Josh Peterson has been telling MSP owners to enter eight hours a day and forty hours a week for more than twenty years, and for most of that time the answer came back as some version of why would I bother. The revenue is recurring, payroll is fixed, and the tickets get closed either way. Lately that answer has mostly stopped. New clients are entering their time with less argument and better quality, and Josh admits he stopped asking why and simply enjoyed it. The reason is worth understanding, because it is not a sudden love of administration. Owners are looking harder at where their margin went, and the moment they do, they discover that every report they want to trust depends on a timesheet. Agreement gross profit cannot be read without it, utilization cannot be measured without it, and the argument that time entry is the whole MSP story stops sounding like a consultant's hobby and starts sounding like arithmetic. The same arithmetic sits underneath how service commitments shape your pricing structure, because a promise in an agreement is paid for in hours whether anyone records them or not.
The number that ties all of it together is the effective hourly rate on your agreements: what a managed services contract actually earns for each hour your team spends delivering it. Put that number next to the rate you would quote for an hour of project work and most MSPs find a gap wide enough to explain nearly every financial symptom they have been treating separately. Weak service revenue, a service department gross profit that drifts down each year, a combined gross profit that never reaches target. This is a question of leadership judgment before it is a question of pricing, because the gap is created by decisions: contracts priced once and never revisited, labor costs that rose underneath them, and time that was never captured well enough to show what was happening. What follows is how to calculate the rate, why it is widening for so many MSPs right now, why it answers more questions than any other single number on a service P&L, and why the teams that enter their time well are the ones whose owners explained what the data was for.
Josh has a short list of things he has said to MSP owners so often that he can predict the objection before it arrives, and time entry sits near the top of it. Enter all forty hours. If you do not, you are, in his word, screwed. For two decades the objection was structural and it sounded reasonable: revenue is fixed and recurring, payroll does not change from week to week, so the hours in between are a detail. When Josh asked Gary whether he still hears owners say they do not pay attention to utilization at all, Gary had to think about it. He could not remember the last time. What he hears now is closer to acceptance: fine, we can do that. There is not a lot of pushback.
Josh offers two explanations, and the second one is the one that matters. The first is fatigue, that the people BMK works with have simply heard the drum enough times. The second is that owners are losing confidence in the managed services model itself. They feel squeezed by their largest vendors, they are fighting with clients over scope, and contracts they priced badly seven or ten years ago are punishing them today. The response Josh sees is a renewed interest in project billing and hourly billing, and that turns time entry from a compliance exercise into a revenue question overnight. You cannot invoice an hour nobody recorded, and you cannot know whether a project made money if the hours spent on it are a guess. The owner who shrugged at a utilization report will pay close attention to a margin that is visibly leaking.
Gary's way into the number is a single question: how much would you charge per hour for this work? Some owners resist the framing because they do not sell hourly, and Gary's response is that the question is not about billing model. It is about what an hour of your team's time is worth. Asked that way, most MSPs name a project rate somewhere between $125 and $300, and many land near $200. That is the standard rate, sometimes called the rack rate. Then comes the second number, the effective hourly rate on the agreements, which is the managed services revenue from a contract divided by the hours the team actually spent delivering it. When BMK puts those two numbers side by side, the agreement figure regularly comes out around $100, and sometimes $95.
The contrast does the persuading on its own. Every hour worked under an agreement earns about half of what the same hour earns on a project. Nothing in the calculation is exotic. For example, an agreement billing $9,500 a month that consumes one hundred technician hours in that month is earning $95 an hour, whatever the proposal assumed when it was signed. The number is simple precisely because it compresses pricing, scope, efficiency and client behavior into one figure an owner can hold in their head. Gary calls it a signpost: the fastest honest answer to whether the managed services business is doing what it was designed to do. It also has a dependency that most owners only notice at this point. The denominator is hours, so the rate is exactly as reliable as the time entry beneath it.
Gary describes the squeeze in terms of the people doing the work. Minimum wages go up, and a level one technician starts at a higher and higher number. The cost of living rises for the level two and level three staff, and their pay follows. None of that is unusual, and none of it shows up in a contract that was priced once and has not moved since. The agreement that made sense at a lower wage bill now earns less every year without anyone deciding that it should. Gary's phrase for it is blunt: you just flat out cannot afford what you used to be able to afford.
That is the catalyst for the attention owners are now paying to utilization, and it follows a logic Josh summarizes well. The more something costs you, the more closely you watch what you get out of it. When a technician cost less, an owner could afford not to know how that technician's week was spent. At today's wages the question of where the margin went leads straight to the hours, and the hours lead to the contracts that consume them. This is also why the effective hourly rate tends to fall quietly rather than suddenly. Each individual contract erodes a little each year, each individual raise is justified, and the combined effect only becomes visible when someone divides revenue by hours and sees the result.
