How MSPs make money: recurring revenue, pricing and margin
In brief
MSP economics depend on the gap between recurring customer revenue and the recurring effort required to deliver the service. Pricing, labour utilisation, tooling, standardisation, customer acquisition and service scope all interact. Growth can improve profitability when the operating model scales; it can destroy profitability when every new customer creates bespoke work.
Where MSP revenue comes from
Most MSPs combine several revenue types: monthly managed services, software/licence resale, cloud consumption, security services, projects, hardware and advisory work. The attraction of managed services is recurrence and visibility. The danger is assuming recurring revenue is automatically high-quality revenue.
A £5,000 monthly contract that consumes £4,500 of labour, licences and delivery overhead is economically different from a £5,000 contract that fits a highly standardised service model. The headline MRR is identical; the operating leverage is not.
Common pricing models
| Model | Strength | Risk |
|---|---|---|
| Per user | Easy to understand; scales with client headcount | User complexity varies widely |
| Per device | Maps to endpoint workload | Less useful as SaaS/cloud responsibility grows |
| Fixed bundle | Predictable for buyer and MSP | Scope creep can erode margin |
| Tiered packages | Creates clear upsell path | Artificial tiers can confuse buyers |
| Consumption / usage | Aligns some costs to demand | Less predictable recurring revenue |
| Hybrid | Can reflect real delivery economics | Requires excellent quoting and billing discipline |
What drives MSP margin?
At a high level: standardisation, automation, service mix and customer fit. The exact accounting definitions differ, but the operational questions are consistent.
- How many technician hours does each service consume?
- How much third-party software is bundled into the contract?
- How expensive is onboarding and how quickly is it recovered?
- How much work falls outside the standard stack?
- How much sales and marketing spend is required to replace churn and create growth?
- How concentrated is revenue among a few customers?
What 2026 industry data says
Two current vendor-published datasets illustrate why the market deserves more nuance than “MSPs are growing”. Kaseya’s 2026 State of the MSP survey, based on more than 1,000 MSP respondents, reports that 71% identified customer acquisition as their biggest challenge. It also reported a decline in the share of MSPs saying typical customer spend exceeded $25,000 per year.
At the same time, Service Leadership’s 2026 release says best-in-class IT solution providers sustained 19%+ adjusted EBITDA for a sixth consecutive year. Its benchmark draws on providers across 104 countries and examines scale thresholds, private-equity-backed performance and AI’s impact on financial and operating KPIs.
When does growth become a problem?
Growth becomes dangerous when the sales promise and delivery system drift apart. Common warning signs include excessive exceptions to the standard stack, chronic project work disguised as “included support”, underpriced onboarding, rising ticket volume per user, technicians spending time on low-value repetitive work, and account management becoming reactive rather than planned.
The answer is not always “charge more”. Sometimes the customer is a poor fit, the service is badly scoped, the toolchain is fragmented or the organisation has not invested in automation and documentation.
Where AI enters the economics
AI is economically interesting for MSPs in two different ways. Internally it may reduce time spent on ticket triage, documentation, monitoring and repetitive workflows. Externally it may become a new managed service customers pay for. Those are separate business cases and should be measured separately.
Kaseya’s 2026 survey says 53% of respondents were already using AI to automate functions such as ticketing, patching and monitoring, but more than half had automated only around a quarter of workload. That suggests operational adoption is real but far from complete.
Questions an MSP owner should know the answer to
- Which customer segment produces the best contribution after delivery effort?
- Which services create recurring margin and which merely create recurring workload?
- What proportion of service activity is standardised enough to automate?
- What is the fully loaded acquisition cost of a new customer?
- How long does onboarding take to become economically positive?
- Which vendor relationships create concentration or pricing risk?
- How much revenue would disappear if the top three customers left?
Sources and further reading
- Kaseya — 2026 State of the MSP Report (vendor-published survey; 1,000+ respondents)
- ConnectWise / Service Leadership — 2026 profitability report release
- Service Leadership Index — 2026 executive summary