There is a particular kind of financial fog that settles over MSPs once they cross the million-dollar threshold — a fog where top-line revenue becomes the scoreboard and everything else fades into background noise. The problem is not that owners don't understand profitability. Most do, at least conceptually. The problem is that understanding it and acting on it require two very different kinds of courage. Letting go of a $5,000-a-month contract because it operates below a sustainable agreement gross profit threshold demands the kind of leadership that most owners have not yet been forced to develop. It also requires an honest confrontation with the metrics that matter — not the ones that feel good. The MSPs that eventually build real enterprise value are the ones that learn to separate ego from economics, and the sooner that lesson arrives, the less damage accumulates on the way there. The trap of recurring revenue addiction is well-documented, but what remains underappreciated is how deeply it distorts every downstream decision an owner makes — from hiring, to scoping, to tolerating clients who erode the very service quality the business depends on.
This episode forces a direct examination of that distortion. When an MSP carries agreements that operate well below the minimum margin required to sustain service delivery, the consequences are not contained to those agreements — they bleed into technician utilization, service quality across the entire client base, and ultimately the gross profit number that determines whether the business is buildable or just busy. The conversation surfaces a pattern that Bering McKinley encounters repeatedly in its advisory work: owners who know the math is wrong but have accepted it as unchangeable, who deflect to favorable metrics on isolated parts of a contract rather than facing the whole picture, and who confuse the fear of a difficult conversation with the impossibility of a different outcome. The corrective path is not complicated — standardize pricing, enforce margin thresholds, and have the discipline to reprice, rescope, or release agreements that fall below the line. But simplicity is not the same as ease, and the real work is psychological as much as it is financial.
Monthly recurring revenue is the most visible number in an MSP — and that visibility is precisely what makes it dangerous. When an owner watches MRR climb, every other signal gets quieter. Technicians are overloaded, but the pipeline looks healthy. Service margins are compressing, but the bank account seems fine. The disconnect between revenue growth and operational health can persist for years because the scoreboard everyone watches — top-line revenue — is the one metric that tells the least about whether the business is actually working. The MSPs that stall, burn out their teams, or sell at disappointing multiples almost always share the same root cause: they optimized for a number that buyers, lenders, and operators know is cosmetic.
When an MSP's agreement stack contains staff augmentation deals at 20% margin sitting alongside fully managed contracts at 80%, the problem is not the individual deals — it is the absence of a pricing framework. Every contract negotiated in isolation, every scope adjusted to land the deal, every rate discounted because the prospect pushed back — these are not sales tactics. They are symptoms of a business that has never established what it charges and why. The downstream consequences are severe: agreement gross profit becomes impossible to benchmark, service delivery costs cannot be forecasted, and the owner loses the ability to distinguish between a healthy client and one that is quietly consuming capacity that should be allocated elsewhere. Standardizing on a per-user price, a target effective hourly rate, and a minimum AGP threshold is not rigidity — it is the precondition for making rational decisions about which clients belong in the portfolio and which do not.
The most consistent finding across MSP advisory work is this: owners overestimate the risk of repricing and underestimate the tolerance their clients already have for it. The resistance is not rational — it is emotional, rooted in the fear that a price increase will trigger the loss of a relationship the owner values. But the evidence runs almost entirely in the other direction. Clients who receive excellent service know they are getting a deal. They are not going to volunteer to pay more, but when presented with an honest case for why the current price is unsustainable, the vast majority accept the adjustment. The owners who find this hardest to believe are the ones who have never tried. The ones who have — including those who raised prices by more than 100% across their entire client base — consistently report the same outcome: zero client losses, immediate margin improvement, and a sense of control over the business that did not exist before.
There is a particular form of self-sabotage that affects technically skilled MSP owners more than any other: the belief that their team is not good enough to justify premium pricing. The owner, often the strongest technician in the building, evaluates their staff against their own standard — and finds them lacking. This perceived gap between what the owner delivers and what the team delivers becomes the justification for keeping prices low. The flaw in this logic is that clients are not grading the MSP against the owner's personal standard. They are grading it against their previous provider, against their expectation of what IT support should feel like, and against the alternative of going without. By that measure, the team is almost always performing well. The owner's perfectionism — an asset in service delivery — becomes a liability when it prevents the business from charging what the economics require.
