“The best way to predict your future is to create it.”
As we get ready to enter 2025, those words, often attributed to both Abraham Lincoln and management guru Peter Drucker, ring especially true in these uncertain times. No one can truly know without a doubt what’s in store for MSP business owners in the year ahead.
But Reed Warren has a message for MSPs that lines up with Lincoln’s and Drucker’s advice: “You can never stop innovating.” The CEO of iT Valuations, an M&A and valuation advisory firm, expects 2025 to be “business as usual, but business as different.” If an MSP is not innovating every 12–18 months, no matter the economy or who’s leading the country, your growth will plateau, and then decline.
“A lot of MSPs haven’t innovated,” Warren says. “They haven’t looked at, ‘How do I change my services?’ ‘How do I bring more value for the same price?’ ‘How do I blend and package those pieces?’”
While he’s optimistic about 2025, he stresses that innovation will be key as every business today is dependent on technology.
And there’s good reason for MSPs to double down on innovation: They can capitalize on a robust market. Industry analyst firm Canalys projects that the managed services industry will grow from $548 billion this year to $608 billion in 2025. “To put it in perspective, the world GDP at $105 trillion is growing at 2.6%, the tech industry this year at $4.94 trillion is growing at 6.2%, and the MSP market is growing by double the tech industry by 12%,” says Jay McBain, principal analyst at Canalys.
Despite the challenges of 2024—inflation, threats of recession, high interest rates, extreme weather—McBain says most MSPs are optimistic. “Whichever way you look at this world, it’s kind of dark right now—unless you’re an MSP,” he says. “Every time we ask them, [about] 72% are in total optimism growth mode.”
McBain does agree with Warren, though. “The long tail of MSPs that haven’t really engaged in marketing and selling and operational and financial growth, who still operate the business like they did five or 10 years ago, are not seeing growth. And by the way, they’re losing money.”
So how will business be different for MSPs, and what new challenges and opportunities lie ahead? We asked industry experts to weigh in 2025 predictions for MSPs in six key areas: the economy, client acquisition, AI, cybersecurity, hiring/retention, and M&A.
The Economic Outlook—Prepare For The Bump, Then The Grind
In 2024, many MSPs saw sales slow. “We’re in probably one of the lowest new business creation markets that we’ve seen for quite some time,” says Greg Crabtree, author of Simple Numbers and partner at accounting and advisory firm CRI. As a result, he says, “MSPs are still in that ‘street fight’ mode. You’ve got to go take somebody’s customer away from them.”
He points to MSPs that followed that playbook. “We had clients who had 25% growth this year over last year, in a market that is known to be down 5%. They grew 25% because they picked up work from failing competitors.”
Overall for 2025, Crabtree says it looks “pretty good” barring any supply chain disruptions or new military conflicts. He expects that post-election, there will be positive growth for at least three quarters, and then a stall.
MSPs that lean into growth with effective communications, target marketing to “necessary” vs. discretionary businesses, and have “a human that is interacting with potential sales targets … could easily grow 10%–15%,” Crabtree says, which includes at least 5% price increases. “But I think it’s going to take active [work]—go punch some competitors that are weak and take their clients away from them—rather than sit back and wait for somebody to call you.”
For MSPs that do get a bump in sales the first part of the year, Crabtree cautions them against adding permanent infrastructure “until you know for sure that you obtained a new level of performance that you can hold on to.”
Instead, he suggests, “stretch your labor to be highly optimized. Challenge people to break the 4-minute mile.”
Smaller MSPs, however, can expect a tougher competitive mountain to climb facing “super MSPs” backed by private equity that are now rolled up into more of a franchise model with shared resources, says McBain. “How do you compete on unit economics when you have eight people and your competitor across the street, who used to have eight people, is now ‘McDonald’s’ and they’re selling burgers left, right, and center?”
One way MSPs can better compete is to lower their cost of goods sold and increase both profits and tech efficiency, which can be easier said than done with a disparate tool stack. Kaseya has been leading the way with its strategic plan to change the unit economics for MSPs with lower-priced all-in-one solutions like Kaseya 365 Endpoint, introduced in April, and Kaseya 365 User, introduced in October, that feature integrated solutions with a similar look and feel. Other vendors have since followed suit, such as NinjaOne and HaloPSA. ConnectWise pledges to do so at the first of the year, according to company executives.
Customer Acquisition And Experience—The Double-Edged Sword Of AI
Customer acquisition and retention will be key in Crabtree’s “street fight” economy. John DiJulius, an authority on customer service and president of The DiJulius Group consultancy, says AI and automation will make it easier to get in front of customers with targeted marketing. However, with everyone using these tools, it will be harder to differentiate, he notes.
“The best way is to deliver a great experience and make sure you’re [getting] earned growth through referrals and repeat business in addition to “bought growth” through marketing and advertising,” he says.
MSPs should seek to balance technology with relationships and human connection, he says. “When I need to share my burden and get specific, I want that human connection.”
He also recommends removing “employee roulette” so that customer experience is not dependent on which technician or employee they interact with. This requires consistency of training, he says.
The AI Money Machine—Right Place, Right Time For MSPs
MSP platform vendors are all adding AI features to improve MSPs’ internal operations like servicing tickets, invoicing, and billing, McBain says. For monetizing AI externally, though, he says adoption has been slow. “Nobody wants to be an early adopter in this particular technology, because we got burned … in the past with jumping on emerging tech that really never made it,” like IoT and the Metaverse.
But over the next 10 years, he expects generative AI to usher in “a generational shift. And 85% of the world’s data sits on premises where MSPs are. So the compute, storage, networking, and edge AI opportunities over the next 10 years are going to propel this industry.”
