Takeaways: Actionable Tips To Boost Your Bottom Line
- Increase annual revenue by 10%–20% with clear statements of work, defined deliverables, and appropriate pricing.
- Keep service payroll at 35%–40% of service revenue.
- Aim for 70% productivity per shift.
- Reduce costs by 10%–30% through vendor consolidation and regular audits.
- Calculate profit margins before signing contracts.
Bad business habits are bad for your bottom line. Worse, if you’re bleeding profits from a thousand cuts, you may not even be aware of it until it’s too late–and you’ve bled out.
MSP profit leaks have many causes, but common culprits are underutilized software licenses, paying too much for too many tools, poor service delivery, failure to automate tasks, staff utilization issues, and client mismanagement.
In your daily efforts to handle workloads and keep customers happy, you may be perpetuating the behavior that hurts what could be a handsomely profitable business. If you feel like you’re just scraping by, here are some common mistakes that are eating into your revenue and margins–and what to do about them.
Client Mismanagement—Let Me Count The Ways
Brandis Kelly, president of the Midwest Region at DigeTekS, an MSP in Firestone, Colorado, says client mismanagement can account for anywhere from 10% to 20% in annual revenue losses. Client mismanagement results from unclear statements of work (SOW), underpricing, project creep, and poorly defined deliverables.
“When contracts lack clear deliverables or a detailed SOW, it can lead to misunderstandings and scope creep. This often results in MSPs doing more work than initially planned without proper compensation,” says Rayanne Buchianico, owner and founder of Clearwater, Florida-based ABC Solutions, which provides accounting and PSA consulting services for MSPs.
Tool Sprawl—You May Be Paying for More Than You Need
A bloated tech stack is another common cause of MSP profit leaks. “Many MSPs have multiple tools in place that are similar, therefore creating redundancy, which directly impacts the bottom line,” says Kelly. MSPs should address this by conducting tool audits, which can reduce costs by 10% to 30%, she says.
Paul Cissel reviewed tools and licenses annually when he ran an MSP. Most MSPs ignore the practice, but when they start, they are surprised at how much they’re paying for unused technology, says Cissel, who is now CEO of Growth Caddie and M&A Expert in Residence for TMT. “Most MSPs are technicians and haven’t seen a tool that they don’t like, and I was certainly that way.”
Tommy Thornton, CEO of Automates, an MSP in National City, California, continually rightsizes. He conducts a monthly tool true-up to avoid paying hundreds of dollars a month for unused technology.
Buchianico recommends consolidating tools and vendors to reduce expenses, eliminate integration issues, and “strengthen relationships with key vendors.”
The large IT management platform players–Kaseya, ConnectWise, N-able–have all recognized the direct impact stack consolidation has on the bottom line. They and others in the industry are trying to offer all the tools an MSP needs under one roof. Not only does it eliminate a bloated tech stack but it also increases efficiencies since the tools are all integrated.
Service Delivery—Inefficiencies Are Dragging You Down
Failure to get tool sprawl under control also impacts efficiency because employees must learn all those tools, which can cause service delivery to suffer. One consequence is low ticket kill rates.
Other reasons for low resolution rates are understaffing and poor training. Buchianico notes that high staff turnover can also delay ticket resolution, leading to poor customer service and low customer satisfaction.
Some MSPs struggle to manage 200 to 400 tickets a day, with their service teams always on the defensive, says Thornton. He recommends setting a daily percentage target for resolved tickets. “If it’s less than 100% resolution, you’re behind,” he says. That’s OK if it happens occasionally, but not if it becomes the norm.
Improving service delivery transcends staffing and technical issues. It also involves strategy. Cissel recommends narrowing your target customer profile–for instance, companies with 25 to 100 users. This allows you to also narrow the tech stack and keep the staff very focused, he says.
Operations strategy is important too. Failure to take advantage of AI and automation features in your tool stack to achieve operational efficiencies is costing your business money. “It is critical to have automation and workflows in place to ensure tickets are quickly assigned to appropriate resources, documentation is clear and easily repeated, processes are thoroughly trained–with continuous training–and followed for the most efficient outcome,” says Kelly.
Related: 2025 Survival Predictions For MSPs And How To Preserve Profits, Revenue, And Clients
Optimize Your Staff—Don’t Put Square Pegs In Round Holes
How you manage your employees and their responsibilities affects everything, from how effectively they use technology to delivering customer satisfaction. However, Buchianico estimates that employee mismanagement contributes as much as 20% to profit leakage through overstaffing, overpaying, skills mismatch, and poor tech utilization.
For instance, senior engineers should not be fixing printers and Level 1 techs shouldn’t be troubleshooting server cluster issues, says Kelly. “Resources must be allocated properly and matched with their strengths and knowledge to various tasks, or you’ll be upside-down quickly,” she notes.
In addition, employees need continuous training to learn and update skills. And their roles and responsibilities should be clearly defined.
Overstaffing is a common problem, adds Cissel. Next to reluctance to raise prices, it is the most prevalent issue he comes across when working with MSPs. While service payroll should be no greater than 40% of service revenue, typically it accounts for 60% or more, he says. Best-in-class MSPs keep it at 35%.
How much work you demand from each employee affects staff utilization. Push employees too hard and you run the risk of “slave-driving,” says Thornton. He expects six hours of productivity in an eight-hour shift, which equates to an average staff utilization of about 70%. That compares to a 65% industry standard.
If your MSP isn’t meeting that standard, investigate the causes: Are techs on the phone too long? Is lack of training forcing them to do too much research? Are they still doing mundane, repetitive tasks that could be automated?
Know Your Numbers—They Don’t Lie about MSP Profit Leaks
Whatever the cause of MSP profit leaks, it always comes down to numbers. You can’t stop a leak if you don’t know what is causing it. “Without proper financial visibility and accounting oversight, MSPs may not have a clear understanding of their financial health. This can lead to poor business decisions such as underpricing or overspending on resources,” says Buchianico.
Start from the beginning. MSPs should figure out profit and service margins before closing a customer contract, says Thornton. If you’ve taken care of everything else, he says, such as “your tools are correct, agreements are aligned with tools, and all customers are on the same toolset,” then you’ll be on the right track to stopping profit leak.
