At our recent IT Services conference, high-profile speakers and delegates such as Carmen Carey of ControlCircle and Glenn Carroll of Selection Services debated a range of topics. One key area for discussion was the importance of KPIs – with lessons applicable across the entire media:tech spectrum.
Metrics? What metrics?
Do you monitor KPIs on a monthly basis? Do metrics like monthly recurring revenue, margin by service line, customer churn, growth from existing v new customers or contracted revenue base mean anything to you? If you’re an owner manager running an IT services business and you answered yes to both questions, I’m afraid to say you’re in the minority.
So why are metrics important?
The clue’s in the name – key performance indicator. These give an indication of the key factors affecting a business’s performance. They’re not just financial – how can a manager really assess the business’s performance without digging deeper into more operational areas?
The P&L, balance sheet and cash flow can only tell part of the story. If you want to stand out in a sector where many companies of broadly similar sizes appear to offer broadly similar services, you need to be able to demonstrate more than just revenue and margins.
It helps investors too
A common complaint levelled against the private equity community is that investors struggle to really understand IT services businesses and what differentiates one from another. Tracking KPIs, analysing trends over time and benchmarking against competitors or the industry can be an effective way of demonstrating superior performance.
So if you don’t monitor KPIs, or even know what they are and why they are important, how can you expect a potential acquirer to understand your business and to justify a premium valuation for it?
Alongside the more general metrics mentioned earlier, here are a few more KPIs that are relevant to different sub-sectors in the media:tech space.
- Subscriber growth – absolute and price increases;
- Subscriber renewal rates;
- Subscriber churn; and
- Average yield.
- SaaS vs. traditional licence revenues;
- Implementation revenues as % of total;
- Ancillary revenues as % of total and % of clients being up-sold;
- Implementations achieved on time/budget;
- Service / helpdesk calls – frequency of calls, speed of resolution;
- Development roadmap, including progress against start-of-year plan; and
- Staff mix (sales, development, support, admin).
- Pitch win rate;
- Average project size;
- Project fees vs. retainers;
- Length of key client relationships;
- Client concentration; and
- Digital vs. other work.