Cybersecurity—The Cat And Mouse Game Continues
Slow progress is how Seth Robinson, vice president of industry research at CompTIA, characterizes the cybersecurity battle. One warning for MSPs, though, is that organizations are experiencing cybersecurity fatigue. “Companies that have been investing in cybersecurity solutions are wondering what they’re getting with those investments. There continues to be a real tug of war between making sure that their assets are secure and they’re handling data properly and being responsible, on the one hand, and on the other hand, making progress and using technology to the best of their ability.”
And yet, many companies are still not following best practices, he says. For MSPs, “the challenge is framing those best practices in terms of business value, not just cybersecurity posture.”
Organizations are also struggling with the complexity of the solutions they have in place. As MSPs look to add new solutions to their tool stack, customers may be hesitant to adopt what they may consider a niche solution. “At some point, companies are going to want to understand the big picture. That could be a huge opportunity for MSPs.”
MSPs will also need to be aware of new attacks that are being facilitated with AI, he says. “The complications with AI are really just part of the larger issue around cybersecurity, and I think we’re going to see that continuing on into 2025.”
Overall, though, cybersecurity will continue to be a lucrative opportunity, says McBain. “[The] cybersecurity [market], which 99% of MSPs are in, is growing. The products themselves are growing at double digits. Services are growing at 12.9%, and managed security services are growing at 14.8%.”
Hiring & Retention Outlook—The “Transfer Portal” Of Business
Experts have mixed opinions about hiring and retention opportunities and challenges for 2025.
Growing MSPs will face two hurdles, Crabtree says: finding labor and keeping salaries in check. “Employees have more power than they’ve ever had,” he says, likening it to the college sports transfer portal, which makes it easy for athletes to transfer for more lucrative opportunities. In addition, he says, “we’re coming off the four worst productivity years in the U.S. economy because we’ve got a dysfunctional workforce that doesn’t know if they want to work in the office or work from home.”
He views 2025 as a time to reestablish your labor efficiency targets. “I think 2025 is a great year to challenge your team. We want to continue to improve output with the labor dollars that we’re currently spending. That sets you a foundation to be the surviving competitor in what’s going to be a pretty brutal marketplace for a few years to come.”
DiJulius, on the other hand, believes the shift is underway to an employer market. With more available applicants, though, he cautions business owners not to treat them as easily replaceable. “You have to make sure you still offer them good positions with meaning and purpose, which is what they’re looking for.”
He also advises MSP owners to be transparent about AI and automation. “AI will take some jobs, and the worst thing we can do is say it won’t take any jobs, but then if we lay off 10%–15% within the next 18 months, no one’s going to believe a word we say.”
It’s important to communicate with employees that as your MSP grows, you might not have to add more people or replace someone who leaves. “But that’s not a one-time speech or communication. You have to constantly be communicating,” DiJulius notes. “We’ve got to be helping people learn AI so it can make the job more profitable.”
M&A Outlook—A Shift Toward A Buyer’s Market, Fewer Deals, And Shotgun Weddings
MSP mergers and acquisitions continued to slow in 2024. Paul Cissel, CEO of Growth Caddie, M&A Expert in Residence for TMT, and a senior analyst and facilitator for Service Leadership, says he expected about 800 transactions by year-end, down from a high of 1,200 a few years ago. For 2025, he expects that number to be even lower.
Cissel notes that there are two different markets when it comes to MSP M&A: private equity (PE) firms looking for high-quality companies and “smaller MSPs that are trying to grow on their own dime or on the dime of the companies that they buy.”
The PE firms are now having to look harder, as many of the larger MSPs have been acquired. “There’s very few $5 million EBITDA firms, which is what the PE firms really love,” Warren says. “They’ll come down to as low as $2 million, but there’s not even a lot of $2 million in EBITDA MSPs available. And so for them, it is about being creative.”
Cissel is seeing a trend of “shotgun weddings,” or what he calls “the triple lindy.” That occurs when an investment banker merges three MSPs to get the critical mass a PE buyer wants.
Still, Cissel says, “The opportunity is always good for quality companies, and a quality company is a company that consistently makes over 20% adjusted EBITDA, continually grows at 15% compound annual growth, and they have over 42% blended gross margins and 50% service gross margins. Those companies are always going to be interesting, no matter what size they are.”
Warren agrees: “High-quality firms are still able to command a premium. Low-percentile firms are going to take a discount.” He also expects a shift to a buyer’s market in 2025. “That’s putting downward pressure on multiples.”
Indeed, Warren says MSPs looking to sell in 2025 should brace themselves for flat multiples compared to years past. However, he adds, “I really don’t think it’s going to go down any further. We know, based upon age demographics, it’s estimated that 71% of MSPs are going to change hands in the next five years.” He expects transaction velocity to be high while multiples continue to decline, but not materially.
So if you’re thinking of selling your MSP, he says, you have time to increase your growth rate and drive up your valuation “by putting infrastructure and policies and procedures in place such that it’s not dependent on [you], the owner.”
Get Big—But Stay Small
Crabtree believes growth is the key to longevity. “MSPs that are $2 million and under live in fear of one or two key customers or employees going away. It’s a market that is really pushing people to be $5 million and above.”
But it’s still a relationship business, DiJulius stresses. “The number one thing why a client will choose to continue to do business [with you] or not is the experience they get, the consistency they get, the relationship they have. So for MSPs, no matter how big they get, they have to stay small.”
Make The Shift—Innovate And Look Ahead
The path forward in 2025 will demand bold moves, adaptive strategies, and a commitment to staying agile, while those who fail to evolve could find themselves left behind in the rapidly shifting marketplace.
What are MSPs saying about next year? See 2025 Predictions: Boom, Bust, Or Business As Usual For MSPs?