The day before the recording, Josh told a client something that landed hard. The story, he said, always ends in the same place: what is your effective hourly rate on your agreements? You have sixty, eighty, a hundred and ten thousand dollars of managed services revenue. Do the math correctly, and if the rate is not at least your standard hourly rate, there is your answer to everything. Service revenue being off, service department gross profit being off, combined gross profit being off. The client agreed immediately. Josh's reaction was to start questioning himself, because when somebody agrees with him that quickly he wonders whether he is over indexing on one idea.
He is not, and the reason is structural. Most of the service P&L is downstream of two things: what the agreements charge and how many hours they consume. Service revenue falls short when agreements earn too little per hour of capacity. Service gross profit falls when those hours cost more than the agreements return. Combined gross profit falls when the largest revenue line is the least profitable one. An effective hourly rate below the standard rate is the single number that explains all three, which is why Josh describes it as the net result of every pricing and delivery decision the company has made. Gary adds the necessary caution. It is one way of telling the same story the full financials tell, not a replacement for them. But it is the version an owner can remember, repeat to a leadership team, and act on.
What happened after that client meeting is the part of the episode most worth copying. Once the owner accepted effective hourly rate as a primary indicator, Josh did not have to say another word about time entry. The client got there alone: if this is the number I am going to manage by, my technicians have to get very good at entering their time. They are doing fine now, and fine is no longer enough. They have to be excellent. For years BMK had made that argument from the outside. This time the owner made it from the inside, because the purpose of the data had become clear to him first.
Josh's conclusion is that this has been the gap all along. Owners and leadership teams asked for complete time entry without ever explaining what it was for. What are we trying to measure? Why are we doing this? What will happen once we have the information? Without those answers, a request to account for every hour feels like micromanagement or babysitting, and technicians respond the way anyone responds to being babysat. With them, time entry becomes the input to a number the whole company can see moving. The lesson for an owner is less about enforcement than about sequence. Decide what you will measure, show the team how the hours feed it, and tell them what you will do with the result. Compliance tends to follow understanding far more reliably than it follows reminders.
Divide the revenue an agreement produced in a period by the total hours your team spent delivering it in the same period. Use a quarter or a year rather than a single month, so one unusual month does not distort the result. The calculation is only as accurate as the time entry behind it, because missing hours make the rate look higher than it is.
Compare it to your own standard or project rate, the price you would charge for an hour of the same work outside an agreement. Many MSPs quote project work somewhere between $125 and $300 an hour, often around $200. An agreement rate at or above your standard rate is healthy. One well below it, such as $95 or $100 against a $200 project rate, means each agreement hour earns about half of a project hour.
Because the hours that deliver an agreement cost the same as any other hours. When an agreement earns less per hour than those hours cost to supply with the margin you target, service gross profit falls. Since managed services is usually the largest revenue line, a low rate there also pulls down combined gross profit.
Labor costs keep rising while many contracts were priced once and never revisited. Higher entry-level wages and cost of living increases for experienced technicians raise the cost of every hour delivered, and a contract with a fixed monthly fee absorbs that increase in its margin. The result is an effective hourly rate that drifts down each year.
Every service metric that depends on hours, including utilization, agreement gross profit and effective hourly rate, is wrong if hours are missing. Partial time entry makes agreements look more profitable and technicians look less utilized than they are. Complete time entry is what makes those reports trustworthy enough to base pricing and hiring decisions on.
Explain what the data is for before asking for more of it. Tell the team which number the hours feed, what decisions that number drives, and what will change once the information exists. Time entry presented as oversight feels like micromanagement. Presented as the input to pricing and staffing decisions, it becomes part of doing the job well.
Gary Boyle is a Partner for Strategy & Business Development at Bering McKinley. With a background spanning network engineering, entrepreneurship, and strategic consulting, Gary brings real-world operator experience to helping MSP owners build stronger, more profitable businesses. On the Vision roundtable he co-hosts with Josh Peterson, working through the financial and operational decisions that determine whether an MSP's service business is actually earning what it should.
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Josh Peterson is the CEO of Bering McKinley and host of The BMK Vision Podcast. Since 2004, Josh has worked with hundreds of MSP owners to build operationally sound, profitable businesses through consulting, peer teams, and direct coaching.
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Effective hourly rate is one number, but it only means something when the hours beneath it are complete and the team understands why they matter. Connecting what the business measures to how the team works every week is what the Vision Operating System is built to make routine.