Understanding the ROI of Your MSP
Managed services can provide significant benefits to businesses, such as improved security, increased efficiency, and cost savings. Measuring the return on investment (ROI) of your MSP is crucial to understanding the value your MSP is bringing to your business. However, it can be challenging to measure the ROI of these services. Here is a comprehensive guide to measuring the ROI of your MSP.
Define your Goals
Before you begin putting figuring if your investment in your MSP is giving you a positive (or negative) ROI its important to have clear goals in mind. If your primary goals revolve around security it wont make sense to evaluate an ROI around uptime. You most likely hired your MSP with some goals around reducing downtime, improving security and/or increasing productivity.
Define your KPIs
You knew this paragraph was coming… Once you have defined your goals you will need to identify the Key Performance Indicators (KPIs) that will help you measure progress towards those goals. KPIs are metrics that help you track progress towards your goals. For example, if your goal is to reduce downtime, your KPI might be the number of hours of downtime experienced by your business each month. Other KPIs could include customer satisfaction, employee satisfaction, cost savings, or revenue growth. Some metrics may be hard to track than others. Some important questions to ask about your KPI’s beyond relevance are
Is the data being tracked currently? Will the data need to be compiled manually? Can it be pulled from an existing system? Does it need to aggregated from different systems?
Depending on your goals above cost savings may be a significant factor in measuring the ROI of your MSP. To calculate cost savings, compare the costs of managing your IT infrastructure in-house versus outsourcing it to an MSP. Include direct costs such as salaries, benefits, and equipment, as well as indirect costs such as training and recruitment. In addition, some of the most significant benefits of MSPs is the cost savings from reduction in downtime, increased efficiency and improved security. The next three sections cover examples for these.
One of the most significant benefits of MSPs should be a reduction in downtime or at least maintaining an acceptable level. Downtime will have a direct impact on cost for your business. To calculate cost savings from uptime you can use the following formula:
Cost savings = (number of hours of downtime per year) x (average revenue per hour) x (percentage reduction in downtime)
For example, let’s say your business experiences 100 hours of downtime per year, and your average revenue per hour is $1,000. If your MSP is able to reduce downtime by 50%, the cost savings would be:
Cost savings = (100 hours) x ($1,000 per hour) x (50%) = $50,000
This means that your MSP has provided a $50,000 return on investment in the form of cost savings from reduced downtime.
MSPs can also help businesses improve efficiency by automating routine tasks, reducing human error, and providing faster response times. To calculate the cost savings from increased efficiency, you can use the following formula:
Cost savings = (time saved per year) x (average labor rate)
For example, if your MSP is able to automate a process that previously took an employee 10 hours per week, resulting in a time savings of 520 hours per year, and your average labor rate is $50 per hour, the cost savings would be $26,000.
Improved security is another significant benefit of MSPs. It will help to prevent data breaches and other security incidents. This can be a little harder to calculate though. One popular method is as follows:
Cost savings = (estimated cost of a security incident) x (reduction in the likelihood of a security incident)
For example, if the estimated cost of a security incident for your business is $100,000, and your MSP is able to reduce the likelihood of a security incident by 25%, the cost savings would be $25,000.
Finding or estimating these numbers to put in the equation can be a form of art. The entire insurance industry revolves around exactly this. If these are important to you give us a call and we can help you work through it.
Finally, use ROI tools and metrics to help automate the ongoing measurement of the ROI for your MSP. For example, use an ROI calculator to estimate the ROI of your MSP based on your specific goals and KPIs. Finding out if your MSP’s ROI is comparable to others can help give context to your measurement. Use metrics such as mean time to repair (MTTR), mean time between failures (MTBF) and service level agreement (SLA) compliance for this evaluation. These metrics can help you identify areas where your MSP is performing well and areas where there is room for improvement.
If It’s Not Measured, It’s Not Managed
In summary, by following this outlined guide, you can measure the ROI of your MSP, gain a comprehensive understanding of the value that your MSP is bringing to your business and make informed decisions to optimize your managed services investment. By doing so, you can help your business run more efficiently, reduce costs, and stay competitive in today’s fast-paced business environment.
It is worth noting again that measuring the ROI of your MSP is not a one-time event. Your business needs and goals may change over time, and your MSP should be able to adapt to those changes. As such, it is essential to regularly revisit your goals and KPIs, recalculate cost savings, and evaluate the performance of your MSP to ensure that you are always getting the most out of your investment.