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In this final installment of our series on “Top MSP KPIs You Should be Tracking,” we focus on the metrics crucial for creating a robust and effective sales and marketing strategy. For MSPs who want to gain a better understanding of customer acquisition dynamics, evaluate the efficiency of sales tactics, or identify the right time to part ways with a customer, these KPIs are essential to have in your reporting toolkit.
Sales and Marketing KPIs for MSPs: Why It Matters
Tracking sales and marketing KPIs for MSPs is helpful in gauging how your operation is performing, but more than that, it’s also about strategically steering your business toward greater efficiency and profitability. In a landscape as competitive as this, these metrics are critical in highlighting strengths, pinpointing areas of improvement, and helping to forecast future growth. Ultimately, they allow you to make informed decisions based on data, ensuring that every marketing dollar spent is an investment toward your company’s success.
Let’s dive in!
Table of Contents
- Total cost of sales and marketing
- Number of appointments set (first-time appointments)
- Cost per lead
- Lead-to-opportunity rate
- Close ratio
- Customer acquisition cost (CAC)
- Client lifetime value (CLV)
- Minimum client MRR
- Average deal size
- Upsell rate
1. Total Cost of Sales and Marketing
Definition: The sum of sales and marketing expenses over a time period.
Why it matters: Understanding the combined expenses of your sales and marketing efforts is critical to evaluating the ROI of these activities and whether adjustments are necessary to optimize expenditure.
How to calculate: Sum the following costs over your chosen time range (e.g., monthly, quarterly, annually):
- Labor costs: Includes salaries and wages of your sales and marketing team.
- Commissions and fees: Payments made to external partners or on successful deals.
- Advertising expenses: Costs incurred on digital and traditional advertising.
- Sales and marketing tools: Subscriptions and purchases of tools that aid your sales and marketing.
Example: Let’s say you spend $10,000/month on paying your sales team, subscriptions for CRM, email hosting, and other sales and marketing software tools, and ad spend, then you need to analyze these figures in relation to revenue generated to evaluate the effectiveness of the investment.
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2. Number of Appointments Set (First-time Appointments)
Definition: Tracks the total number of sales calls an MSP books in a given period.
Why it matters: This KPI tracks the efficiency of your lead generation efforts and the initial interest in your MSP services; it also helps determine if you’re spending enough time attempting to grow business with new customers.
How to calculate: Count all the first-time sales appointments scheduled and conducted within the desired reporting period.
Note: While this metric is a good indicator of potential growth, focus on the quality of these appointments to ensure they align with profitable and sustainable business opportunities.
Example: Consider an MSP that schedules 30 FTAs in a month, but only five of those 30 prospects fall within the MSP’s target audience or ICP. In this scenario, the total number of appointments is more of a vanity metric than one of greater depth.
The TL;DR: Avoid over-emphasizing this KPI as it can create misaligned incentives between your business and your marketing teams. Put simply, you don’t just want any leads. You want profitable leads you’re likely to close.
3. Cost per Lead
Definition: The expense incurred to acquire a potential customer.
Why it matters: This measures the cost-effectiveness of your lead generation strategies and, more broadly, your marketing efforts. By understanding CPL, you can optimize budget allocation and refine strategies to attract quality leads more efficiently, ultimately driving business growth and profitability.
How to calculate: Divide the total sales and marketing costs by the total number of leads.
Tip: Define what constitutes a ‘lead’ to ensure consistency and alignment with the broader team/company. This definition could include any interaction that could potentially convert to a sale, such as downloads, inquiries, or first-time appointments.
Example: Your MSP spent $10,000 on a marketing blitz campaign, which generated 200 leads. The cost per lead (CPL) would be calculated as follows:
CPL = $10,000 / 200 leads = $50 per lead
Once you’ve calculated the CPL, as a post-mortem step, assess and adjust the campaign strategies to reduce CPL while maintaining lead quality moving forward.
4. Lead-to-Opportunity Rate
Definition: This is the percentage of unqualified leads that convert to qualified opportunities.
Why it matters: Lead-to-Opportunity Rate helps you gauge the effectiveness of your sales process, identify potential bottlenecks, and fine-tune your strategies for converting leads into customers.
How to calculate: Calculate the percentage of leads that become opportunities with a real chance to close.
Quick sidebar: Understanding this KPI calls for a marketing funnel 101 refresher. There are three types of potential customers in a marketing funnel:
- Leads: An unqualified potential customer at the top of the funnel. For example, they may have expressed interest by downloading a white paper from your site. Leads may or may not be one of your MSP’s target ICPs.
- Prospects: These are leads who can likely benefit from your products or services. Prospects are one of your MSP’s target personas, and they might consider buying.
