6 Profitability KPIs MSPs Need to Track for Sustained Growth

Do you have what it takes to run a profitable MSP?

Many MSPs start with profitability as the goal, but in an industry where client satisfaction is paramount, it’s easy to fall into the trap of over-servicing at the cost of financial health. According to Service Leadership, 28% of MSPs aren’t profitable, and even those who are, only see an average profit margin of 8%—a razor-thin margin for sustained growth.

To build a thriving MSP, tracking the right financial and operational KPIs is crucial. These metrics guide critical business decisions, such as when to upsell services, when to hire more technicians, and when to drop unprofitable clients.

Beyond just improving the bottom line, keeping these KPIs in check also boosts technician morale and client satisfaction—ensuring long-term success on all fronts.

Let’s dive into the seven must-track KPIs that determine your MSP’s profitability.

1. Cost of Goods Sold (COGS)

What it is

COGS represents the total cost your MSP incurs when delivering services to clients. This includes:

• Software and tools like antivirus (AV), Microsoft 365, and cloud solutions

• Labor costs, including technician salaries, burden rates, and benefits

• Operational expenses such as PSA and RMM tools

Why it matters

A clear understanding of COGS helps you price your services effectively, optimize resource allocation, and maximize profitability. When you know exactly what it costs to deliver each service, you can make informed business decisions that support sustainable growth and long-term success.

How to track it effectively:

• Define service costs granularly – Track service delivery costs at multiple levels, such as site, asset, asset group, user, and user group. This ensures costs are calculated based on actual service delivery rather than billing structures, preventing overlooked expenses.

• Encourage precise time tracking – Ensure technicians log their time accurately, categorizing it as billable or non-billable. This prevents labor costs from slipping through the cracks and provides a clear picture of service profitability.

2. Revenue Sources

What it is

Revenue sources refer to the split between recurring revenue from managed services and break-fix revenue from one-time service requests.

Why it matters

Even if you operate as an MSP, there’s a good chance you still have some break-fix clients. Understanding the percentage of revenue generated from contract-based managed services versus on-demand break-fix work is crucial for improving revenue predictability and planning for long-term growth.

Industry research suggests that at least 50% of an MSP’s revenue should come from recurring sources to ensure financial stability and scalability.

How to track it effectively:

• Have clear agreements in place – For managed services, use recurring or usage-based contracts tailored to the services you offer. For break-fix clients, set up one-time or time-and-material contracts to ensure structured billing.

• Leverage PSA reports – Your PSA system can generate detailed reports breaking down revenue sources, helping you track your recurring revenue percentage with ease.

• Separate payment streams – Consider setting up separate deposit accounts for break-fix and managed services payments. This makes it easier to track revenue distribution through bookkeeping reports.

3. Client Profitability

What it is

Client profitability measures the actual profit your MSP makes from a client:

Client Profitability = Revenue from a client – Cost of providing services to that client

Why it matters

Not all revenue is good revenue. Some clients may take up disproportionate technician time, create excessive support tickets, or require costly custom solutions—eating into your margins. Monitoring profitability helps you identify which clients are truly beneficial to your business and which ones may need to be re-evaluated.

While parting ways with a client is never easy, consistently unprofitable clients can strain your resources and hurt your bottom line. By analyzing profitability, you can make informed decisions about adjusting pricing, optimizing service delivery, or even discontinuing certain relationships when necessary.

How to track it effectively:

• Gain full visibility into service delivery – Track the cost of services at a granular level, including technician hours (both billable and non-billable), software costs, and product expenses.

• Monitor trends over time – A client may be unprofitable at the start due to legacy IT issues or process inefficiencies, but profitability can improve as your MSP streamlines its IT operations.

• Analyze ticket trends – If a client’s ticket volume decreases after your proactive intervention, it means they’re becoming more efficient and less demanding on your resources—making them a more valuable client over time.

4. Contract Profitability

What it is

Contract profitability measures how much profit a service contract generates for your MSP:

Contract Profit = Contract Revenue – Contract Cost

Why it matters

When managing clients with similar needs or setups, you may use standardized contracts with slight modifications. Ensuring these base contracts are profitable—with the right pricing structure, service markups, and renewal terms—is essential for sustainable growth.

