Wage inflation has hit all MSPs, but the 11th Annual IT Solution Provider Compensation (Remuneration) Report reveals that top-performing companies provided smaller salary increases than their less-profitable counterparts.
While wage inflation remained higher than historical norms for MSPs in 2023, it decreased from peak 2022 levels. The good news for MSPs is that downward trend is likely to continue through the current year, according to the newly released report compiled by Service Leadership, a ConnectWise solution.
However, the research finds that companies in the bottom quartile of success gave raises of more than 6% to 40% of employees, while the top performers did the same for just 20.5% of employees.
This means the companies that can least afford to boost salaries compounded their profitability challenges by being more generous with pay raises. And their struggles are likely to persist since they “are once again planning the highest proportion of top-level increases in 2024,” according to the report.
The report uses data provided voluntarily by MSPs. The data focuses on positions specific to the MSP model, making it the sector’s only comprehensive source of compensation data, Peter Kujawa, vice president and general manager of Service Leadership, tells MSP Success.
Stuck At The Bottom
Not only did MSPs in the lowest quartile of success give bigger pay raises, but they also tend to pay their employees more than the top performers. Across all departments and predominant business models, best-in-class providers pay about 9% less than companies in the middle tier of success and 12% less than those at the bottom, the report says.
This may seem counterintuitive, but the report explains that best-in-class providers are able to keep their MSP pay rates lower because of their approach to services: They deliver a narrower range of solutions to a targeted customer base. This enables them to hire lower-cost, lower-skill employees who can receive on-the-job training.
Top performers also enjoy better staff utilization rates—73.2% compared to 54.9% among median players and 48.3% among bottom companies. So, in addition to paying more, bottom performers get less productivity out of their employees.
MSPs in the bottom tier urgently need to emulate the best practices of top performers or their problems will persist, the report says. Kujawa says best-in-class MSPs tend to remain in the top quartile once they unlock the secret of success. It’s possible for companies in lower quartiles to join them but it requires making significant adjustments—especially for those at the bottom, he says.
Getting stuck at the bottom leads to undesirable outcomes. In some cases, Kujawa says, owners get into a cycle of writing checks from personal accounts or borrowing money to keep the business afloat. Some end up selling, but for a fraction of the value they could get if the business were profitable. And, of course, some go out of business.
Back To The Office
For the first time, the compensation report collected data on the breakdown of MSP employees who work remotely vs. in the office. Surprisingly, says Kujawa, the predominant practice is to work in the office.
Only 8.7% of employees work remotely 100% of the time, while 42.8% work exclusively in the office. The rest use a hybrid model.
These numbers, Kujawa notes, indicate that “some of the efficiency gains and productivity gains that came from the pandemic went away. It’s very difficult to manage an MSP with everyone being remote.”
While the numbers reflect a larger market trend of employees in all industries returning to the office, Kujawa says he was surprised by the low percentage of fully remote workers because MSPs presumably have all the technology they need to enable remote workers.
