MSP Pricing Strategy: The Numbers Small MSPs Need for Profit and Growth (Interview)

There are so many. The first signs usually appear when the bank balance stops giving you enough warning. An unexpected tax bill creates stress. Payroll becomes uncomfortable. The business cannot respond properly to M&A enquiries because the data is not ready. These are all signs that the owner has outgrown bank-balance management and needs proper financial reporting.

The first sign is when you no longer truly understand what your money is doing. You may know whether there is cash in the bank, but you do not have a clear view of profit, loss, margin, commitments or future pressure points. At that stage, the business is already too complex to be managed by instinct alone. You need to understand not just what came in and went out, but what the business is actually earning.

Low pricing is a major issue because it creates low margins from the start. The other big area is poorly-managed or poorly-recognized COGS—cost of goods sold. If you do not understand the true cost of delivering the service, you can easily look busy while quietly losing margin.

It often leaks out in the gap between activity and understanding. MSPs can be running in circles, doing more work, supporting more clients, taking on more pressure, but not measuring the real cost of delivery. They may not be charging enough, they may not be quantifying what they are actually doing, and as they get busier, they lose control of the numbers. Then they cannot hire properly, resource properly, or price properly.

EBITDA*, and specifically normalized EBITDA, is essential. The Directors’ Loan Account is also critical, especially where an overdrawn position needs to be covered through dividend planning after corporation tax. I would also include debtors value, because cash collection and working capital have a direct impact on the decisions an MSP can safely make.

[* Ed. note: “EBITDA” stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization”. You can see why everyone prefers the acronym.]

I would want to know the profit margin across the different areas of the business, because not all revenue is equal. I would also want a clear split between recurring revenue and transactional project work. And I would want visibility on licensing: what is coming in, what is going out, and whether the licensing model is actually profitable. Without those numbers, growth decisions are based on hope rather than reality.

The business needs a monthly management accounts rhythm, including preparation, review, and interpretation. It also needs to manage client contracts and commercial workflow through a PSA that is connected to the accounts platform. Finance should not sit separately from operations. The numbers should reflect how the business is actually being delivered.

You need to charge properly for the services you actually deliver, and then make sure you have the resources to deliver them sustainably. Scalability is not just about winning more clients. It is about knowing the cost of service, the margin behind it, and the team capacity required to support it. If those things are not visible, growth simply creates more pressure.

The mistake is exactly that: thinking about it too late. Acquisition, investment or exit all require planning. They also require good-quality financial and operational data. If that data has not been built over time, it becomes much harder to tell the right story about the business when an opportunity appears.

Too often, owners only start thinking about acquisition, investment, or exit when they reach a pressure point. It becomes reactive rather than strategic. They may be running out of energy, cash, or options, instead of planning from a position of strength. If you want choices later, you need to build the business properly now, with clean numbers and clear evidence of performance.

Year-end accounts are not enough for decision-making. Management accounts should be structured in a way that actually helps the business owner understand performance. Standard accounts often have a simplified chart of accounts, so they may not show gross margin correctly or make owner remuneration clear. For an MSP, that can hide the real picture.

Management accounts should be used as a live steering tool, not a historic record. Owners should be looking at key numbers every month: profit margins, movement in those margins, recurring versus project revenue, and trends over each quarter. The goal is to avoid surprises at year-end and make decisions while there is still time to act.

They should have a conversation about the connection between management accounts, business planning and valuation. These things are linked. If your management accounts are weak, your planning is weaker, and your valuation may suffer as a result.

They should talk honestly about whether their decisions are driven by accurate numbers or by hope. Every MSP owner should come back with a clearer understanding of their real position: what is profitable, what is not, where the pressure is, and what needs to change. The most valuable outcome is not just better reporting. It is better decision-making.