#51 – Don’t Be That Guy: Net Profit Is a Lie, Gross Profit Is King (Ryan Alter)

In this Don’t Be That Guy episode of the BMK Vision Podcast, Josh Peterson sits down with Ryan Alter for an executive-level conversation on a financial trap that quietly punishes otherwise “successful” MSPs: net profit can look fine while the business model is actually leaking.

This is not a discussion about tax strategy or accounting tricks. It’s about operational truth. Ryan and Josh walk through why gross profit—especially service department gross profit—is the signal MSP owners should obsess over, because it forces clarity on whether you’re delivering services at a margin that can sustain payroll, fund growth, and protect owner wealth. The conversation ties directly to the execution and financial discipline framework behind the BMK Vision operating system, along with broader guidance found in Strategies for Sustainable Growth for MSPs and Enhancing Business Decisions with MSP Analytics.

Is net profit a reliable indicator for MSP health?

Short answer: not on its own. Net profit is downstream of everything—good decisions, bad decisions, and the “noise” of general and administrative spending.

In MSPs, net profit can be distorted for perfectly legal reasons (owner compensation strategy, discretionary expenses, timing issues), which is exactly why it becomes a dangerous comfort metric. You can “feel” profitable while the service engine is underperforming, teams are overextended, and cash flow is tighter than it should be.

• Net profit can be manipulated or masked without fixing execution.
• Gross profit reveals whether the delivery model works before the spending starts.
• The P&L should function like an operational dashboard, not a tax artifact.

The MSP problem this episode solves

Many MSP owners can tell you they’re “busy” and can even show a profit—yet they can’t explain why profitability feels inconsistent, why margin gets squeezed during growth, or why recurring revenue doesn’t translate into owner leverage.

This episode addresses three recurring failure modes:

• Profit blindness: relying on net profit while ignoring the delivery margin that creates it.
• Service margin uncertainty: not knowing service department gross profit (even when services are the majority of revenue).
• Misallocated confidence: assuming “covering the monthly nut” equals financial safety.

Gross profit is king because it answers the only question that matters

Gross profit is the first clean checkpoint in the P&L: revenue minus the direct cost to deliver what you sold. Everything after gross profit is spending. That’s why gross profit is the clearest indicator of whether your MSP is structurally sound.

Josh frames it as a leadership discipline: start every financial review with gross profit. If the number is off, the job is to ask “why” until you can point to specific operational causes—mix, pricing, utilization, delivery efficiency, and agreement economics.

• Overall gross profit targets matter because small misses compound into large losses.
• Service department gross profit matters because services are often 60–70% of MSP revenue.
• Agreement performance matters because recurring revenue without margin is a liability disguised as stability.

Why service department gross profit is the leverage metric

If you have a service leader, that leader should be accountable to the service P&L—because the service department is where most MSP economics are made or broken. The uncomfortable truth is simple: if you don’t know service department gross profit, you don’t yet have a service leadership system—only supervision.

The episode also introduces an underrated companion metric that predicts operational pain: service salaries-to-service revenue ratio. It’s a tightrope—too high and the model can’t fund itself; too low and teams burn out, quality drops, and churn risk rises.

Recurring revenue is not the finish line—profit protection is

There’s a popular myth in the MSP world: “Once recurring revenue covers expenses, we’ve made it.” This episode calls that out as an unacceptably low bar. Covering the nut is not a strategy. It’s a waypoint.

Long-term MSP health requires a profit protection posture: build a delivery model that consistently produces margin, then choose intentionally how to allocate that margin—team, sales capacity, tooling, and owner wealth—without pretending net profit alone tells the story.

Episode highlights

• 00:02:10 – Why net profit can mislead owners into a false sense of security.
• 00:05:40 – Gross profit explained as the real measure of operational performance.
• 00:10:04 – Service department gross profit benchmarks and why most MSPs don’t know theirs.
• 00:17:48 – How revenue mix and weighted averages drive overall profitability.
• 00:33:09 – The long-term cost of being “just a few points off” financially.

About the guest: Ryan Alter

Ryan Alter is a former MSP owner and industry veteran with deep hands-on experience in operational finance, service delivery, and profitability. Having built and sold his own MSP, Ryan brings a pragmatic, operator-first perspective to financial discipline.

Connect with Ryan on LinkedIn →

About the host

Josh Peterson is the CEO of Bering McKinley and host of the BMK Vision Podcast, where he helps MSP owners replace intuition with clarity, discipline, and execution.

Connect with Josh on LinkedIn →

Frequently asked questions

Why can net profit be misleading for MSP owners?
Because net profit is affected by discretionary spending, accounting choices, and expense timing—so it can look “fine” even when delivery margins and cash discipline are weak.

What is the difference between gross profit and net profit?
Gross profit is revenue minus the direct cost to deliver what you sold. Net profit is what remains after all operating expenses. Gross profit shows whether the business model works before spending begins.

What gross profit should an MSP target?
The episode emphasizes setting clear targets and using gross profit as the starting point of financial review, with particular attention on service department gross profit as the core engine.

Why is service department gross profit so important?
Because services often represent the majority of MSP revenue, and service margin determines whether you can sustain payroll, fund growth, and protect owner income without heroics.

How do I know if my MSP’s recurring revenue is actually healthy?
Track the profitability of agreements (not just the recurring total). Recurring revenue that cannot produce margin is stability on paper and pressure in real life.

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