What the Best MSPs Are Doing Differently: 10 Actionable Takeaways from 2025 Service Leadership Compensation Report

Service Leadership (a Connectwise company) has been far and away the leader in collecting and analyzing data on MSPs for a long time, and this year they were gracious enough to allow me to review their report and comment on it publicly. There are a TON of business changing insights for MSPs that can be culled from SLI’s annual compensation report. Some of them may really surprise you.

First, a couple of quick explanations: one of the ways SLI parses data is by sorting metrics by bottom quartile (the weakest performing 25% on a given metric), median (50th percentile on a given metric), and best-in-class (aka BIC - the top 25% on a given metric). We’ll pay special attention to what the best-in-class are doing that the rest of the pack is not.

Second, SLI’s data is primarily based on MSPs, but also includes some traditional VARs and technology consulting companies (some of whom claim the managed services moniker, but they really aren’t doing a lot of managed services). For purposes of this article, we’ll use the terms TSP (Technology Service Provider) and MSP (Managed Services Provider) interchangeably.

Best-in-Class MSPs pay LOWER salaries on all positions except the owner. I wasn’t sure I read that right at first, but when you think about it, it makes sense. Not overpaying for labor goes a long way towards achieving BIC profitability. But there is more to it than that. BIC MSPs tend to be the most operationally mature, and they tend to grow faster. This means there is less chaos in the work environment and more opportunities for advancement, which helps retention. Yes, employees are looking for money, but beyond that they are looking for room for career growth and they want to work with talented, emotionally intelligent people. You’ll find more of them in BIC companies.

Our firm does recruiting for MSPs, and we’ve observed this phenomenon up close. We’ve worked with several smaller MSPs who were looking for a seasoned senior engineer to mentor more junior technicians and set the pace for the rest of the team. Boy, is that a hard spot to fill. Mature workers generally don’t want to work in chaotic, demanding, immature environments. More than ever, senior technical resources have lots of options. If an MSP lacks process, lacks leadership, works with a lot of legacy technology, and has difficult clients, why would a 5-star engineer want to go work there? In most cases, they wouldn’t. Unless you pay them 20% more than they can get somewhere else (which most of those MSPs cannot afford to do).

The disparity between the bottom quartile MSPs and BIC will likely only increase. In 2025, sub-$2M MSPs are planning to give raises of over 6% at more than four times the rate of large MSPs (which are more likely to be BIC).

Best-in-Class MSPs pay more variable compensation. This accomplishes two things: it minimizes overpaying for underperformance, and it gradually fills the company with achievers who like the idea of their earnings being directly related to meeting and surpassing clear, realistic goals. And it incrementally rids the MSP of employees who don’t want to be judged on their work product. The concept of “topgrading” was coined by Bradford Smart in the 1990’s. This is the concept of continually shedding your worst performers in favor of better performers. Some healthy topgrading occurs naturally when low performing employees make considerably less money than their high performing peers.

Best-in-Class MSPs employ more Level One employees. One of my mantras is ‘Immature companies rely on rock stars. Mature companies rely on rock star processes.’ BIC MSPs narrow their range of solutions offered. They transform client technology environments to meet their own standards. They sell fewer different products and support packages. This leads to the BIC requiring a smaller range of skills, drives process maturity, and enables a higher percentage of day-to-day work to be accomplished by lower-level employees. It also leads to higher utilization rates due to there being less things only one or two people know how to do. Every time you can push a task down a level (from L3 to L2 or from L2 to L1), there is an average labor savings of 25-30%.

One of the most mature MSPs I have ever witnessed had 71 technical staff when I visited them. 67 of those people had started out as entry-level technicians. They had a full-time trainer, a room where new service desk employees could be observed and given feedback as they took calls their first few weeks, and detailed career road maps for all employees. Their branch office managers all had the title of Technical Mentor. While other MSPs were hiring to plug dams, they were building an army.

Best-in-Class MSPs succeed regardless of their location.

The MSP I just referenced was based in a remote place that had more cattle than humans.

