MSPs: We’re growing revenue, but where is the profit going?

We’re growing, but it’s getting harder to run well

Many MSP owners have had this problem: more customers, more agreements, more engineers delivering, yet somehow less cash flowing, and less room to think. While the business looks healthy from the outside, those inside see that it’s harder to run than it was when it was smaller.

Technology businesses have a number of natural ‘pain points’ in their growth, often linked to their revenue scale: $5m, $10m, $25m, $50m, $100m… These are often the points at which the existing structure falls apart, and retrofitting a structure better suited to the next scale up costs money, takes time to get right, and can be the source of a lot of pain. Understanding how these resets affect the bottom line can be critical to their planning.

The well-run part of the industry shows what’s possible. Service Leadership’s 2026 profitability report, covering providers in 104 countries, found best-in-class providers held adjusted EBITDA above 19% for a sixth year in a row, and MSPs as a group grew adjusted EBITDA by 17.1% on revenue growth of 9.6% in 2025. The best operators are turning growth into profit. The question for every owner is whether each new dollar of revenue brings gross profit, service headroom and business value with it.

In most MSPs, five leaks stop that happening.

Leak one: agreements priced from history

As the MSP grows, the agreements that got it this far may no longer suit. Many agreements’ pricing is based on what the last similar customer paid, what a competitor charges, or a monthly figure negotiated with the customer to win the business. Whereas it ought to reflect what it actually costs to serve that customer, and the risk you carry for them. Scoping is the devil in the detail here – new customers may not understand their own needs well, and re-signing ones who take on more services may be similarly in the dark.

Meanwhile a large customer who renews every year can look like your best customer, while quietly losing money. High ticket volumes, a mixed environment, after-hours calls and senior engineers pulled in to every escalation, without proper agreement terms that cover the cost of all this gold-plated service. Taking their extra level of service away could lead to the customer leaving, and it takes a long time to fill that revenue hole.

Warning signs: prices that haven’t moved with wages and vendor costs; inclusions that differ from customer to customer; project work absorbed into support; renewals discussed too late to change the scope; threats by customers to go elsewhere if anything changes.

What to do: perform the financial analysis to understand contribution by customer and by agreement. Find the best and worst performers, and then correlate that with your perceived view of those customers; there will be some surprises!

Leak two: complexity that nobody charges for

Every bespoke workflow, unusual application, customer-specific security rule and “temporary” exception adds to what your team has to remember. It’s fair enough to document it in the CRM for that customer, provided the on-call engineers can get to these in a bind, but it’s likely that none of it appears as a line in the accounts, or on the invoice. It shows up as longer resolution times, more escalations and a growing reliance on the few people who know how each customer’s environment hangs together, presenting scaling constraints.

The customer is paying for a standard service and getting a custom one. You have three choices for each exception: standardise it, charge for it, or stop supporting it (we’ll cover this in more detail in a later post).

We’ve seen customer contracts with fixed monthly support charges, but no limits to the number of support hours or problems fixed, often as a result of tough negotiations to win a new, prestigious logo. The customer knows this, and will walk you into a cost trap that vaporises margin.

What to do: your customer service vs profitability study above can really help pinpoint these issues, and help you stand your ground when negotiating a contract, because you know what your cost base is.

Leak three: capacity lost to avoidable work

A busy service desk can still be an unproductive one. Reopened tickets, poor triage, preventable incidents, engineers searching for information that should be documented, and hand-offs that add time without adding value all use up capacity.

When the service desk is stretched, the natural response is to hire more capacity. Hiring into a process that needs work might help in the short term, but it adds to the long-term pain and entrenches the profit issue. The same goes for automation and AI: automating an unclear workflow just gets you to the confusion sooner.

Warning signs: ticket volume growing faster than the number of users you support; utilisation measured but rework not; service leaders who can’t name the top causes of demand.

What to do: do an analysis of the most common service desk issues and how long they’re taking (if the numbers seem weird, folks are probably not measuring the time consistently – which is a deeper problem that needs fixing). Correlate this with customers to see the noisiest (and therefore less profitable) ones.

Leak four: tools and vendor costs that aren’t recovered

Your MSP tooling was built one sensible purchase at a time. A few years on, there are overlapping products, minimum commitments above actual use, licence counts that finance and operations can’t reconcile, and vendor price increases that were absorbed because nobody had time to pass them on.

While the cost of the platforms used to deliver might seem a small part of the puzzle, when you’re paying for licensing based on seats accessed or devices monitored, the licensing cost creep multiplies out to big profit impacts quickly. You usually don’t have the luxury of passing on those platform costs in customer contracts, at least midway through a term – and even at renewal, probably not.

What to do: reconcile licences to customers and agreements, and give each major platform an owner who is accountable for its margin. And bargain hard – the MSP SaaS space is highly competitive; migration is easier than it was, and is therefore harder to hold over an MSP’s head as a reason to just take the cost rise on the chin.

Leak five: management attention spent on exceptions and escalations

The least visible leak is your own time and that of your senior team. When discounts, escalations and unclear priorities keep landing on the founder’s desk, the cost is more than salary. The opportunity cost is what is getting left behind: setting and executing on strategy, developing managers, improving the offer, and looking after strategic customers.

Founder dependence works while customers are happy and supported by strong engineers for years. But when growth jumps up, the MSP races to keep up, introducing teething issues that lead to escalations, which leads to management time lost.

One thing we’ve found works surprisingly well: upping the bar, and bringing the hiring process in-house to ensure each new engineer brought on is the highest calibre and can hit the ground running. While this seems anathema to just getting new bodies in to handle the load, if the quality slips, you’ll all be worse off and customers will churn, too.

Weighting the problems

The financial work can help prioritise the fixes: customers whose contracts are underwater, offerings that no longer make sense, broken support processes, levels of training and capability – all become clearer when the numbers are clearly understood.

The 90-day plan

You don’t need a two-year transformation program to find and fix most of these issues.

• Days 1–30: find the leaks. Contribution by customer and agreement, a licence reconciliation, a breakdown of where service demand comes from, and a list of the decisions that still come back to the founder.
• Days 31–60: fix the few that matter most. Pick the handful of agreements, workflows, tools and decisions with the biggest effect, and give each an owner, a baseline and a deadline.
• Days 61–90: lock in the gains. Update pricing and scope at renewal, standardise the process, retire the overlap, and check the improvement shows up in both the service numbers and the accounts.

Growth that pays

Growth is progress when each new contract or service brings margin, while delivering meaningful value to the customer. If your revenue is rising while profit, service capacity and management time aren’t keeping pace, the leaks are usually already visible in your own data.

Want an independent view of where you stand and what to fix first? Ask us about the STP Readiness Diagnostic.