#26 - Don't be That Guy - Know Your Numbers or Die - MSP KPIs (Ryan Alter)

Most MSPs don’t fail because they lack effort. They fail because they lack instrumentation. When the business gets noisy—more tickets, more clients, more hires—owners default to story-driven leadership: “We’re busy, so we must be doing fine,” or “Cash feels tight, so sales must be the issue.” In this Don’t Be That Guy episode, Josh Peterson (joined briefly from Egypt by Ryan Alter) argues for a different standard: know the handful of numbers that tell the truth, then lead from those signals instead of vibes.

The core idea is simple and uncomfortable: revenue is not operational health. Revenue is often a sales-and-trust indicator, not a delivery indicator. What determines whether the MSP survives and scales is whether the model produces enough margin to fund payroll, management, tooling, reinvestment, and owner wealth—without heroics. That’s why this conversation keeps circling back to financial structure (how your P&L is built), and to a short list of KPIs—gross profit, service department gross profit, service salaries-to-service revenue, agreement gross profit, effective hourly rate, and utilization—that let an MSP diagnose the real constraint.

What makes this episode valuable is that it’s not “accounting advice.” It’s a leadership standard: stop accepting “yeah, but…” as a normal part of reviewing your financials. If service payroll is buried in G&A, you cannot manage a service business. If revenue isn’t segmented (service vs product vs resold cloud, and within service: recurring vs project vs hourly), you cannot understand what’s driving margin. And if your agreement profitability is unknown because time entry and ticket hygiene are inconsistent, you aren’t running a managed services model—you’re running a hope-based subscription.

The MSP numbers that matter (and why “busy” is not a metric)

Josh frames the conversation around a reality that veteran owners eventually learn the hard way: you can be slammed and still be structurally unprofitable. “Busy” can hide pricing errors, onboarding scope creep, time-entry failures, misallocated payroll, and agreements that quietly run at a loss.

The antidote is not building a dashboard with 200 KPIs. It’s committing to a small, repeatable set of numbers that reveal cause-and-effect:

• Revenue (segmented) — not as a trophy, but as the raw input for understanding mix
• Gross profit (overall) — the primary indicator of whether the model can fund reality
• Service department gross profit — the delivery engine’s health
• Service salaries-to-service revenue — the biggest lever on service margin
• Agreement Gross Profit (AGP) — the truth about subscription profitability
• Effective Hourly Rate (EHR) — what your “all-in” agreements actually earn per hour
• Billable utilization — how well you’re converting payroll into outcomes

The P&L structure problem: if your financials aren’t segmented, you’re guessing

One of the most practical leadership points in this episode is that financial clarity is a structural decision. If your chart of accounts and reporting aren’t designed for MSP economics, even “good” numbers become misleading.

Josh’s baseline segmentation is intentionally simple:

• Three revenue buckets: service, product, resold cloud
• Within service: recurring, project, hourly

Why it matters: margin is a weighted outcome. If product revenue grows faster than service revenue, overall gross profit can fall even while topline climbs. Without segmentation, you can’t answer the only leadership question that matters when a metric changes: why?

Service payroll belongs in COGS (and “yeah, but…” is a warning light)

This episode draws a hard line: service payroll must live in service COGS, not in a single G&A bucket. If it’s misclassified, service gross profit becomes fiction—either artificially inflated or impossible to interpret. The downstream cost is even worse: leaders start excusing their own reports with “yeah, but payroll isn’t in there yet,” and the business never actually becomes manageable.

Josh also ties this to management accountability: if you call someone a service manager, they must have a service P&L they can actually manage toward a target—not just a supervisory role without measurable ownership.

Agreement Gross Profit: why onboarding scope is the silent margin killer

Ryan and Josh point to a common industry myth: that it “naturally” takes 3–5 months for a new managed services client to become profitable. The deeper issue is that many MSPs treat onboarding as a vague, unlimited remediation project instead of a clearly defined transition: tools, training, and baseline standards—not fixing every inherited problem for free.

AGP becomes the forcing function. It tells you whether a client is underperforming because:

• the agreement was priced wrong,
• the onboarding scope was undefined (and hours bled out early),
• out-of-scope work isn’t being called out and billed,
• or delivery hygiene (ticket mapping, time entry, agreement attachment) is inconsistent.

AGP turns “I feel like this client is bad” into an evidence-based conversation—and that is the difference between leadership and coping.

Effective Hourly Rate and utilization: the execution layer behind profit

Profitability is not only pricing. It’s execution. Effective Hourly Rate (EHR) connects the subscription model back to operational reality by asking: after hard costs, what did we actually earn per hour on the agreement? Utilization then shows whether your staffing pyramid and work allocation are rational—or whether high-cost talent is doing low-leverage work.

As Ryan notes, utilization is also an organizational design signal: it exposes whether you’re overstaffed in expensive roles, understaffed in entry-level capacity, or simply lacking clarity on how work should flow through the team.

Episode highlights

• 00:00:38 – The small set of numbers that determine whether an MSP survives.
• 00:08:32 – Why segmenting recurring, project, and hourly revenue is non-negotiable.
• 00:13:13 – Service payroll belongs in COGS, not G&A—how this changes everything.
• 00:22:50 – Service managers, accountability, and owning outcomes (not just activity).
• 00:33:03 – Agreement gross profit: pricing, onboarding, and the operational truth.
• 00:41:40 – Utilization and effective hourly rate as the pulse of delivery economics.
• 00:53:50 – Perspective: numbers matter—but people and leadership are the point.

About the guest: Ryan Alter

Ryan Alter is a former MSP owner from Missoula, Montana who grew a one-man shop into a 25-person operation before exiting successfully. He brings real-world lessons from two decades of leadership and a practical focus on connecting operational execution to financial outcomes.

Connect with Ryan Alter on LinkedIn →

Frequently asked questions

What are the most important KPIs for MSP profitability?
Start with segmented revenue, overall gross profit, service department gross profit, service salaries-to-service revenue, agreement gross profit, effective hourly rate, and utilization. These numbers connect pricing, delivery, and staffing into a coherent operating story.

Why is gross profit more important than net profit for MSP owners?
Gross profit reveals whether the delivery model can fund payroll and growth before overhead. Net profit can look “fine” while the delivery engine leaks margin in ways that will eventually break the business.

Should service payroll be in COGS or G&A?
For MSP financial clarity, service payroll (technicians, service manager, dispatcher, project management tied to delivery) belongs in service COGS so service department gross profit becomes a usable management target.

What is agreement gross profit (AGP) in an MSP?
AGP measures whether managed services agreements are profitable after accounting for time and costs tied to delivering the agreement. It’s the fastest way to replace “gut feel” with evidence.

How do MSPs improve profitability without cutting service quality?
Define onboarding scope, enforce time-entry and ticket hygiene, call out out-of-scope work, structure staffing appropriately, and manage toward service GP and AGP targets rather than activity metrics.

Related resources from Bering McKinley

• Recurring revenue in ConnectWise: how to set up agreements that don’t break later
• Dispatchers: keep your support team accountable
• Time entry discipline: why it’s about more than “tracking hours”

Want to continue the conversation?

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