‘This is the most exciting six-year run our industry has ever seen,’ says Peter Kujawa, vice president and general manager of service leadership at ConnectWise. ‘But there is a big difference in performance and the opportunity that’s available to you. If you’re not taking advantage of it, is tremendous.’
The managed services industry has notched its sixth consecutive year of profitability, but there’s still a widening gap in performance, according to ConnectWise’s Peter Kujawa.
“This is the most exciting six-year run our industry has ever seen,” said Kujawa, vice president and general manager of service leadership at the Tampa, Fla.-based vendor. “But there is a big difference in performance and the opportunity that’s available to you. If you’re not taking advantage of it, is tremendous.”
Kujawa shared benchmarking data at ConnectWise’s IT Nation event in Orlando, Fla., earlier this month, saying best-in-class MSPs posted at least 17.4 percent adjusted EBITDA in the last quarter. However, 8 percent of MSPs lost money last quarter, but that still represents major progress compared with two years ago when 28 percent operated at a loss.
Historically, MSPs have hovered at around 12 percent annual organic managed services growth, he said. That pattern held until the COVID-19 pandemic disrupted the market but then catapulted the industry to a 25 percent high-watermark in the second quarter of 2022. As quickly as it spiked, however, growth slowed to 8.2 percent in the third quarter of 2024.
Rolling averages now show the industry recovering, sitting at 10.6 percent, back within normal historical ranges. But despite the bounce back, 58 percent of MSPs are growing below the industry rate, with about 24 percent reporting zero or negative managed services growth, Kujawa said.
“Don’t get too hung up on the revenue growth,” he said. “The industry was great before COVID. It’s great today and it’ll continue to be great. But everybody needs to grow really, really well organically, and we are here to help.”
He emphasized that wage inflation during the pandemic artificially inflated profitability by driving necessary price increases. Today’s profitability, he said, is healthier and more sustainable. Still, he urged MSPs to invest aggressively in sales and marketing, specifically at least 14.2 percent of gross margin dollars. And ConnectWise’s partner ecosystem can be helpful by offering funding and guidance to MSPs.
He recalled a 2011 article proclaiming MSPs would be obsolete within a decade. At that time, doom-and-gloom predictions about cloud adoption, disappearing project work and the end of on-premises servers were rampant, he said.
“If we had listened to those folks back in 2011, we would have missed record growth, record profitability, record valuations,” he said. “In short, the best run we’ve ever had.”
But the industry is at a turning point, one requiring what he called “curve jumping.”
“Whether you realize it or not, starting last year, we entered the newest curve: the automation-first era,” he said. “It’s exciting. We have a great opportunity. Service wage data shows a lack of improvement in service efficiency, but automation gives us the chance to change that. This era should take our industry to the next level.”
Brent Morris, partner at Franklin, Tenn.-based MSP Growth OS, “wholeheartedly agreed” with Kujawa’s message to MSPs about investing in sales and marketing.
“MSPs need more help and maturity with sales,” he told CRN. “It’s how to professionally train and develop sellers so they can do a better job in market.”
