As a tech or managed service provider (MSP) business owner, you’re likely no stranger to the phrase “what doesn’t get measured, doesn’t get managed.” In this ever-evolving sector, establishing the right metrics isn’t just useful, it’s essential. Whether aiming to scale operations, improve profitability, or prepare for a potential exit, understanding and tracking your numbers gives you the control and clarity needed to make smart business decisions.
Start simple
Getting started with metrics doesn’t have to be complex. Begin with user-friendly accountancy and CRM software to capture your essential data. Many tech businesses and MSPs benefit from using Professional Services Automation (PSA) tools that integrate client management, ticketing, time tracking and billing. Combined with robust accountancy software, these tools provide real-time visibility into your business’s financial and operational health.
Understanding EBITDA
One of the most important metrics for tech businesses and MSPs to grasp is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation). Put simply, it’s your gross profit minus operating costs (excluding interest, tax, depreciation and amortisation).
Why does it matter? EBITDA is often seen as a proxy for a company’s cash earnings and is a key figure used in business valuations. It offers a cleaner view of operational profitability by stripping out financial and accounting variables that can skew true performance.
If you’re planning for an eventual exit or succession, understanding EBITDA becomes even more critical. Knowing the EBITDA target you need to achieve allows you to plan your growth strategy accordingly. It gives you a clear financial destination and helps shape your decisions around hiring, pricing, service mix and investment.
What is your business worth?
Traditionally, tech businesses and MSPs are valued using an EBITDA multiple. As a rule of thumb, company value = EBITDA × 5, though this can vary significantly based on market conditions and scale. For example, EBITDA under £2.5 million might attract a multiple of 4.5x–7x, while larger EBITDA figures can push the multiple to 9x or beyond, especially in acquisition-heavy markets like the US.
Put simply, the bigger your EBITDA, the bigger your multiplier, and the greater your business value.
Driving towards a higher EBITDA
One key strategy for increasing EBITDA is to focus on increasing your revenue volume rather than chasing fluctuating margins. This provides a more stable and scalable foundation for growth. However, don’t neglect margin optimisation altogether. For example, if your current gross margins are around 30%, aim to increase them by 10% over time through pricing strategies, efficiency gains or service tiering.
Make metrics your business compass
When you understand your metrics, you can: – Set realistic and strategic growth goals – Measure progress with confidence – Make informed decisions on recruitment, pricing and investments – Maximise business value ahead of a sale or transition
With support from the right advisors, such as our Virtual Financial Director services, you can take the guesswork out of financial strategy and establish a metrics-driven culture that propels your business forward.
Speak to Paul Moore to find out how Hayward Wright can support your journey from growth to exit.