- Opportunities: An opportunity is a prospect with a high probability of closing. For example, the potential customer has clearly expressed interest in your products or services and some preliminary details about the hypothetical deal have been discussed.
Okay, now that we’ve aligned here, let’s move on. The lead-to-opportunity rate is a percentage calculated like this:
(# of leads that convert to opportunities / total # number of leads) * 100
Example: Let’s say your MSP generates 200 leads in a month, out of which 40 are qualified as sales opportunities. The lead-to-opportunity ratio would be calculated as such:
(40 / 200) * 100 = a 20% lead-to-opportunity ratio
5. Close Ratio
Definition: The percentage of leads that convert into customers.
Why it matters: Indicates the effectiveness of your sales team in converting qualified leads into actual customers. In turn, this helps with forecasting revenue, identifying strengths and weaknesses in the sales process, and informing strategic adjustments to improve conversion rates and business growth.
How to calculate: (Leads Converted to Customers / Total Leads) * 100 = close ratio
Example: Your MSP generated 100 total leads in May 2024, but only 25 of those leads converted into customers. Thus, calculating your close ratio would look something like this:
(25 / 100) * 100 = 25% close ratio.
Gaining insight into this metric helps to both level set sales expectations as well as create more data-driven and strategic sales goals.
6. Customer Acquisition Cost (CAC)
Definition: The average cost of gaining a new customer.
Why it matters: Helps determine the average expense involved in acquiring a new customer. Like all the sales and marketing KPIs discussed in this blog, CAC helps evaluate the efficiency of your sales and marketing strategies and optimize spending. CAC also helps to ensure sustainable growth by balancing acquisition costs with customer lifetime value.
How to calculate: Customer Acquisition Cost (CAC) = Total Cost of Sales and Marketing / Total New Customers
Tip: Use this in conjunction with Client Lifetime Value (CLV), detailed below, to gauge long-term sustainability and profitability.
7. Client Lifetime Value (CLV)
Definition: The total revenue your MSP can expect from a customer over the entire duration of the relationship.
Why it matters: Helps to understand the long-term value of customers, optimize marketing strategies, improve customer retention, and make more informed decisions on resource allocation and customer service investments.
How to calculate: Multiply the average revenue per client by the average client lifetime:
Average Revenue per Client * Average Client Lifetime = CLV
You might be asking, what’s a good CLV to CAC ratio? It’s a great question. While there’s no one-size-fits-all answer to this question, 3:1 is the textbook answer for a healthy CLV to CAC ratio.
At 1:1, you’re breaking even on each customer. If your ratio is less than 1:1, acquiring customers is costing you money. And finally, if your ratio drifts too high above 3:1, you may not be investing enough in marketing.
Ergo, a 3: 1 ratio is the sweet spot that provides a reasonable balance of sustainability and growth.
8. Minimum Client MRR
Definition: Minimum client monthly recurring revenue (MRR) defines the minimum revenue required for a business to onboard a customer.
Why it matters: Sets the baseline revenue a client must generate to be considered viable for your business. Additionally, this KPI helps ensure financial stability, predict revenue streams, identify growth opportunities, and more.
How to calculate:
- Identify all clients: List all clients who contribute to your MRR.
- Determine individual MRR: Calculate the monthly revenue from each client by summing up their subscription fees and any recurring charges.
- Find the minimum value: Identify the client with the lowest monthly recurring revenue.
9. Average Deal Size
Definition: The average revenue per sales deal closed.
Why it matters: Provides insights into the average revenue expected per sales deal, which can help in forecasting and resource allocation.
How to calculate: Total Revenue from Sales Deals / Number of Deals = Average Deal Size
Tip: Segmenting this KPI by customer industry or region can reveal which areas yield the most revenue.
10. Upsell Rate
Definition: Quantifies the frequency at which existing customers are sold additional products and services.
Why it matters: Client acquisition is tough, but so is client retention. The old marketing adage of “surprise and delight” should apply to both prospects and existing customers. Successfully upselling folks who are already customers will paint a picture about how engaged and satisfied they feel about your product, services, and partnership.
How to calculate: (Existing Clients Sold Additional Services / Total Clients) * 100:
MSP KPIs: Selecting the Right Mix for Your Business
By diligently tracking these sales and marketing KPIs, MSPs can gain actionable insights that directly contribute to strategic decision-making and bottom-line improvement. These metrics are not just numbers; they are reflections of your business dynamics and market responsiveness.
Together with the financial and customer-centric KPIs discussed earlier in this series, these sales and marketing KPIs create a comprehensive snapshot that will help you optimize your operations, enhance customer satisfaction, and drive sustainable growth.
As this series concludes, remember that each KPI serves only as a piece of the larger puzzle of your business’s operational success.
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