Managed Services Gross Margin
The gross margin earned on recurring managed services agreements alone, after the labor and tools needed to deliver them.
Formula
(Managed services revenue − Delivery labor and tools) ÷ Managed services revenue × 100
Why Track It
This is the margin the MSP's core product earns. Per-agreement margin tells an account manager which clients need a price increase, a scope change or a harder conversation.
How It Is Measured
Take managed services revenue for the period. Subtract the labor spent delivering it (service desk, NOC and centralized services time, at loaded cost) and the per-seat and per-device tools it consumes. Divide by managed services revenue. Calculate per agreement as well, using PSA time and agreement additions, to find unprofitable clients.
Constraints
Needs time logged against the right agreement and tool costs allocated per client. Shared labor such as NOC monitoring has to be apportioned by a rule, and the rule shapes the answer.
Measurement Note
The two sources set the ends of the range. Excendio, citing Service Leadership, puts best-in-class managed services margin at about 50%; Adam Hannemann cites 65% as the industry target. Neither gives a failure threshold, so the danger sign here is direction: a margin falling quarter over quarter. Read it per agreement, since a few bad agreements hide inside a healthy average.
Referenced In
- Do I Need a SOC for My MSP?Answer
- How Do I Calculate Cost per Ticket?Answer
- How Do I Price Security Services?Answer
- How Do MSPs Price Their Services?Answer
- How Much Is My MSP Worth?Answer
- How Much Should an L1 Technician Make?Answer
- PSA vs RMM: What Is the Difference?Answer
- What Does NOC Mean?Answer
- What Gross Margin Should I Target?Answer
- What Is an MSP?Answer
- What Is the Difference Between an MSP and an MSSP?Answer
- What Should a Managed Services Agreement Include?Answer
- What Should Technician Utilization Be?Answer
- AYCE (All You Can Eat)Glossary Term
- FCR (First Contact Resolution)Glossary Term
- Gross MarginGlossary Term
- MDR (Managed Detection and Response)Glossary Term
Related KPIs
- All-In Seat Price (AISP)The average monthly recurring revenue earned per supported user seat across all managed services clients.
- Effective Hourly RateThe service revenue actually earned for each hour of technician labor delivered, across agreements, projects and hourly work.
- Gross MarginTotal revenue minus the direct cost of delivering it (technician labor, tools, resold product), as a percentage of total revenue.
- Average Hands-On Time per TicketThe average technician labor time logged against each reactive ticket, as opposed to the calendar time it stayed open.
- Tickets per Endpoint per MonthThe average number of reactive tickets each managed endpoint generates in a month, a measure of how noisy the managed estate is.
More in Finance
The recurring revenue base, the margins it earns and how quickly cash comes in. These numbers tell an MSP owner whether the business is priced right and worth what a buyer would pay for it.
- Adjusted EBITDA MarginOwner
- All-In Seat Price (AISP)Owner
- Days Sales Outstanding (DSO)Finance Lead
- Effective Hourly RateFinance Lead
- Gross MarginFinance Lead
- Monthly Recurring Revenue (MRR)Owner
- Recurring Revenue as Share of TotalOwner