7 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.

What are MSP KPIs?

MSP KPIs (Key Performance Indicators) are measurable metrics that help managed service providers evaluate their financial health, operational efficiency, and client satisfaction. For profitability, these KPIs provide insights into which clients, services, and contracts are driving or draining your bottom line. Modern platforms, including client profitability software, give MSPs a better way to calculate these metrics accurately.

In many cases, MSPs use managed services KPI dashboards to benchmark performance, evaluate client health, and make data-driven operational decisions. These KPIs also help providers maximize service contract profitability by highlighting problem areas or underpriced services.

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.

Related reading: Msp per user pricing solution

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.

Related reading: Burden rate in MSP

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.

7. Operational and productivity

What it is

Operational and productivity metrics measure how efficiently your MSP delivers services and utilizes its resources. This includes technician utilization, ticket resolution times, SLA adherence, and overall workflow efficiency. These KPIs help you understand whether your team is performing optimally and where bottlenecks or inefficiencies exist.

Why it matters

Even if your revenue and contract profitability look healthy, inefficient operations can silently erode profits. High technician idle time, excessive ticket backlogs, or SLA breaches can lead to:

• Increased labor costs

• Lower client satisfaction

• Burnout among your technical staff

• Reduced overall profitability

Tracking operational metrics ensures that your MSP not only earns revenue but does so efficiently and sustainably.

How to track it effectively:

• Monitor technician utilization: Track the percentage of billable vs. non-billable hours for each technician to ensure your team is working efficiently.

• Measure ticket resolution times: Track how quickly issues are resolved to maintain client satisfaction and identify recurring problems that could be automated or streamlined.

• Track SLA compliance: Monitor whether your team meets service-level agreements consistently. SLA breaches can indicate resource allocation issues or training gaps.

• Analyze workflow bottlenecks: Use PSA and RMM tools to identify slow or redundant processes that increase operational costs.

• Implement process automation: Automate repetitive tasks like patch management, system monitoring, and routine backups to free up technician time for higher-value work.

What common pitfalls should MSPs avoid?

Even the most diligent MSPs can make mistakes when tracking KPIs. Avoiding these pitfalls ensures your metrics are reliable and actionable:

Focusing only on revenue, not profitability: Revenue growth alone doesn’t guarantee financial health. Without monitoring costs, client profitability, and contract margins, your MSP may appear successful while profits remain thin.

Overlooking non-billable labor costs: Untracked hours spent on internal projects, client support, or training can quietly erode profits. Accurate time tracking for all billable and non-billable work is essential.

Neglecting client or contract profitability: Not all clients or contracts are equally profitable. Serving high-maintenance clients or underpriced contracts can reduce margins. Regularly evaluate profitability at both client and contract levels.

Inconsistent KPI tracking: Sporadic tracking or outdated data can lead to poor decision-making. KPIs should be monitored continuously with reliable PSA and RMM tools.

Ignoring operational inefficiencies: Inefficient workflows, long ticket resolution times, or underutilized technicians can increase costs and reduce client satisfaction. Track operational metrics alongside financial KPIs.

Failing to act on KPI insights: Collecting data is only valuable if you make informed changes. Use KPI insights to adjust pricing, optimize contracts, improve service delivery, and reallocate resources.

Overcomplicating metrics: Tracking too many KPIs at once can create noise. Focus on the most impactful metrics: COGS, client and contract profitability, effective rates, and operational efficiency.

Frequently asked questions

Why should MSPs focus on profitability KPIs rather than only revenue growth?

Focusing solely on revenue can mask unprofitable clients or contracts. Profitability KPIs highlight which services, contracts, and clients generate real financial value. They enable MSPs to make informed decisions on pricing, resource allocation, and service delivery, ensuring sustainable growth rather than short-term revenue gains that may erode margins over time.

Key profitability KPIs include Cost of Goods Sold (COGS), client profitability, contract profitability, effective client rate, effective contract rate, revenue source breakdown, and operational/productivity metrics. Together, these KPIs reveal which clients, contracts, and processes are financially sustainable, enabling MSPs to optimize pricing, resource allocation, and service strategies for long-term growth and profitability.

How can MSPs identify unprofitable clients using KPIs?

MSPs can identify unprofitable clients by comparing client revenue against the total cost of delivering services, including labor, software, and operational expenses. Tracking ticket volume, technician hours, and service complexity reveals resource-intensive clients. Consistently high costs relative to revenue indicate low profitability, guiding decisions to adjust pricing, optimize service delivery, or discontinue unprofitable relationships.

What’s a healthy gross profit margin for an MSP?

A healthy gross profit margin for MSPs typically ranges between 30–40%, though it can vary by service model, client size, and contract type. Maintaining margins within this range ensures operational costs are covered, technicians are compensated fairly, and resources remain available for growth initiatives, technology investments, and scaling service delivery without eroding profitability.

What actions can MSPs take if KPIs reveal thin margins?

If margins are thin, MSPs can take several actions: adjust pricing to reflect true service costs, optimize workflows and technician allocation, streamline contracts, eliminate unprofitable clients, or introduce automation for repetitive tasks. Regularly reviewing KPIs helps identify specific areas for improvement, ensuring resources are used efficiently and profitability increases sustainably over time.

At what client size or MSP size do profitability KPIs become particularly important?

Profitability KPIs become crucial as soon as an MSP manages multiple clients or contracts. Even small MSPs benefit from tracking costs, revenue, and operational efficiency to prevent unprofitable relationships. As the client base and service complexity grow, KPIs are essential for scaling efficiently, maintaining margins, and making strategic business decisions that support sustainable growth.