Are you feeling the pinch? If you’re an MSP struggling to keep your profit margins afloat, you’re not alone. The latest data from Service Leadership reveals a troubling trend: 28% of MSPs aren’t profitable. That’s right—over a quarter of the industry is barely keeping the lights on. And the average MSP is only pulling in a measly 8-9% net profit in EBITDA, which is basically scraping the bottom of the barrel. When you consider 10% as break-even, it’s clear that most MSPs are operating in the danger zone.
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So, why the hell is this happening? Let’s break it down. We’re in a perfect storm of economic pressure, inflation, and an industry that’s rapidly changing. The economy is flat, and any growth you see is mostly businesses hiking up their prices to keep up with the relentless inflation. The American dollar has lost 25% of its value since 2020, so everything costs more—including your technical labor. Engineers and techs are in high demand, and if you want top talent, you’re going to pay top dollar. Sure, you can lean on AI or offshoring, but at the end of the day, you need skilled engineers on U.S. soil who are committed to your business.
Here’s the brutal truth: If you want to survive—and thrive—during these times, you need to be laser-focused on two things: who you serve and how you develop those relationships.
1. Target High-Value Clients
The MSPs who are crushing it right now aren’t wasting time on every Tom, Dick, and Harry that comes their way. They’re strategic about who they take on as clients. These high-value clients are the ones who are profitable, aligned with your services, and don’t balk at your prices. They respect your expertise, follow your advice, and appreciate the value you bring to the table.
On the flip side, if you’re still saying yes to any client with a checkbook, you’re digging your own grave. Chasing revenue for the sake of revenue is a losing game. When you lower your fees just to land a client, you’re setting yourself up for long-term pain. You’re compromising your value, and worse, you’re likely forgetting to revisit and adjust those prices down the road. This is where many MSPs go wrong—they never evolve their pricing strategy with their clients, leaving money on the table and profitability in the dust.
2. Master Client Development
The most successful MSPs aren’t just winning clients; they’re developing them. They’re methodical about onboarding, setting clear IT roadmaps, and crafting 6-24 month budgets that ensure ongoing investment in IT, security, and compliance. This isn’t just about keeping the lights on; it’s about making sure your clients understand the ongoing value of what you do. They need to see IT investment as a non-negotiable part of their business strategy.
But let’s get real—this isn’t going to get easier anytime soon. We’re in an economic quagmire that’s going to stick around for a while. With inflation biting, a flat economy, and a volatile election cycle ahead, you need to adapt or face the consequences.
What’s Next?
I’ve just put together a new report, “The Election Year MSP Market Forecast,” that dives deep into the trends and challenges MSPs are facing. This report is packed with insights on economic conditions, M&A activity, lead flow, competition, and more. But more importantly, it’s a roadmap for how to adapt your strategy to not just survive, but thrive, in these turbulent times.
Bottom line: If you don’t change your approach, your profitability will continue to dwindle. But with the right strategy, you can navigate this stagnant economy and come out stronger on the other side.
