Most MSPs don’t — and it’s quietly killing their margins. Here’s how to fix it.
I’m going to ask you something, and I want you to really think about it before you answer.
Which of your clients are actually profitable?
Not gut-feel profitable. Not “they pay on time and don’t complain much” profitable. I mean: do you know, down to the dollar, what it costs you to service each client every month, and whether what they’re paying you covers it with margin to spare?
“Not really” isn’t a good answer. Most MSPs are running blind on this. They know their revenue. Some know their overall gross margin. But ask them to tell you which specific clients are dragging their numbers down? Crickets.
That’s a problem. Because somewhere in your client list right now, clients are costing you more to serve than you’re making on them. You’re doing the work. Paying your techs. Covering the tools and the overhead. And at the end of the month, those clients are quietly taking money out of your pocket.
You just don’t know which ones.
The Clients You Can’t Afford To Keep Ignoring
In Session 8 of our Operational Excellence series, Kevin Bozung, who built Safety Net and later sold it to Thrive, walked through a methodology he calls ABCD customer analysis.
It’s simple. But the insights it produces can completely change how you look at your client base.
The idea is straightforward: grade every client on a four-point scale based primarily on profitability.
- 65%+ gross margin — On your tech stack. Paying current pricing. Your ideal customer.
- 50–65% margin — Solid clients with good relationships and room to grow.
- 35–50% margin — Technically profitable, but something needs attention.
- Below 35% margin — These are the ones quietly bleeding you out.
Here’s the number that stopped me.
Kevin showed an example where one MSP moved just three D clients to B clients.
Three.
Gross profit jumped from $466,000 to $581,000. Margin went from 49% to 57%.
No new customers. No new services. Just fixing the economics on the clients they already had.
Now imagine what that could look like across your entire book of business.
How The Math Actually Works
This isn’t guesswork. It’s arithmetic.
First, calculate your actual cost to deliver managed services per hour. Pull your fully loaded tech labor costs, wages plus overhead, and divide by billable hours. That gives you your delivery cost per hour.
Apply that to each client based on how many hours they consume. Compare that to what they’re paying you. That’s your real per-client gross margin.
From there, layer in the other factors:
- Are they on your standard tech stack, or are you running a custom environment just for them?
- Are they paying your current rates, or still on pricing from five years ago?
- Do they fit your ideal client profile, or did you say yes because you needed revenue at the time?
- Do they treat you like a strategic partner, or like a break-fix vendor?
The number drives the grade. Everything else explains why the client landed there.
There’s an Excel template in the member Dashboard that does the math for you. Download it and run your numbers. Most MSPs are surprised by what they find.
Once You Know, You Can Do Something About It
The point of the ABCD analysis isn’t to fire clients — although sometimes that’s the right answer. The real value is having a strategy for each tier.
- Protect them — Strengthen the relationship. Make sure they never have a reason to look elsewhere.
- Maintain them — Keep them healthy and don’t let them slide backward.
- & D. This is where the work is — And often, where the money is hiding.
Your options with C and D clients:
- Reprice them to reflect the real cost of service
- Move them onto your standard tech stack to reduce delivery costs
- Or have a direct conversation about whether the relationship still makes sense
Most MSPs avoid these conversations because they’re uncomfortable. But keeping a D client at D economics helps no one. You resent the work. They’re not getting your best because the relationship isn’t sustainable. Fix the economics, and both sides are better off.
The Revenue You’re Leaving On The Table: IT Roadmaps
Here’s another number worth thinking about.
For every $1 of MRR, a best-in-class MSP typically generates about:
- $0.18 in project labor revenue
- $0.46 in non-recurring product revenue
Is that happening in your business? Or do your managed services agreements just… exist, with no structured plan to grow the relationship?
That’s where the IT roadmap comes in.
Every client should have one: an 18- to 36-month plan outlining where their environment needs to go. Aligned to your tech stack. Prioritized by risk. Laid out in quarterly buckets with estimated costs.
This isn’t a quote. It’s a plan. And that distinction matters.
A roadmap is a living document you build with the client and update together. It signals you’re thinking ahead for their business, not just reacting to problems. When a client has a roadmap, projects aren’t surprises. They’re expected. They’re budgeted. And when the time comes, the conversation isn’t “We think you should do this.” It’s: “This is the next step we already agreed on.”
QBRs: The Meeting Most MSPs Are Getting Wrong
Let me be direct.
If you’re calling them Quarterly Business Reviews but only doing them once or twice a year, they’re not QBRs. They’re catch-up calls.
A real QBR happens every 90 days — with the decision-maker. Not the office manager. Not the internal IT contact. The person who controls the budget.
A strong QBR agenda:
- Start with customer satisfaction. If there’s an issue, address it first.
- Share relevant MSP updates — new services, team changes, wins.
- Ask about their business: what’s changing, what’s coming.
- Review open action items.
- Walk through the IT roadmap and confirm next steps.
- Share reports that reinforce the value you’re delivering.
- Schedule the next QBR before the meeting ends.
That last step is critical. If you leave without scheduling the next meeting, you’ll spend three weeks chasing a 30-minute appointment. Lock it in while you’re sitting together.
And if you already know there’s a problem going into the meeting, bring it up first. Acknowledge it. Explain what happened. Share what you’re doing to fix it and prevent it from now on.
Clients don’t expect perfection. They expect accountability.
Where To Start
If you’re reading this thinking, “I don’t have any of this in place,” that’s okay.
Start with the ABCD analysis. It’s the fastest to implement and delivers immediate feedback. Run the numbers, grade your clients, and make a plan for the bottom tier.
Next, build IT roadmaps for the clients that need the most attention.
Then put a consistent QBR structure in place, with the roadmap as the centerpiece of every conversation.
These aren’t three separate projects. They’re a system. And once it’s running, you’re not just protecting margin, you’re actively creating growth opportunities.
Want To Go Deeper?
We covered this in Session 8 of the Operational Excellence series, and the ABCD analysis Excel template Kevin uses is available in the member Dashboard.
If you want a deeper dive, including account manager compensation, the full roadmap methodology and a step-by-step QBR framework, there’s also a two-day masterclass from Paul Cissel that walks through the entire process.
Run your ABCD numbers first. Then go watch the training.
Session 8: Mastering Account Management, QBRs And Client Profitability