SLI findings show that geography makes no difference as to profitability. They looked for patterns. Is it better to be in a big city? A suburb? A small rural town? While there may be more opportunities in some places than others, the data says that there are bottom quartile MSPs everywhere, and best-in-class MSPs everywhere. Generally, the areas with the highest billing rates are the same ones with high salaries and expensive office space, and the converse is true as well. The formula for MSP profitability does not change much no matter where you are located.

Best-in-Class MSPs manage their P&L, not just their clients and staff. SLI identifies four legs of services profitability for MSPs: pricing, utilization, wages, and efficiency. Throughout the report it’s repeated that a key metric to manage is Multiple of Wages. This number is derived by dividing total service revenue billed (excluding software licensing et al) by the wages (W-2 income) of the service team.

MSPs with a multiple of wages of 2.5x or better are well positioned for profitability as long as their expenses for G&A and sales and marketing are not badly out of whack. MSPs with a multiple under 2 will almost certainly be unprofitable. This is a simple metric that has been well established for over a decade, yet I’d guess the majority of MSPs do not know or manage their multiple. Do you know yours?

MSP leaders who are intentional about working on the business and not just in the business will see far greater success.

Best-in-Class MSPs have significantly LOWER sales and marketing headcount. Now there’s a headscratcher, but the data is quite clear. The bottom quartile of MSPs have 15.1% of their headcount in sales and marketing. Best-in-class is 8.4% (P.55). This indicates that while the bottom quartile is putting a lot of resources into sales, they are either selling unprofitable services or not selling much at all. The difference is even more pronounced if you include G&A employees. BIC MSPs have 78.5% of their headcount in service delivery roles. Bottom quartile is 67.7%.

The BIC have a highly standardized, well-defined offering and a sharply defined client avatar. They are not wasting any resources trying to sell all things to all people. Notably, the BIC are spending more on marketing, and less on sales. Marketing resources are less expensive, and strong, targeted marketing efforts lead to more warm, qualified leads that are easier to close.

When MSPs are small, the owner should not be as anxious to shed the sales closer hat as some would say. To paraphrase an industry friend, show me an MSP owner who can’t sell, and I’ll show you an MSP that struggles to grow.

On average, MSPs have about an annual employee churn rate of 15%. There is no best or worst classification here. What’s the ideal employee churn rate? There isn’t one. Some MSPs should replace half their people. For others, every employee is great and losing one would be a negative thing. Once an MSP reaches a high level of operational maturity, it seems obvious that lower churn is a good sign.

If your churn rate is lower than 15%, it could mean you are really doing some things right. It could also mean you are tolerating mediocrity or due for a correction. The churn rate rises when companies are between $5M and $10M in revenue, and then it goes back down as they continue to grow. The road from $5M to $10M can be a rocky one as upper management and a process-driven culture get established. Not everyone wants to create and follow processes, and some of the people who “got you here” aren’t the ones who can or will “get you there”.

My MSP experienced this dynamic acutely. When we hit about $6M in revenue we went through a particularly painful season of churn. We had several long-term employees who had helped build the company, but now they didn’t want to lead, and they didn’t want to be led. They didn’t want a manager. They didn’t feel like processes should apply to them. “I’ve been here eight years, and now somebody is going to tell me how to do my job?” We made a list of seven people who needed to ‘get right or get out’. We started giving brutally honest reviews and stopped giving undeserved raises. After a year, we’d shed five of them. It sucked, and in some cases their departures left us scrambling, but it was 100% the right thing for the company. The remaining two were restored to good graces and were with us until we sold the company. These gut wrenching measures allowed us to scale very quickly in the years before we were acquired.

MSP manager salaries are increasing at a higher rate than other employees. This indicates that retaining effective managers is a high priority for MSPs. The MSP industry has grown a lot in the past two decades, but not to the extent that there are lots of seasoned, effective managers out there for the hiring. Many MSP managers are homegrown, and when they are doing a good job and the company is succeeding, retaining them becomes a key objective.

