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You’ve put a lot of effort into building your cloud business and you want to make sure you stay ahead of the competition. You’ve kept a close eye on market trends and you’ve seen there are many ways to measure business performance. But, how much do you really know about Key Performance Indicators and how they affect your business? Did you know that the right KPIs can make the difference between continued success and a slow decline?
You’re probably wondering what kind of KPIs you should be looking at and how often you have to do it. Don’t worry. We’ve done all the grunt work for you. Here are seven Key Performance Indicators that will help you measure your success in the cloud.
Measure your customer growth
Look closely at the monthly figures provided by your sales team. Are they still bringing in new customers? Are your numbers this quarter higher or equal to what you saw last month? This is not the time for your sales team to be running out of steam. If you notice that customer growth is declining, start asking questions. Maybe your sales people aren’t getting enough lead volumes from the Marketing department. You have to look at the value provided by each sales person. In the cloud industry, 8-10 percent is ideal and 15 percent is acceptable. However, a higher percentage means the person’s quota is either too low or their income is too high. Deciding what to pay sales people has been a major challenge for partners who want to attract good sales reps to the cloud.
Calculate your average revenue per user (ARPU)
This is a very important metric. As competition in the cloud industry grows, resellers are spending more time cultivating long-term relationships to maximize their Average Revenue per User (ARPU). Get involved in cross-selling. Build a joint roadmap with your customer so you can stay involved with his business. It’ll be up to you to continually educate him about how you can help him meet the numerous challenges he’ll be facing.
You might also consider hiring a dedicated marketing/sales expert. But don’t make this move until you’re sure the expert can generate enough revenue from renewals and cross-selling and upselling. For example, a sales expert who costs you $50,000 in salary, commission and benefits should be able to drive a minimum of $333,000 in revenue.
What are you spending on marketing?
If you’re struggling with your sales volume, it’s time to look at your marketing program. A lot of partners we spoke to said they were spending less than 1 or 2 percent of their revenue on driving net new demand. Successful channel partners tend to spend as much as 8-10 percent on marketing. Since cash flows are spread out over longer periods, it’s really important to ramp up acquisition and make sure you’re investing as much money as possible to maximize your marketing.
Take a hard look at your renewal rate
What’s an ideal number? You should be looking for less than 8-10 percent per year of annual churn. However, this number will vary based on your customer acquisition rate. Customers are making purchase decisions every month and it’s important to keep the lines of communication open.
The renewal process is ongoing. From the day your customer signs their first contract, you’re ensuring they understand how important it is to get the product you’re selling and do business with you. You should make sure you give them plenty of reasons to renew.
Consider value-added services
A lot of partners make the same mistake. They offer the same services year after year and try to squeeze every penny out of the deal. You have to realize that SMBs are adopting cloud technology at a faster rate every year. If you don’t offer the cutting-edge services your clients need to stay competitive, they’ll simply go somewhere else. Partners who’ve developed their business model around Project or Managed Services can earn between 50-65 percent of their revenue from these services. This is one of the areas where you have the most control, so keep looking for opportunities to add to your offer. Ideally, a new partner should aim to have 15 percent of revenue from these sources by the end of year one, 33 percent by year two, and 45 percent or more by year three.
Look at your gross margins by offering
No matter what kind of services you offer, it’s important to see what kind of profit you’re getting from each one. For example, you should really strive for a gross margin of 30 percent or more for each Project Services offering. On the other hand, Managed Services offerings should return at least 40 percent while IP offerings should give you more than 50 percent margins. If your returns are lower, this may indicate that you haven’t established your offering properly or that something else is out of kilter. Take a close look at your services and why you’ve added them to your offering in the first place. If you’ve started offering a solution or service simply because one customer asked for it, step back and see how successful it’s been for your business. If it’s not creating reasonable income for your company, it might be time to replace it with something else.
How efficient are these value-added services?
Aside from the KPIs we’ve mentioned here, there are others that relate specifically to your project services and managed services. Gross Service Margins, the Efficiency Factor, Usage and Billable Markup Rates are the most significant KPIs for value-added services. Each of these KPIs will let you know how each service is performing and provide early warnings when you need to make adjustments. You should include them in your BI dashboards and add them to your quarterly assessments. Pay close attention to the Efficiency Factor. This measures how much of your work can be repurposed, packaged and resold as IP. Remember, your customers are looking for turnkey products they can implement right away, so use these building blocks to either jumpstart projects, or resell them as a finished product. This will make a difference in the kind of profits you can generate overall.
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