Growth in the MSP market: doing everything yourself now costs you
AuthorMSP Late NightPublished on:Growing in the MSP market feels different from five years ago, and that is not a feeling but arithmetic. Software margins are falling, vendors are taking more in house, clients expect more and will not pay more. And still, at every table where MSP owners meet, someone says business is going well. That person has almost always done one thing the rest keep postponing. No secret recipe, no exotic tool, just a choice most owners have pushed out for at least two years.
The situation we see most often: an MSP with ten to fifty people, stable revenue, loyal clients, an owner who still joins escalations personally. Everything runs. On paper. But the owner also knows that one client a month arrives through word of mouth, that the management team never gets round to the strategy session, and that Microsoft margins have been narrowing for two years. People work harder and it returns less.
Underneath that sits a double bind. On one side the client has a picture of what you do and do not do, and that picture does not match reality. On the other side you do a great deal the same client knows nothing about, because it runs and nobody rings. You become less visible the better you get. Meanwhile a NIS2 question lands that the client assumes you will pick up, while you never offered it and are not paid for it.
What actually drives growth
Two things have become heavier in the eyes of MSP buyers over the past two years, and they say a lot about where growth still sits. The first is revenue per employee. Not absolute revenue, not seat counts, but what an average FTE in your business brings in. The second is net revenue retention, meaning how much more you take out of your existing client base each year. Together these two numbers tell you whether your growth is structural or accidental.
Owners who use these metrics as steering information end up making different choices. Doing everything yourself no longer scales, not with security demands, not with NIS2, not with the liability waiting around the corner. What does work: choosing a niche or a vertical where you can ask better prices, and filling in the work outside your core circle through partnerships. Buyers demonstrably pay more for a niche player than for a generalist. Not a few per cent more, a whole multiple more.
Partnerships that hold up
This is where most of the tuition fees are paid. An MSP with thirty people that only calls on its own clients signs one new client a month. The same MSP that attaches itself to a telco or a larger chain partner can onboard thirty clients in a good month through a single agreement. The difference is not better selling, the difference is where you stand when the music starts. The catch: a partnership in which you are the dependent party is not a partnership, it is a sales channel for the other side.
The rule of thumb that holds in practice: you have to need each other, otherwise it does not work. Equality on paper is not enough, because if you are irrelevant to your partner they will make no effort for you. So look at two things in every collaboration. One: are we both investing, and does it return something to both of us. Two: how do I get out without damage if it goes wrong. An owner who enters a partnership without an exit clause hands the multiple of the business to the first vendor that changes the rules.
“In a partnership you have to genuinely need each other”
Concretely: look hard at the ratio between what you deliver to a partner and what the partner delivers to you. If you represent fifteen per cent of their revenue and they represent four per cent of yours, you are on the short end. Not today, but on the day they decide to work with a bigger player or to insource. We know of MSPs that worked well with a telco for six years, until that telco decided to build its own managed services. The MSP suddenly had thirty clients that would move within a year, contracts that offered no protection, and a sales process that had to be built from nothing. That exit clause in year one could have been worth hundreds of thousands of euros six years later.
The other partnership: peer groups
Collaborations between MSPs are a category of their own. The experience here cuts both ways. Four MSPs who met in 2015 during a ticketing system implementation spent a day together every month for two years. Rates on the table, propositions on the table, everything open. That works, because they were not competing and they trusted each other. What does not work: joining an existing group of MSPs whose members you do not know, or setting up a consortium in which everyone keeps defending their own P&L. That turns into a fight. The peer groups that succeed start at a bar, not from a template.
What set those four MSPs apart was not only the chemistry, but the ground rules they applied without writing them down. No geographic overlap. No poaching each other's clients, not even when the chance presented itself. And an agreement that what was shared at the table stayed at the table. You do not build that kind of trust in a quarter. It takes two or three sessions before the rates genuinely come out, and a few more before someone dares to say their EBITDA is disappointing. If you are not willing to make that investment, do not start a peer group.
“Buyers pay more for a niche specialist than for a generalist”
Specialise without losing clients
The biggest fear around specialising is losing existing clients. That fear is understandable and usually unfounded. In practice, MSPs that choose a vertical, such as healthcare, legal or manufacturing, keep their existing generic clients as long as service levels hold. What changes is the intake: new clients arrive more specifically, pay better rates and ask sharper questions that make your whole team better. Revenue per employee rises on its own because you spend less time working out what their sector involves.
The trap is that owners think they have to choose tomorrow and have a complete proposition ready the day after. You do not. What you do have to do: point to one clear group in your marketing, your website and your sales conversations where you deliver the most value. The rest can stay. But if everything in your communication still says for small and medium business, nobody picks you for a specific reason. And then you keep being compared on hourly rate.
An MSP that has sat still for the past few years with stable revenue and loyal clients has roughly one more season to choose. Specialise and build a real proposition. Attach yourself to a larger group and take risk off the table. Or carry on as before and hope the market waits. At MSP Late Night we have the owners at the table who have walked all three routes, and who tell you what actually worked and what cost them money in practice.