MSP financial benchmarks: what best-in-class actually looks like

Most MSP owners can tell you their revenue. Far fewer can tell you their service gross margin, and fewer again know whether the number they just quoted is any good.

That gap was the subject of the latest MSPs in Conversation, where Ben Town sat down with Nick Moran and Kent Forster. Both ran their own MSPs for decades before exiting. Nick started his in 1993 and sold four years ago, joining ConnectWise and now IT Nation. Kent started as a sole trader in Canberra in 1996, ran the business for 25 years and sold it to his own leadership team. He now facilitates two Evolve peer groups and runs the Jumpstart onboarding sessions.

Between them they put real figures on what a healthy MSP P&L looks like. Here is what came out of the hour.

The problem is not bad numbers. It is not knowing what good looks like

Nick spent 20 of his 30 years in business running on gut feel, and says the business looked successful from the outside for most of that time. The metrics that get talked about at conferences are headcount and top-line revenue, and both are easy to feel good about while the business quietly makes nothing.

“There’s an ego that creeps in where someone says, how’s business? And you go, it’s fantastic, I’ve added another 10 staff and I’ve picked up another $1 million of revenue. But at the end of the day, it doesn’t really matter.” — Nick Moran, ConnectWise

Kent sees the same thing arrive with every new peer group member, though usually as an absence rather than a problem. Revenue sits in one bucket, costs sit in another, and the P&L is not built in a way that can answer the question of which parts of the business actually make money. Until there is something to compare against, there is no way to know whether 34% service gross margin is a crisis or a good quarter.

The 50-50-30-20 rule

The clearest thing to come out of the session was Kent’s shorthand for a healthy P&L. Of every $100 in revenue:

– $50 goes to cost of goods, leaving $50 of gross margin
– Shared expenses take no more than 30% of that gross margin
– What is left is 20% net profit

Kent’s own breakdown shows both the theory and what it looks like in practice. Best-in-class businesses actually run closer to 56% cost of goods and 24% expenses, and still land on 20% net. It also shows how quickly it comes apart: let cost of goods drift to 70% and net profit falls to 6%. Let expenses run to 37% and you get the same result. Do both and you are at minus 7%.

Table from by Kent Forster

Twenty percent is where best-in-class starts, not where it finishes. The average across that top quartile sits closer to 24.5%, and there are businesses running at 25%, 26% and 27%.

“20% is the entry level. 20% is the high tide mark.” — Kent Forster, IT Nation Evolve

At the other end there is a line that signals a structural problem rather than a slow quarter. Service Leadership classifies anything under 10% net profit as an unprofitable business, and Kent’s view on what to do about it is unambiguous: fix profitability first, then grow.

“You can’t sell your way out of an unprofitable business. You have to fix the profitability issue first, get yourself back to profitable and then grow.” — Kent Forster

None of it works until the buckets are right

The ratios only mean something once revenue and costs are sorted properly, which is where Evolve spends most of its onboarding. Kent’s analogy is a bakery. The service factory makes the thing you are best at. The shop sells everything else.

– Factory: managed services, projects and break-fix revenue, plus the service staff and the tools they use
– Shop: hardware, Microsoft subscriptions, licences and security software, plus the supplier invoices that come with them
– Shared expenses: rent, electricity, finance staff, anything that cannot be attributed to either

Graphic from Kent Forster

Each bucket has its own target:

The headcount check nobody wants to run

Kent’s rough measure for whether a business is carrying too many people is around $400,000 of revenue per employee. A 10-person business should be doing about $4 million. It is the first thing he looks for when he sees a new member’s numbers, and it is rarely a welcome conversation.

“You see people coming in and they’ve got 15 staff and they’re only doing $3 million. And of course they’re not making any money, but they don’t quite understand why.” — Kent Forster

The hardware margin most teams have quietly accepted

Both panellists arrived at the same figure from opposite directions. The belief that 8% is all you can get on hardware is one of the most expensive assumptions in the industry, and it usually comes from inside the business rather than from the market.

“My staff for years have been telling me the best we can do on hardware sales is 8%. And then they come along to this and find out the best businesses are doing 22%, 23%, 24%.” — Kent Forster

Nick had held the same belief about his own business, capping himself at 10% until benchmark data told him the industry was regularly clearing 20% or better. Neither suggests repricing everything overnight. Kent’s advice is to learn what good looks like, then move in increments and check the numbers again each quarter.

The number owners are most shocked by is their own salary

One of the more uncomfortable stretches of the conversation was owner compensation. Nick’s point was that underpaying yourself to keep everything else running feels like leadership and is actually a structural weakness, and that the shock on owners’ faces when they see what someone running a business their size should be taking home is one of the most consistent things he sees.

“At one stage I had 20 staff taking home more from a remuneration than myself. That’s great from a cultural point of view, but that’s not a healthy business long term.” — Nick Moran

Worth noting for anyone measuring themselves against the 20% net profit benchmark: it assumes the owner is already being paid properly. It is not 20% after skipping your own wage.

Where the benchmark data comes from

Most of these figures come out of the Service Leadership Index, a financial benchmarking platform built on a standardised chart of accounts. MSPs map their own accounts to the standard set, submit quarterly within a 20-day window, and get back a detailed comparison against the rest of the industry.

Results are grouped and colour coded:

– Green is best-in-class, the top 25%
– Yellow is the median, the middle 50%
– Red is the bottom quartile

The data goes back 25 years and covers thousands of MSPs across every geography and business size. Service Leadership was founded by Paul Dipple around 25 years ago, acquired outright by ConnectWise in 2021, and is now led by Peter Kujawa.

AI has started showing up in the numbers

The part of the session with the shortest shelf life, and possibly the most useful, was Nick on what the benchmark data now shows about AI. This is no longer a projection. Spend on staff is trending down, spend on tools is trending up, and it has been running that way for several quarters.

“For the first time ever, we’re seeing some real impact that AI is having on numbers, not theoretical stuff. The gap is getting bigger between the haves and the have-nots.” — Nick Moran

Which is his argument for sorting your numbers out now rather than later. If you do not know your starting point, you cannot measure what any of this is doing to your business, and you certainly cannot take the same conversation to your clients.

The two mistakes that come up most

Kent named two, and both are about inaction rather than bad strategy.

1. Getting the data and making no decision. A service gross margin of 34% against a target of 50% does not improve on its own. Leaving it another quarter to see what happens is six months of not making money.

2. Trying to sell your way out. Growth applied to an unprofitable business produces a bigger unprofitable business.

The cost of sitting in the bottom quartile is not only financial. As Kent put it, you end up spending more time worrying about cash than running the business, chasing invoices so you can cover the rent instead of working on anything that would fix the underlying problem.

Why both of them credit a peer group

Neither worked this out alone, and both were direct about that. For Nick it was accountability, and the isolation that outsiders never see.

“Running an MSP is not only tough, it’s lonely. From the outside looking in, you’ve got an IT company, you’re flying. The reality is a lot of the time that’s just an external visual.” — Nick Moran

For Kent the return was immediate. He walked into his first Evolve meeting not knowing how to contract managed services and had five agreements from other members in his inbox within the hour. Years later, the same group asked him why he was still working, which started his exit.

Watch the full session on demand. Nick and Kent covered more than we could fit here, including how long the chart of accounts work really takes and what changes once a leadership team can read the numbers themselves.