Tracking contract profitability not only helps you identify unprofitable agreements but also highlights opportunities to upsell or repackage services. For example, you might find that offering site maintenance as a flexible, quarterly service (adjusted for user, asset, and infrastructure changes) is more beneficial than bundling it into a recurring contract.

In short, tracking contract profitability helps

• Ensures long-term financial stability – A profitable contract structure prevents revenue leakage and strengthens your MSP’s financial health.

• Uncovers upsell and optimization opportunities – Reviewing contract profitability helps you adjust pricing, introduce flexible service models, and improve renewal terms.

• Helps refine service packaging – By analyzing contract costs, you can explore new ways to bundle and price services to maximize value for both your MSP and your clients.

How to track it effectively:

• Maintain contract visibility in your PSA – Track total MRR, ARR, pricing, expiration dates, and contract-specific details (such as device/user count) in your PSA. This makes price adjustments and renewals more effective.

• Regularly update pricing – Adjust contract pricing to account for vendor price increases, client growth (user/device changes), and periodic price adjustments as outlined in your Master Service Agreement.

• Implement dynamic billing where suitable – If applicable, bill clients based on the exact quantity of services used. For example:

Antivirus (AV) for 20 assets → AV unit price × 20

MS365 licenses for 30 users → MS365 unit price × 30

This approach helps ensure service costs are fully covered and allows you to strategically mark up individual service prices to maintain desired profit margins.

5. Effective Client Rate

What it is

Effective client rate measures the average revenue generated per hour spent servicing a client:

Effective Client Rate =
(Monthly revenue from a client) / (Total hours spent on that client in a month)

This metric provides insight into how efficiently your MSP is utilizing its time and resources for each client.

Why it matters

Effective client rate is a key indicator of client profitability and helps you fine-tune pricing, resource allocation, and service-level agreements (SLAs). By monitoring this metric, you can identify which clients are draining resources and where adjustments can be made to improve efficiency and profitability.

How to track it effectively:

• Ensure accurate time tracking – Since effective client rate is directly tied to time, it’s essential to precisely log all technician hours spent on a client, both billable and non-billable.

• Optimize resource allocation – Assign low-complexity, repeat tickets to L1 technicians, allowing senior technicians to focus on higher-value work. This improves efficiency while keeping costs in check.

• Proactively manage complex environments – Clients with legacy systems or high-maintenance infrastructures often have lower effective rates. Implementing proactive maintenance, automation, and infrastructure upgrades can improve efficiency over time.

• Adjust pricing for high-maintenance clients – If a client’s environment remains complex despite optimizations, consider adjusting hourly labor rates or block-hour pricing to reflect the extra effort required.

6. Effective Contract Rate

What it is

Effective contract rate measures the average revenue generated per hour spent servicing a contract across all clients:

Effective Contract Rate =
(Monthly revenue from a contract) / (Total hours spent on that contract across all clients)

This metric helps assess the profitability of different contract structures and ensures that your pricing, service terms, and billing models align with your MSP’s financial goals.

Why it matters

Effective contract rate is a key measure of contract profitability, allowing you to fine-tune service delivery, adjust contract pricing, and optimize billing arrangements.

For instance, All-You-Can-Eat (AYCE) contracts include labor costs, but some clients may consume excessive technician time—significantly impacting profitability. Without tracking the effective rate, you may not realize when a contract is costing you more than it’s worth.

By monitoring this metric, you can determine whether to:

• Increase contract pricing for packaged models like AYCE, tiered plans, or retainers (block-hour and block-money agreements)

• Adjust service terms to prevent overuse of billable and non-billable technician time

• Redesign contract structures to improve profitability and resource efficiency

How to track it effectively:

• Ensure precise time tracking – Since this is a time-dependent metric, accurately logging both billable and non-billable hours is critical for reliable calculations.

• Compare contract performance – Analyze the effective rates of different contract types to identify the most profitable structures and adjust pricing or service offerings for underperforming contracts.

• Optimize contract terms – If a contract has a low effective rate, consider limiting included hours, adjusting pricing, or adding premium tiers to ensure fair compensation for technician time.

Track and improve your profitability KPIs with ultimate ease and accuracy. Try SuperOps now.