One of the easiest ways to improve profitability in your MSP is also one of the most overlooked. It’s knowing exactly how much money you make — or lose — on each client. That may sound simple, but calculating true profit per client requires more than knowing top-line revenue or monthly recurring revenue (MRR).
Plenty of MSPs have high-paying clients who consume an outsized amount of support time or custom work, or add an enormous amount of stress. Others may pay less consistently, with low overhead and no surprises. Which client would you rather replicate?
Here’s how to find out who’s really contributing to your bottom line and who’s quietly draining it.
Accurately Calculate Revenue
It sounds obvious, but make sure you’re accounting for all revenue sources for each client. This includes monthly recurring services, project work, hardware margins, and any pass-through items you mark up.
If a client pays $3,000 per month for managed services and averages $1,500 per quarter in project work, then your real average monthly revenue is closer to $3,500. But that figure means nothing without understanding what it costs to service them.
Track Time Meticulously
Adam Bielanski
You can’t calculate true profit if you don’t know how many hours go into supporting each client.
“In the realm of IT businesses, the importance of accurate time entry cannot be overstated,” said Adam Bielanski, . “Findings from recent research paint a clear picture: Organizations that implement meticulous time tracking procedures experience a notable upswing in profitability and operational efficiency.”
That means using your PSA tool consistently. Everyone on your team — engineers, account managers, even senior staff — must log their time accurately, even for quick tasks. A client who calls every day with five-minute questions may be using more of your resources than a client with a major project who only checks in once a week.
Most MSPs fall short on this step. Without time tracking, you’re relying on gut feelings — which likely can’t spot slow leaks in profitability.
Apply Loaded Labor Costs
Once you’ve tracked time, multiply those hours by your loaded hourly rate for each employee. That’s not just salary, it’s salary plus taxes, benefits, overhead allocation, and management time.
If your engineer makes $80K, their loaded cost might be closer to $110K, which means every hour they work costs you about $55. Add in the cost of your tools and overhead for that client, like licensing, cloud services, third-party apps, and now you’re looking at the full cost of delivery.
Subtract that from revenue, and you have your true profit. In many cases, the number is sobering.
Include Hidden or Soft Costs
Not all client costs show up in a PSA.
Consider things like:
- Extra time spent managing the relationship or smoothing over friction.
- Discounted pricing you offered to “win” the deal.
- Special processes or exceptions you make just for them.
Every time you customize billing, create a custom report, or make a client-dependent exception, it adds complexity—and complexity costs money. You don’t have to assign a dollar value to every one of these, but they should factor into your mental model of profitability.
Compare Across Your Client Base
Once you’ve calculated true profit per client, compare it. Are your highest-revenue clients also your most profitable? Or are your “quiet” clients actually your best contributors? Are there patterns based on industry, size, or service tier?
Erick Simpson
This comparison helps you spot where to invest more, where to raise prices, and which clients you should consider letting go.
Just like sports teams, MSPs “need to trade out our underperforming players in order to bring on the right players to help us get to the championship,” explained Erick Simpson, CEO and chief strategist at Channel Mastered. “That’s really the philosophy here. How can we bring on the right clients that value our services, that pay us what we’re worth so that we can continue to grow and add to our staff, and compete in today’s very challenging talent hiring and retention market?”
Use the Data to Drive Better Decisions
Now that you know which clients are profitable, use the data to take action:
- Adjust pricing for clients who require more time or support.
- Streamline services for low-margin clients.
- Build a profile of your ideal, most profitable client. Focus sales and marketing around them.
This isn’t about penalizing high-maintenance clients. It’s about being intentional with your resources and building a business that serves both your clients and your bottom line.
Profitability Isn’t Optional
You can’t grow on guesswork. Knowing true profit per client gives you a competitive advantage that helps you scale smart, hire at the right time, and say yes (or no) with clarity.
If you’ve been relying on MRR alone to gauge your business health, it’s time to dig deeper. The numbers are there. You just have to look.
Next Steps
- Want more helpful guidance on this topic? Check out our Running a Profitable MSP Answer Center.
- Have a question for our experts? Send it to editors@channelpronetwork.com
ChannelPro has created this resource to help busy MSPs streamline their decision-making process. This resource offers a starting point for evaluating key business choices, saving time and providing clarity. While this resource is designed to guide you through important considerations, we encourage you to seek more references and professional advice to ensure fully informed decisions.
Featured image: iStock
