MSP Pricing, Quoting, and Margin Protection - The Ultimate Guide
The Ultimate Guide for MSPs Who Want to Stop Being Busy and Start Being Profitable
I'm going to talk about some things in this article that may not apply to you — and that's okay.
But if some of this feels uncomfortably familiar, I want you to know two things upfront.
First: these problems are rampant across the MSP industry. You're not broken, lazy, or bad at business for running into them.
Second — and this is the important part — every single one of these issues is fixable.
I'm not selling you anything here. No course. No professional services hook. No "book a call" funnel. If you're struggling with the things we're going to talk about and you genuinely want help, I'll offer my time to work through them with you directly — for free.
Yes. Free.
No sales pitch. No gotchas. No bait-and-switch.
If you're here because something feels off in your MSP — I want to help.
One more thing: I'm going to use terms in this article that may not be familiar to everyone. If you don't know what something means, that's not a knock — it's usually a signal that we go deeper on that topic elsewhere. I'd encourage you to explore those pieces as well.
This isn't a lightweight blog post. Treat it more like a chapter from a book, or a paid workshop someone forgot to charge for.
Let's get into it.
The Growth Trap MSPs Don't See Coming
Most MSPs don't fail because they're incompetent. They fail because they grow into complexity faster than they grow into discipline.
In the early days, everything feels manageable. You know every client. You remember the weird quirks of every environment. You can brute-force your way through problems because volume is low and the founder is still the escalation path for everything.
Then growth happens.
You land bigger clients. More complex networks. More compliance requirements. More stakeholders. More vendor dependencies. More "can you also..." requests.
And this is where things start to break.
Not all at once. Quietly. Through a series of decisions that feel reasonable in the moment.
You start saying yes to work you don't truly understand at an expert level yet — and you convince yourself you'll figure it out as you go.
Sometimes you say yes because you believe that's the only way to grow.
Sometimes you say yes because the client is large and losing them would hurt.
Sometimes you say yes because you don't want to look "small" or "not capable."
This is normal. It's also dangerous.
Here's the trap most MSPs fall into:
They overestimate economies of scale.
They assume bigger clients will be more profitable because "we can spread costs out" and "we already have the tools" and "we're doing this at scale now."
The reality is often the opposite.
Large clients:
- Demand more customization
- Require more meetings and coordination
- Increase escalation volume
- Force exceptions to your process
- Pull your best engineers away from everything else
- Make you afraid to enforce boundaries
And because they represent a large chunk of your revenue, you start tolerating pricing and behavior you'd never accept from anyone else.
This is how your biggest client becomes your least profitable client.
And worse — they usually become the client that shapes your entire operating model.
You bend the business around them. Then you wonder why margins are unpredictable and your team is constantly stressed.
Growth didn't break your MSP. Uncontrolled complexity did.
If You're Not Measuring, You're Guessing
If you're not measuring your business, you don't actually know what success looks like.
And if you can't define success, you cannot tell what's working and what isn't.
Most MSPs in the 5-50 employee range are operating on vibes.
- "I think that client is profitable."
- "We're busy, so we must be doing okay."
- "Projects feel like they make money."
- "That tech is strong — I just know it."
That's not management. That's hope.
You need measurement, not because spreadsheets are fun, but because profitability is a math problem hiding behind emotion.
At a minimum, you should be able to answer these questions without guessing:
Client-level
- Which clients are actually profitable?
- Which clients feel profitable but aren't?
- Which clients are profitable only because you're under-delivering?
- Which clients are profitable only because your best people are carrying them?
Engineer-level
- Which engineers create leverage?
- Which engineers create rework?
- Where does time actually go each week?
- Who is constantly getting pulled into escalations — and why?
Ticket-level
- What ticket categories dominate?
- What should be self-service but isn't?
- What keeps repeating?
- What work is "included" that shouldn't be?
Project-level
- Which project types consistently go over budget?
- Where do estimates break?
- Where do change orders get avoided?
- Which clients create the most project chaos?
If you can't answer those questions, it's not your fault — most MSPs don't track it properly. But it's also the reason you feel stuck.
Because if you don't measure, you can't define success.
If you can't define success, you can't set targets.
If you can't set targets, you can't hold anyone accountable — including yourself.
And if no one is accountable, everything becomes "just do your best."
That is not how you build a profitable MSP.
Measurement isn't bureaucracy. It's clarity.
