MSPs Can’t Sell Their Way to Profitability. There, I Said It.

Let's dive into this together (warning, there's a bit of math involved).

The Myth of Sales-Driven Profitability

Don't get me wrong, you absolutely must sell more MRR (Monthly Recurring Revenue). Grow or die, right? But sales alone won't make you profitable and could even make things much harder than they need to be.

The Real Challenge: Profitability Goals

During my conversations with MSP owners, a recurring theme has emerged: when asked what their #1 goal/challenge is, they usually say adding more MRR. But when I dig deeper and ask about profitability goals, I typically find they don't have one or it's not a KPI they track and methodically work to improve. This brings to mind the adage, 'top line is for vanity, profit is for sanity.' Profit is the oxygen the business runs on, and the MSP business is just way too hard not to earn the profit they deserve.

A Real-World Example

A recent exchange with an MSP owner underscored this point perfectly. They currently had $150K in MRR and had set a goal to add another $50K this year. Admirable, right? However, when I asked about their current gross margin on managed services, they shared it was only 45%. Ouch. When diving in to figure out why, there were no shortage of excuses. Capacity for growth is probably the number one justification I hear, which, while understandable, is not a good reason.

The Impact of Gross Margin

For context, our target for MSP Fuel clients—consistently achieved at my and my partner Howard Borochaner's MSPs—was over 70%. I explained that even a modest increase to 65% would yield an additional $30K profit from existing clients (20% more on their $150K in MRR). Here's the kicker: with a dismal 10% profit margin (far from the 30%+ it could and should be), they'd need to sell a staggering $300K in new MRR to add that SAME amount of profit. Madness!

The Takeaway: Focus on Margins

So, here's the takeaway: Aim to boost your managed services margin AND sell more MRR at the right margins. Strong operations lay the foundation for strong sales. It's about delivering undeniable value, setting yourself apart, and building trust with your clients so they continue to invest in your services, which shows up as predictable project revenue.

A Question of Stress and Profit

Would you rather have a $6m MSP at 10% margin or a $2m MSP at 30%? Same profit, much less stress. I say be the $6m MSP at 30%+ margin consistently, earning life-changing money and becoming an attractive acquisition target if that's your goal.

Need Help?

If you're struggling to nail down your managed services gross margin or develop a plan to increase it, book a call with me. We'd love to chat and help you chart a course to more profit with less stress.