The traditional first step is to identify a reliable source of data for your industry. The most common source for such data is IT trade associations, research firms and Government industry statistics. Most of these organizations compile various types of data based on surveys they conduct of representative businesses within the industry.
While not perfect, these data offer good comparison information. Most financial performance survey data are broken down by size of firm, location, magnitude of net profit and perhaps other categories. Try to compare your business against those that most closely match your organization’s profile.
Some of the big issues that VARs and MSPs struggle with include setting profit margins for services for SLA agreements, employee salary compensation packages and budgeting for marketing. Some supporting data could come from vendors (e.g. pricing managed services from service automation or remote monitoring and management companies). A good example is from Kaseya’s Global MSP Pricing Survey. Consider all sources of data to help you benchmark your business as much as possible.
If the data are broken out by magnitude of profit, compare yourself against each of the categories. They are typically broken down into high, medium and low profit firms. Compare each of the financial performance measures. How does your business compare? How much do your results differ from industry results? Bear in mind that there are certain factors that impact profit. The most important of which is management. Try not to look at the industry data and conclude that your profit level is necessarily acceptable or unacceptable.
What do you know about the IT industry? Is it made up of well-managed firms for the most part? If so, the benchmark becomes more valid for comparative purposes. Or is the IT industry made up of marginally managed businesses? If this is the case, the industry averages might be on the low end of acceptable. Take this into account when setting your financial targets and goals. Obviously if your business is in its infancy stages, profits could very well lag industry averages. But as you become more established, the industry data will provide a more meaningful comparative tool. Industry data will help you answer the question; “how are we doing compared to our peers?” on an annual basis. Remember that well run businesses will more often than not fall into the high profit category for any given industry.
It is not an easy task to benchmark your company. A professional industry consultant could help you as they can compare your data to that of other clients that they know. Look for someone who offers best-practice coaching in the channel. Some VARs tell us that they also get data from simply talking with other VARs. Knowing how you compare to other VARs or MSPs will help you understand where you are positioned and help you to decide how to improve.
Another way is to take the VAR business health test. About 150 questions that you answer based upon key parts of your business. The results will be scored so you know if you are weak or strong in each area. Again, not a 100% perfect solution, but it gives you another tool to help you plot your future.
If you prefer to outsource this task, ask to speak to one of our Coaches who specialize in benchmarking businesses. Part of the mission of VAR Office Suite is to research the available data and amalgamate to offer better insights to help VARs and MSPs. We will be bringing a lot more insights on this topic.
Regardless of how you benchmark your business, it is a worthy exercise because you need to know where you are starting from before you figure out how to get where you want to go.