows you to capture all billable hours against your clients easily. Ensuring you have all the hours captured in a central location will provide an accurate read of effective rate.
Risks of Not Knowing Your Effective Rates
By determining your customer effective rate, you’ll be able to see whether the revenue for your services is maximized, as well as help you determine which customers are cutting into your profitability. Would you want to be paid $100 per hour for one customer but $200 per hour from another customer?
By calculating this rate, you’ll have an idea of which customers are bringing in healthy revenue, and which customers may be draining your team’s time and resources. Because your team’s time is finite, you want to promote and maintain clients who deliver a higher effective rate.
In addition to continuing to cut into your margins, by not knowing your customer effective rate, you could end up making the problem worse by continuing to work with customers that drain your resources. Plus, you may be wasting valuable sales and marketing time if you are selling to the wrong customer (such as industry, niche, or size). By not knowing where you stand with your customers on this key performance metric, you may be missing opportunities to go after more profitable clients.
How to Address Effective Rates with Clients
Ideally, you’d want to perform this calculation prior to any quarterly or annual business reviews you may have with clients so you understand how many hours your techs spend on each client—and whether it’s a profitable situation for your team.
After determining your clients’ effective rate, you may realize some clients are not as profitable as you once thought—or worse, may be costing you money. Before addressing this with your clients, ensure you analyze if there are ways to increase efficiency to reduce the amount of time your techs are spending on their business.
- Can you increase automation so your techs save time performing repetitive tasks such as opening tickets, assigning company information, assigning contact information, searching for configurations, etc.?
- Does your team need additional training to help solve technical problems?
- Are tickets being escalated properly when needed? Are your lower tier techs spending too much time trying to solve a ticket that should be reserved for a more experienced technician or a development team?
During your quarterly or annual business reviews, spend time getting to know your customer better, understand their business goals for the upcoming quarter or year, and determine whether the technology stack they have will meet their needs. This is also a great time for you to address the number of issues your team has resolved, general service-level agreement (SLA) adherence, the average resolution time for tickets that appear, and more.
If you have determined their effective rate is low, you can propose ways to increase the overall effectiveness—without letting them know they aren’t what you consider profitable. You can start by proposing the ideas listed above as a way to increase their customer effectiveness rate. If after a period of time the effectiveness is not improving, you can use this as a time to determine whether a rate increase may be necessary.
When analyzing the top metrics for business success, customer effectiveness rate is just one of many KPIs you should track. Not sure what others you should be measuring? Download our eBook to better understand the KPIs top MSPs use to measure their success.
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