Managed services have come a long way. What started as a niche offering in the 1990s—primarily through application service providers—has evolved into a core component of the tech industry’s service strategy. Today, managed services are expanding rapidly across companies of all types, particularly those transitioning from traditional, product-based models to recurring revenue models.

But, here’s the challenge: if you’re used to measuring success by product sales, gross margin, and one-time transactions, the financials of managed services can feel anything but intuitive. Unlike product businesses, managed services rely on different metrics to track performance, profitability, and growth. Without the right key performance indicators (KPIs), it’s challenging to determine whether your business is healthy or on a path to trouble.

These metrics help you track the growth of your managed services business from both new and existing clients. If you're transitioning to a recurring revenue model, these KPIs are crucial for understanding the health of your business.

Key Takeaways

• Understand the most critical managed services KPIs to track performance, profitability, and growth.
• Learn how to calculate and interpret each KPI for service companies to inform smarter business decisions.
• Discover how regular KPI reviews can align teams and drive success across your managed services organization.

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What Are Managed Services KPIs?

Managed Services KPIs (Key Performance Indicators) help you track and improve the performance of your managed services business. These metrics give you insights into customer satisfaction, revenue retention, operational efficiency, and profitability. Whether you're a technology manufacturer adding managed services to your portfolio or a pure-play service provider, measuring the right KPIs can make or break your success.

In this blog, you’ll find:

• A breakdown of the most essential managed services KPIs to track.
• Clear explanations for why each KPI matters.
• Straightforward guidance on how to calculate each metric.
  

You won’t find an overwhelming data dump here. Instead, this guide is designed to help you focus on what matters—understanding which KPIs signal business health and how you can take action based on them.

Related: What Are the Most Commonly Used Success Metrics in Managed Services?

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1. Total Recurring Revenue Growth

This is your big-picture revenue growth metric. It shows how much your managed services revenue has increased year over year, combining both new and existing recurring revenue. It’s a solid indicator of overall business momentum.

• Why it matters: This metric reveals whether your managed services business is scaling effectively or stalling.
• How to calculate it: Subtract last year’s total recurring managed services revenue from this year’s. Divide that by last year’s revenue, then multiply by 100 to get a percentage.

2. Top-Line (Net-New) Recurring Revenue Growth

Unlike the total growth metric, this KPI zooms in on only the new recurring revenue signed during the current year.

• Why it matters: This helps you measure the effectiveness of your sales efforts and the relevance of your offering in the market. If this number dips, it could mean your offer needs rethinking—or your sales strategy does.
• How to calculate it: Subtract last year’s net-new recurring revenue from this year’s. Divide by the previous year’s net-new revenue and convert to a percentage.

3. Total Bookings Revenue Growth (Total Contract Value Growth)

This KPI measures the total contract value (TCV) of all managed services agreements, including both revenue recognized and revenue still to be recognized.

• Why it matters: Bookings are a forward-looking indicator of your future revenue. A steady increase shows a healthy pipeline and strong customer commitment.
• How to calculate it: Take this year’s total contract value and subtract last year’s. Divide that number by the previous year’s TCV, and multiply by 100 to get a percentage.

4. Base Revenue Growth

Base revenue growth measures how much revenue you’re generating from your existing customers, excluding any new clients.

• Why it matters: This is your indicator for customer expansion. Strong base revenue growth means you’re doing a good job of driving additional value for your current clients.
• How to calculate it: Compare revenue from the same client set year over year. [(This year’s revenue – last year’s revenue) / last year’s revenue] × 100.
  

Related: Top KPIs and Best Practices for Measuring Managed Services

5. Gross Margin

Gross margin shows the percentage of revenue you keep after subtracting direct service costs like salaries, tools, and embedded products.

• Why it matters: While it’s not a perfect measure of profitability in managed services (due to varying cost allocation practices), gross margin is still widely used, especially by finance teams.
• How to calculate it: Take your total managed services revenue and subtract direct costs. Divide the result by total revenue and convert to a percentage.

6. Operating Income (Net Operating Income/Net Profit)

This is the most accurate profitability KPI for managed services. It includes all costs—both direct and indirect—to provide a comprehensive view of profit.

• Why it matters: If you want a reliable benchmark to compare against other MSPs or service companies, this is it.
• How to calculate it: Subtract both direct and indirect costs (like overhead, salaries, real estate, and admin expenses) from total revenue. Divide by total revenue and multiply by 100.

7. Recurring Revenue Retention Rate

This metric shows how much recurring revenue you kept from the prior year, not counting new revenue from new or existing customers.

• Why it matters: High retention means stable cash flow and stronger long-term viability. If this rate drops, it’s a sign that customers aren’t finding lasting value in your service.
• How to calculate it: Subtract new recurring revenue from this year’s total. Then divide that number by last year’s recurring revenue and convert to a percentage.

8. Client Retention Rate

This KPI measures the number of customers who renew their contracts within a specified period.

• Why it matters: Client retention impacts revenue, margin, and long-term success. It’s not just about renewing contracts—it’s about keeping profitable ones.
• How to calculate it: Subtract the number of non-renewing clients from the total number of contracts up for renewal. Divide by the total number of contracts and multiply by 100.
  

Related: The State of Managed Services 2025

Make These Managed Services KPIs Part of Your Business Strategy 

While there are many metrics you could track in managed services, the eight KPIs outlined here are essential for monitoring the financial health and performance of your business. If you're not already tracking them, now’s the time to start.

To maximize the value of these key performance indicators, we recommend creating a straightforward, easy-to-review dashboard and integrating it into your regular business routine. These KPIs should be front and center during:

• Monthly Business Reviews (MBRs).
• Quarterly Business Reviews (QBRs).
  

Ensure your leadership team is aligned on these key metrics. That includes stakeholders from:

• Services leadership.
• Offer management.
• Delivery operations.
• Business operations.
• Finance.
• Sales.
• Marketing.
  

By consistently reviewing your managed services KPIs, you’ll create a stronger, more data-driven foundation for decision-making and long-term growth.