Every MSP owner eventually meets a number they don't like. For many, it arrives the day they learn service payroll should consume no more than a third of service revenue — and discover theirs runs closer to forty percent. The reflex is to argue with the benchmark, and one listener of The BMK Vision Podcast did exactly that, in a single blunt line: "Your 33% benchmark just means fire people. Admit it." In this roundtable episode, Josh Peterson and Gary Boyle take the accusation seriously rather than defensively, and in doing so expose what the ratio actually measures. It is not a headcount verdict. It is the compound record of every pricing decision an owner has deferred, every weakness hiding inside agreement gross profits, every one of the utilization lies owners tell themselves, and whether leadership has ever truly accounted for all of its costs before declaring a profit.
The uncomfortable center of the conversation is that the listener is not entirely wrong — sometimes the math does point at people. But firing is the outcome of a prior decision most owners never make: the refusal to accept low profit. Once that decision is made, every excuse collapses into two levers — raise revenue or cut payroll — and cash runway, not comfort, determines how long an owner gets to choose between them. Pricing corrections take months to compound; a staffing decision takes a day. That asymmetry is why the benchmark feels like an ultimatum. Along the way, Josh and Gary dismantle the phantom sales pipeline that keeps overstaffed shops overstaffed, make the case for restructuring the chart of accounts so service costs are visible above the gross profit line, and show why a ratio that looks too good can carry as much long-term risk as one that looks too bad.
The service salaries to service revenue ratio divides direct service payroll — billable technicians, dispatch, and service management, including payroll taxes but excluding benefits overhead — by all three streams of service revenue: hourly, project, and recurring. At or under 33%, the service engine can fund gross profit, overhead, and owner return. Above it, something upstream is broken. What makes the number powerful is not precision but compression: it is the single figure that encodes pricing discipline, staffing judgment, and delivery efficiency at once. That is also what makes it dangerous in isolation. A 38% reading paired with 60% utilization tells a very different story than the same reading paired with 80%.
Here is the pattern behind hundreds of these conversations: the math gets presented, the owner nods, and nobody gets fired. Not because the analysis was wrong, but because the owner never made the decision that precedes it — the refusal to accept low profit. Running at three to five percent net is a choice, and as long as it remains an acceptable one, every corrective action stays optional. The rationalizations are predictable. A wave of projects is coming. A large managed services deal is close. Better to be overstaffed ahead of growth. Then someone asks to see the sales forecast, and there isn't one. The overstaffing isn't a strategy; it is the residue of how hard hiring was the first time.
When the ratio runs hot, an owner holds exactly two levers: raise service revenue or cut service payroll. The honest constraint is time. Price increases, out-of-scope billing discipline, and proactive account management genuinely fix the ratio — but they compound over months. A staffing change lands in a day. That is why cash runway, not preference, dictates the sequence. A company with reserves can correct through pricing and let attrition do quiet work. A company burning toward zero does not have that luxury, and pretending it does is how MSPs of respectable size find themselves insolvent with a full bench. Sometimes the right move is releasing the most expensive person — not as punishment, but to buy the breathing room needed to diagnose everything else.
The rarer failure runs the other direction: a ratio in the low twenties, strong gross profit, healthy P&L — and technicians sitting at fifty percent utilization. On paper it is enviable. Underneath, clients are paying agreements against which little is being delivered, and undelivered service is deferred churn. The deeper lesson is the frame Gary offers: every MSP is a supply and demand equation. Supply is technicians times working days times eight hours; demand is what the client base actually consumes. Owners who do that arithmetic by hand — as the Vision platform requires — stop arguing with reports and start seeing their business plainly. The ratio has no virtuous direction. It has only an honest reading, and both extremes are warnings.
It is direct service payroll — billable technicians, dispatchers, and service managers, including payroll taxes but excluding benefits and other overhead — divided by total service revenue across hourly, project, and recurring streams. Bering McKinley's benchmark is 33% or slightly under: roughly one-third of every service dollar can go to the payroll that produces it.
No. A high ratio means the relationship between service payroll and service revenue is broken, and there are two ways to repair it: reduce payroll or grow revenue through pricing corrections, out-of-scope billing, and proactive account management. Layoffs become the likely answer only when the ratio is high, utilization is low, and cash runway is too short to wait for revenue fixes to compound.
Most MSPs book all payroll as one lump sum below the gross profit line, which makes the ratio impossible to calculate. Best practice is to separate service payroll into cost of goods sold, above the gross profit line, so revenue minus true service cost yields an honest gross profit. It requires real bookkeeping effort, but without it the most important number in the business stays invisible.
As an intraday standard, yes — but PTO, holidays, and sick time remove roughly a month of capacity per technician per year, so annualized utilization often lands lower even on disciplined teams. The practical answer is to price against the utilization your team actually achieves, so the financial outcome matches what a 75% team would produce.
Yes. A ratio in the low twenties alongside low utilization usually means clients are paying for agreements that aren't being fully serviced. That inflates short-term profit while building long-term churn risk. The fix is either delivering more proactive value into those agreements or right-sizing the team — but never ignoring it.
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. As a regular voice on the BMK Vision Roundtable, he pressure-tests the benchmarks and frameworks Bering McKinley uses with MSPs every day.
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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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