This is most true for MSPs between $4M and $7M in revenue. Many of these companies are in the early stages of becoming process driven, and losing a key manager would be a big step backwards for them. At that stage managers must hold a lot of things together with duct tape and elbow grease. Around $7M manager compensation increases begin to level off. By then, managers are usually managing less chaos. They don’t need to drive change so hard and can start managing established and effective processes. The “single point of failure” issue is also less of a problem. Usually by $7M or so, enough pieces are in place that if a manager leaves, the MSP can continue to function okay. Good process curtails the need for whip cracking and allows the MSP time to find or elevate a new manager.

MSPs have far fewer remote employees than you would think. About 9% of MSP workers are remote full-time. 72% of staff are in the office three days a week or more. The person most likely to be in the office full-time? The owner. There’s more surprising data in this area as well. Larger organizations (>$8M) are significantly more likely to have workers who are full-time remote. Best-in-Class MSPs’ employees are in the office than less the bottom quartile.

I think we need to be careful about drawing conclusions here – correlation is not causation. In other words, I don’t think hiring remote employees makes MSPs more likely to achieve BIC profitability. More likely, MSPs that have already achieved a healthy level of profitability have established teams, processes and KPIs, and track them regularly. This allows for less supervision – remote workers know how they fit into their group, what their deliverables are, and that they will be held accountable for meeting them. This allows the MSP to offer more remote work, which lowers G&A expenses, further boosting profitability.

We’ve done some recruiting for smaller, less mature MSPs that don’t have an office. I’ve seen these companies really struggle. There is a natural barrier to team bonding, daily communication, and employee mentoring when no one is in the same place day-to-day. Without strong leaders and effective processes, these MSPs tend to be inefficient and unprofitable. I worked with one company that was managing 900 end users with seven technical resources (including the owner). It’s impossible to make money that way. The owners think they are saving money by not having to pay for office space, but it hamstrings them in so many ways that in the end not having an office is almost certainly costing them money.

Employee titles really matter for smaller MSPs. I know this is a weird one, and it certainly involves my own observations. Sub-$10M MSPs sometimes tend to ‘skip a level’ when it comes to some positions. They can be a little too quick to anoint people with C-level or management level titles. This can lead to them overpaying people who haven’t established high-level competence in their named role. The chances of them overpaying and/or outgrowing that person are significant.

Let me illustrate – SLI data shows the average Project Coordinator makes about $62K, but the average Project Manager makes about $97K. Most MSPs don’t need a full-on project manager until they are at least $7-8M in revenue. If they try to hire one, they will likely get a lot of resumes from experienced corporate workers with ITIL certifications who will be expensive and struggle to adapt to their MSP role. In a similar vein, the median Operations Manager makes $107K, but a COO makes $165K (P.202-203). There are a lot of MSP COOs out there who really shouldn’t have the title (sorry). The COO position should be at least 80% strategic. If your MSP hasn’t progressed to where that is possible or the person you have your eye on isn’t up to it, reserve that title for the right person at the right time.

When you assign a high title to someone who doesn’t have the chops to take your firm to the next level, you risk losing a high-quality employee as your company matures. It makes it nearly impossible to bring someone in over them because you’ve already anointed them as the highest-level resource in their area of the company. That might work today, but not tomorrow.

*****

The MSP Industry continues to mature. There has been dramatic wage inflation since 2020, yet gross margin per employee is up and EBITDA (profit) per employee is up. This means that increases in labor costs have been more than offset by pricing increases and gains in efficiency. MSPs are getting smarter. I hope some of the information presented here makes your MSP smarter so you can keep moving in the right direction, laser focused on how to get to (or stay at) BIC profitability!

Dave Cava is the owner of PeopleSharp, a strategic recruiting service for MSPs. PeopleSharp does consultative recruiting based on finding intelligent, hardworking culture fits. Dave previously founded and co-owned Proactive Technologies, an NYC-based MSP that grew to $10M in 11 years before being acquired in 2019. Dave is the co-author of The Pumpkin Plan for MSPs, released in 2024.