You’ve built your stack, set your pricing, and onboarded clients. But are you actually making money on the services you provide?
A surprising number of MSPs don’t. On the surface, your monthly recurring revenue (MRR) might look healthy. But underneath, hidden costs like excessive technician time, tool creep, or underpriced service bundles can quietly eat away at margins. Sounds like you could use a profitability audit.
This guide will walk you through a practical audit of your service offerings. It will help you connect the dots between what you deliver, what it costs to deliver it, and what you’re actually charging. Rather than finance jargon or spreadsheets filled with red ink, you get clarity, control, and course-correction.
Why an Audit Matters Now
MSP profitability is a moving target. Costs go up, especially with security tools, licenses, and salaries. Clients ask for “just one more thing” without contract updates. Plus, your own team may not always track time accurately.
A regular profitability check-in forces you to answer tough questions like:
- Are my flat-rate service plans costing more than they bring in?
- Which clients are truly profitable? Which are dragging me down?
- Am I pricing with enough margin to grow and reinvest?
If you haven’t asked these questions in the last six months, you’re overdue for a profitability audit.
5-Step Profitability Audit Checklist
Here are some actions you can take to make sure your service offerings are properly priced and managed:
Step 1: Pick 3-5 Services to Analyze
Don’t try to audit everything at once. Start with your most popular services, like fully managed support, cybersecurity bundles, or backup and disaster recovery.
List what’s included in each package. Then break down what it actually takes to deliver them. This should include labor, licensing, tools, and overhead.
You may find some surprises. For example, maybe you’re including vulnerability scanning for free, but the scan results are generating hours of unpaid remediation work. Or perhaps your backup solution’s storage costs have crept up while your pricing hasn’t budged.
Step 2: Assign a Cost to Your Labor … Accurately
This is where many MSPs fudge the numbers. If a Tier 2 tech spends four hours troubleshooting an issue for a flat-fee client, what does that really cost your business?
Even if your staff is salaried, their time still has value. Calculate the fully loaded hourly cost of each technician role — salary, benefits, taxes, tools. Then, apply that to the time spent per service or client. It’s not glamorous work, but it’s essential.
You don’t need to be perfect down to the penny. Ballpark accuracy is better than flying blind.
Step 3: Compare Costs to Revenue by Service
Now it’s time for the “aha” moment. Take what a client is paying for each service and subtract the estimated cost to deliver it. Are you making a healthy margin?
If not, you’ve got a few choices:
- Raise rates.
- Streamline delivery.
- Automate more.
- Unbundle certain services that are draining resources.
MSPs tend to give away too much, especially in legacy contracts. A firewall firmware update here, an hour of after-hours support there and suddenly, your $150/month “gold” package is running at a loss.
Step 4: Identify Hidden Profit Killers
Even if your services look profitable on paper, there are often hidden culprits that chip away at margins:
- Scope Creep: Are you delivering services not included in the original agreement just to keep a client happy?
- Vendor Price Changes: Have your licensing or tool costs increased while your rates stayed flat?
- Support Overuse: Are certain clients using far more support hours than others on the same plan?
These issues are fixable, but only if you spot them.
Rayanne Buchianico
Step 5: Build in Annual Profit Reviews
Once you’ve done the hard work of the initial audit, schedule annual or even quarterly reviews. Profitability isn’t static. Your costs shift, your clients grow, and your staff takes on new responsibilities.
“As a business owner, reviewing your profitability each quarter should be high on your priority list,” Rayanne Buchianico is CEO of ABC Solutions LLC, wrote in a ChannelPro article. “Business environments change rapidly and require regular attention.”
Treat profitability reviews the same way you treat client QBRs: scheduled, structured, and non-negotiable. Use the insights to refine pricing, remove inefficiencies, and set realistic MRR growth targets.
Final Thoughts
This is not a hobby; you’re running a business. Profitable services are the foundation of long-term growth, team retention, and strategic investments.
Doing a profitability audit might feel uncomfortable at first. It is like shining a light in places you haven’t looked in a while. But it’s better to know the truth now than let small leaks sink your ship later.
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
Featured image: iStock