When an MSP is eventually acquired, the buyer does not write a check based on monthly recurring revenue. The check is based on a multiple of EBITDA — and EBITDA is a downstream consequence of gross profit, which is itself a consequence of pricing discipline and cost control. The chain is direct and unforgiving: the price charged minus the cost to deliver equals gross profit, gross profit minus operating expenses equals EBITDA, and EBITDA multiplied by the market multiple equals what the business is worth. Most MSP owners fixate on the first number in that chain because it is the easiest to see and the most gratifying to grow. But the owners who build businesses worth buying are the ones who obsess over the middle of the chain — the margin between price and cost that determines whether growth creates value or merely creates volume. You cannot outgrow a pricing problem. Adding seats at the wrong margin only scales the dysfunction.
Agreement gross profit is the margin remaining after subtracting the direct cost of service delivery from the revenue generated by a specific client agreement. It matters because it reveals whether individual contracts are contributing to or draining the financial health of the business. An MSP can have strong total revenue while carrying agreements that consume more in technician time and resources than they generate — and AGP is the metric that exposes that imbalance.
For most mature MSP service models, a minimum threshold of around 40% AGP is required to sustain service delivery without eroding capacity. More ambitious targets in the range of 60–65% provide the margin necessary to invest in better staff, tools, and service quality. The specific target depends on the MSP's cost structure and service model, but agreements consistently operating below 40% are almost always consuming more value than they create.
The most effective approach is grounded in service credibility. Owners who have consistently delivered strong service have the standing to explain that the current pricing is not sustainable for the level of support the client receives. Starting with the strongest relationships builds confidence and establishes a pattern of acceptance. The evidence from operators who have repriced aggressively — including increases exceeding 100% — consistently shows that clients who receive excellent service accept the adjustment because they already know the price was below market.
Releasing a client becomes the right decision when the relationship has deteriorated beyond a pricing fix — when the client consistently consumes disproportionate service capacity, creates friction across the team, or operates in a way that compromises the MSP's integrity and operational standards. If repricing and rescoping have been explored and the agreement still cannot reach a sustainable margin, releasing the client frees capacity that can be reallocated to profitable work and often produces an immediate improvement in both profitability and team morale.
Adding new clients at the wrong margin does not solve a structural pricing problem — it replicates it at a larger scale. Every new agreement priced below the sustainable threshold adds service cost without proportionate margin, further straining technician capacity and compressing gross profit. Growth only improves profitability when the new revenue is priced correctly. Without pricing discipline, scale amplifies the problem rather than resolving it.
Acquirers value MSPs based on a multiple of EBITDA, which is driven directly by gross profit. The price charged minus the cost to deliver equals gross profit, and gross profit minus operating expenses equals EBITDA. An MSP with strong, consistent margins commands a higher multiple because it signals operational stability, pricing power, and durable cash flow — the qualities buyers are willing to pay a premium for. Improving margins by even a few percentage points can have an outsized impact on valuation because the improvement flows through the acquisition multiple.
Ryan Alter is the founder and former CEO of Alter Enterprise, a managed IT services provider he built from a one-person operation in Missoula, Montana into a recognized MSP serving major clients across western Montana over the course of 17 years. Ryan's approach to client service, pricing discipline, and team development earned Alter Enterprise recognition as Missoula's Small Employer of Choice and a place on the Montana High Tech Alliance's list of companies to watch. In 2023, Ryan successfully exited when Alter Enterprise was acquired by Fisher's Technology. He now leads Silver Stream AV, an audio-visual solutions company based in Missoula.
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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. A former MSP owner himself, Gary's firsthand experience with pricing, service delivery, and business exits informs the advisory work he does with MSP owners navigating the same challenges today.
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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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Pricing discipline and margin clarity are foundational to the BMK Vision Operating System. If this episode surfaced questions about your own agreement stack, Bering McKinley works directly with MSP owners to diagnose, correct, and build toward durable profitability.