If you’re running an MSP and you’ve ever thought about improving your margins, or even considered what your business might be worth if you sold it one day, there are a handful of things that make a big difference.
None of them are complicated. But many MSPs I work with aren’t doing all of them, and some aren’t doing any.
Here are six of them.
If you’d like a number to anchor this against before you start, our free MSP valuation calculator gives you an indicative valuation in about two minutes, based on the same factors covered below.
1. Move away from break-fix
This one comes first because it matters most.
If the majority of your revenue still comes from ad-hoc break-fix support, it’s going to hold back both your profitability and your valuation. Buyers and investors want predictable, recurring revenue. They want to see a business that generates income whether or not something breaks on a Tuesday afternoon.
Break-fix revenue is unpredictable by nature. It’s hard to forecast, hard to staff for, and it positions you as reactive. If you’re still predominantly break-fix, transitioning to managed services contracts should be your number one priority.
2. Get customers onto annual (or longer) contracts
Monthly rolling agreements are a step up from break-fix, but they’re not great for valuation purposes either. A buyer looking at your business wants to see committed, contracted revenue that’s going to stick around.
The higher your percentage of clients on 12-month or longer contracts, the more predictable your revenue looks, both to a potential buyer and to your own cashflow planning. It also gives you a much stronger foundation for planning investments in your team and technology.
If you’re nervous about asking clients to commit, consider this: clients who are happy with your service are usually comfortable signing an annual contract, especially if there’s a small incentive to do so.
3. Track support margins and project margins separately
This is one of the most common gaps I see.
Many MSPs have one set of accounts that blends everything together. Support revenue, project revenue, all the costs, one big number at the bottom. The problem is, you can’t tell whether your recurring support business is genuinely profitable on its own.
And that matters, because when someone values your business, they’ll look at the recurring support revenue with a much higher multiple than project work. Project revenue is lumpy and unpredictable. Support revenue, if it’s profitable and growing, is where the real value sits.
Separating these out doesn’t require a new accounting system. It just requires some discipline in how you allocate costs and report your numbers. Once you can see both margins clearly, you’ll make better decisions about where to focus, what to price, and what to fix.
4. Know your per-customer profitability
Not all customers are equal. Some are profitable, some are breaking even, and some are actively costing you money once you factor in the support time, the scope creep, and the constant back-and-forth.
Many MSPs have never properly worked this out. They have a general sense of who the “difficult” customers are, but they haven’t put actual numbers against it.
Until you do, you can’t make good decisions about pricing, retention, or where your team’s time is best spent. You might find that your largest customer by revenue is actually one of your least profitable. Or that a smaller client you’ve been neglecting is delivering excellent margins.
This is also where a client scoring system becomes useful. By rating clients across factors like profitability, payment behaviour, cultural fit, and growth potential, you can make objective decisions about who to invest in, who needs a pricing conversation, and who might be better served by someone else.
5. Stop selling a menu of services
Many MSPs present their services like a restaurant menu. Network monitoring, backup, helpdesk, security, cloud services, all listed out and priced individually. The client picks what they want, compares your menu to someone else’s, and chooses on price.
That’s commodity positioning, and it reduces your margins.
Instead, package your services around the outcomes your clients actually care about. They don’t want “network monitoring” as an abstract concept. They want their systems to work reliably so their team can focus on their jobs. They want to know they’re protected and that someone competent is handling the technology so they don’t have to think about it.
When you sell outcomes, the price conversation changes. Clients judge you on the value of the result you deliver, which makes a line-by-line comparison with a cheaper competitor much harder.
6. Build in an annual price review process
If you haven’t raised prices in two or three years while your costs have gone up (salaries, licensing, tools, insurance, the usual), you’re effectively earning less every year. Your margins shrink each year, and many MSPs don’t notice until it has become a real problem.
Building an annual pricing review into your business is essential. How you communicate it matters just as much. Give clients proper notice, explain what you’re investing in, focus on the value they continue to receive, and don’t apologise for it. We cover the wording and timing in how to communicate a price increase to clients.
Many clients expect annual increases. The ones who leave over a reasonable adjustment were usually not great clients to begin with. For a worked example, see this MSP price increase case study, where an IT company raised prices without losing a single client.
Where does your MSP stand?
Many MSPs I work with are technically excellent. They deliver great service and their clients genuinely value what they do. Yet they compete as if they’re a commodity, because they haven’t addressed the positioning, pricing, and packaging issues that separate a good MSP from a premium one.
Small changes in these areas can make a significant difference to profitability. And if you’re ever thinking about selling, they can significantly increase what your business is worth.
If you want to see where your MSP’s pricing, profitability and valuation stand, and what to change first, the Value Transformation Assessment gives you a picture in around five minutes.
The free MSP Pricing Scorecard takes three minutes. It checks how you set and raise prices, how you package and prove your services, and how your client conversations about price go. It shows where margin is being lost and what to fix first.