Most MSP owners can tell you top-line revenue and bottom-line profit. Fewer can tell you which clients, agreements, and projects are actually creating that profit, and which ones are quietly eroding it.
That gap is where a lot of margin and valuation gets lost.
In practice, the MSPs that consistently improve their business are the ones that treat profitability as a data problem, not a gut-feel problem. They know for every hour spent serving clients how much gross profit comes back into the business. Then they use that information to make small, continuous changes that compound over time.
A common assumption in our industry is that larger MSPs are automatically more sophisticated. But it’s not always the case. You can have a 20 million dollar MSP whose PSA data is a mess. You can have a 1 million dollar MSP whose data is military grade. The real dividing line is operational maturity, not revenue.
A few practical signals that an MSP is ready to run serious profitability reporting:
Once you get beyond three to five engineers, the business becomes too complex to manage by gut (or “vibes” as the kids say). The owner no longer sees everything, and detailed reporting by client, agreement, and engineer stops being a nice-to-have and becomes essential.
If the PSA data is not there, the first step is fixing how the team uses the system, often with help from an operations coach who lives in your PSA of choice.
When client-level reporting goes live, the first thing many owners see is a list of low or negative contribution clients. The first reaction is almost always the same: “I should fire them.” It is emotionally satisfying, but often the wrong first move.
Once you can see contribution per client and contribution per hour, you can start asking better questions:
There are certainly cases where you do raise prices, carve work out of the agreement, or walk away. The point is that profitability reporting gives you the facts you need to choose, rather than reacting hastily out of frustration.
Legacy clients are another area where contribution per hour changes the conversation. On paper, a big legacy client can look fantastic. Lots of revenue, long history, stable relationship. But if that client consumes a thousand hours a year and only generates fifty dollars of profit per hour, that is fifty thousand dollars of contribution. If your newer clients are generating one hundred dollars of profit per hour, those same thousand hours could be worth one hundred thousand dollars elsewhere.
It becomes even more obvious when you look at “all you can eat” tiers. Many MSPs underprice their true unlimited plans, especially where they have been generous about scope for years. You end up with situations where the team is fixing the boss’s kid’s GoPro and similar “favors” under a managed services agreement.
Again, the data does not tell you what to do, but it tells you where to look:
Without contribution per hour, you are negotiating in the dark.
Most MSP owners who are thinking about an exit focus on multiples. That is only half of the equation. Valuation is usually “multiple times earnings.” You control earnings far more than you control market multiples.
Take a simple example. Assume your team delivers 4,500 billable hours a year and you are generating $80 of gross profit per hour. That is $360,000 of contribution.
If you can lift that to one hundred dollars of gross profit per hour through a series of client, pricing, and efficiency changes, you have increased contribution by 25 percent. Even if your market multiple does not move, your valuation has effectively gone up by 25 percent.
On top of that, serious buyers are increasingly sensitive to operational maturity and recurring mix. They want to see:
When you can walk a buyer through those numbers with confidence and explain how you have used them over the last few years to tune the business, it builds trust. Well informed buyers do not need to use pessimistic assumptions and can instead rely on your precise numbers to form their valuation.
If you are not there today, here are the next steps:
It is an onion to peel, not a switch to flip. The MSPs that lean into this approach see those slow, steady gains that look small in the moment and significant when they look back two or three years later.
If you want to dig deeper into these ideas and see how other MSP leaders are putting them into practice, you can watch our full webinar with Larry Cobrin from MSPCFO on YouTube: https://www.youtube.com/watch?v=IOUDilCaMVA