In February, I was in Ft. Lauderdale at an MSP Expo. During one workshop, a speaker shared a data point from IT Nation that caught the room:
MSPs doing around $2M in ARR were operating at essentially zero profit.
Breaking even.
Later that day, walking the vendor floor, I met a founder running a $4.5M MSP in Connecticut.
Also, at zero.
The only “profit” they could point to was $110,000 a year, which came from a building they owned, and they paid rent on.
Not from operations. From real estate.
Two different companies. Same outcome.
Growing and stable businesses that weren’t producing profit.
The Easy Explanation
Spend enough time in the MSP world and you’ll hear a familiar story:
- Vendors keep raising prices
- Customers keep asking for more
- Competition keeps pushing rates down
On the surface, it makes sense.
Margins are getting squeezed from both sides.
But that’s not what I was seeing.
What’s Actually Happening
These businesses aren’t being squeezed. They’re undefined.
And when a business is undefined, margin doesn’t disappear all at once.
It leaks quietly, constantly, and invisibly.
- Work gets done that was never scoped
- Requests get fulfilled that were never priced
- Senior people step in to “just handle it”
- Exceptions become the norm
- Contracts describe intent, not boundaries
Over time, the company becomes highly responsive, but not economically coherent.
Why Scale Makes It Worse
At $1M, this can be hidden.
At $2M, it starts to show.
At $5M, it becomes structural.
Because scale doesn’t fix ambiguity. It amplifies it.
Every undefined promise gets repeated, and every exception gets multiplied. Every unpriced activity becomes embedded in delivery.
So, revenue grows, effort expands and profit stays exactly where it was.
The Vendor and Customer Illusion
It’s easy to point at vendors. Yes, platform costs increase and tooling gets more expensive.
But vendors don’t destroy margin. They expose whether margin was ever designed.
The same is true on the customer side.
Customers don’t create “free work culture.”
They respond to what’s tolerated.
When value is clearly defined, priced, and enforced pushback changes.
When it isn’t the boundary dissolves.
The Real Constraint
Most MSPs don’t have a pricing problem they have a definition problem.
- What exactly is included?
- What happens when something falls outside of scope?
- What is the economic cost of response, not just resolution?
- Where does senior time get spent and why?
If those answers aren’t explicit, consistent, and enforced the business isn’t operating on a model.
It’s operating on goodwill.
And goodwill does not scale.
The Shift: From Builder to Architect
This is where the role of the founder changes.
Early on, the business grows through effort:
Solving problems. Helping customers. Saying yes.
That’s how momentum is created. But what builds the business eventually starts to erode it.
Because every “yes” that isn’t defined becomes a liability the company carries forward.
The transition is subtle, but decisive:
From delivering value to designing the terms under which value is delivered.
Rebuilding Profit (Without Chasing It)
Profit doesn’t come back through cost-cutting. It comes back through structure.
A few shifts I see working consistently:
- Define the edges of value: Not just what you do, but what you don’t do. Ambiguity is where margin disappears.
- Make invisible work visible: Track it, name it, and price it. If it exists operationally, it must exist economically.
- Separate response from resolution: Speed has value. Access has value. Most MSPs give both away.
- Remove “free” escalation paths: Senior time is often the largest hidden subsidy in the business.
- Align contracts with reality: Not what was intended, but what is happening.
A Final Thought
There’s nothing inherently broken about the MSP model, but many MSPs are trying to scale activity instead of structure.
And activity, no matter how intense, does not produce profit on its own.
As Steve Jobs once said:
“Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple.”
That’s the work.
Not more effort. Not more tools. Not more customers.
Cleaner thinking. Clearer definition. Stronger architecture.
Because a $5M business that makes nothing isn’t a pricing problem.
It’s a design decision whether anyone meant to make it or not.