In a recent Office Hours session, Bill Tyndall, former founding executive of Electric AI and current CEO of Tynrose, shared a revelation that challenges everything MSPs think they know about client profitability: His MSP’s top 10 clients were actually their least profitable, with one showing a negative 16% margin.
This discovery highlights a critical blind spot many MSPs face. While large clients often appear valuable on paper, the reality of their profitability can tell a very different story.
Why Revenue Can Be Misleading
Traditional thinking suggests that bigger clients equal better business. They provide stable monthly recurring revenue, look impressive in your portfolio, and seem to validate your MSP’s capabilities. However, this focus on revenue alone can mask serious profitability issues.
The problem lies in how we track and measure client value. Most MSPs focus on monthly recurring revenue or total contract value, but these metrics don’t tell the whole story. According to Tyndall, the real measure of client value comes from understanding profitability at multiple levels:
- Profitability by technician
- Ticket volume versus solve time
- True cost of service delivery
Understanding True Client Profitability
To truly understand client profitability, MSPs need sophisticated tracking systems. Tyndall’s organization uses a comprehensive Power BI instance integrated with ConnectWise and other systems to track profitability at granular levels.
“We could tell you profitability of every single one of our clients by technician that touched that client, by ticket that technician did for that client in any given minute, day, week, month,” explains Tyndall.
This level of tracking often reveals surprising patterns:
- Higher ticket volumes from larger clients consuming disproportionate resources
- Complex environments requiring more specialized (and expensive) expertise
- Service expectations exceeding standard delivery models
- Hidden costs not captured in traditional pricing models
Taking Action on Profitability Data
1. Implement Proper Tracking Systems
Build a foundation for data-driven decisions by implementing comprehensive analytics. Start with your PSA tool but don’t stop there. Tyndall emphasizes the importance of connecting multiple data sources to get the full picture. Track:
- Time spent per ticket by technician
- Resource costs including specialized expertise
- Client satisfaction metrics
- Project profitability separately from managed services
2. Review and Adjust Your Pricing Model
Your pricing model might be outdated if it’s not based on actual resource consumption. Consider:
- Adding complexity factors for non-standard environments
- Implementing surcharges for after-hours support
- Creating tiered service levels based on response times
- Regular quarterly pricing reviews based on profitability data
3. Optimize Service Delivery
Look for opportunities to improve efficiency without compromising quality:
- Create standard operating procedures for common issues
- Implement automation for routine tasks
- Cross-train team members to better distribute workload
- Regular team training on new technologies
4. Have Critical Client Conversations
When data reveals profitability issues, take action:
- Schedule quarterly business reviews to discuss service utilization
- Present data-backed proposals for contract adjustments
- Offer alternative service models that better match client needs
- Be prepared to part ways if profitability can’t be improved
Moving Forward
The key to improving MSP profitability isn’t necessarily finding bigger clients – it’s understanding and optimizing the profitability of your existing client base. This requires:
- Regular profitability analysis
- Data-driven decision making
- Willingness to have difficult conversations when needed
- Focus on operational efficiency
As Tyndall emphasizes, “Math is math.” The numbers don’t lie, but you need to track the right ones to make informed decisions about your business.
Taking the Next Step
Start by examining your own client profitability metrics. If you’re not tracking these numbers already, implementing a basic profitability tracking system should be your first priority. The insights you gain might challenge your assumptions about your business, but they’ll also point the way toward greater profitability and sustainable growth.
Remember: Your largest clients might be your most prestigious, but prestige doesn’t pay the bills. True business success comes from understanding and optimizing profitability across your entire client base.