And clarity is what allows you to stop reacting and start running the business.
You Owe It to Everyone Involved to Charge More — and to Be More Targeted
This is where some people get uncomfortable.
Most MSPs undercharge. Not slightly. Severely.
And it's usually not because they want to be cheap. It's because they're afraid.
- Afraid they'll lose deals
- Afraid they'll lose clients
- Afraid they aren't "worth it"
- Afraid competitors will undercut them
But here's what's real:
If you undercharge, you don't just hurt yourself.
You hurt:
- Your employees (because you can't hire, train, or pay well)
- Your clients (because you can't invest in good delivery)
- Your family (because your stress bleeds into everything)
- Your future (because you can't build a business that lasts)
You owe it to all of them to charge properly.
But charging properly is not just "raise prices."
It starts with being targeted.
If you don't know your ICP — your ideal client profile — you're going to run into a wall eventually.
And if your ICP answer is "anyone with money," you're already on the path to that wall.
Because the MSP business is not just technical. It's operational.
Different clients have different behaviors. Different environments. Different expectations.
The best MSPs don't try to serve everyone. They pick a lane. They build systems. They build consistency. They charge accordingly.
How MSP Pricing Actually Works (and Why It's Usually Misunderstood)
Most MSPs say they have a pricing model.
In reality, they have a bundle of habits and exceptions that turned into a pricing model.
Let's talk about the real agreement types you see in the field.
Block Agreements
Block hours are attractive because they feel like a middle ground.
Clients like them because they feel like they're "pre-paying" and getting value.
MSPs like them because they get cash in the door.
The problem is that block agreements often become a disguised form of unlimited support.
Because once the block is consumed, MSPs are afraid to enforce the overage properly. Or they discount it. Or they "roll over hours." Or they reset the block early "just this once."
Block hours only work if you treat them like a real boundary and you enforce the rules without emotion.
If you can't do that consistently, block hours become a margin leak.
Time & Materials Agreements (T&M)
T&M is clean on paper.
You do work, you bill time. Simple.
But most MSPs don't run T&M cleanly either.
They discount. They avoid billing "small stuff." They fail to document. They eat time because it feels easier than explaining it.
T&M only works when you're disciplined about:
- Documentation
- Communication
- Billing integrity
Otherwise, it becomes "T&M until the client complains."
Per-User Pricing
Per-user is popular because it maps to how businesses think: people use IT, so price per person.
Per-user can work really well.
But per-user fails when you don't define what the per-user fee actually includes, and when the user count becomes disconnected from actual workload.
A 100-user firm with stable systems and mature processes can be easier than a 40-user firm that's chaotic and constantly changing.
Per-user pricing is not a magic formula. It's a billing unit.
Per-Device Pricing
Per-device pricing can be clean when you have a strong RMM and consistent standards.
It often fails when:
- Devices aren't actually standardized
- The environment includes non-standard endpoints
- Servers, network, and cloud complexity is ignored
Per-device is also a billing unit, not a pricing strategy.
Per-Ticket Pricing
Per-ticket pricing looks clever on a spreadsheet.
In real life, it's a disaster.
It encourages clients to bundle issues, hide issues, and avoid opening tickets.
It encourages MSPs to rush, under-document, and focus on volume instead of outcomes.
If you're doing per-ticket pricing, stop. That model is hostile to the relationship and hostile to quality.
Kill it with fire.
The One Metric That Exposes Pricing Problems: Effective Hourly Rate (EHR)
If you want one concept that will slap you in the face with reality, it's Effective Hourly Rate.
EHR answers one question:
After everything you do, what are you actually earning per hour of labor?
Not what you bill.
Not what your rate card says.
What you actually realize.
Here's why this matters:
Most MSPs believe:
- "We bill $150/hour."
- "Our managed services are profitable."
- "Projects make money."
But if you calculate EHR properly, you often find something like:
- Realized rate is $90/hour
- Or $70/hour
- Or even worse
And once you see that, suddenly it makes sense why:
- You're constantly stressed
- Hiring feels like a gamble
- Senior engineers feel "too expensive"
- Projects never hit margin targets
MSPs miscalculate EHR because they ignore the invisible hours:
- Included labor under managed services
- Rework and repeat issues
- Escalations
- Meetings and coordination
- Context switching
- Poor documentation overhead
If you don't track time properly, you don't have EHR. You have a fantasy.
And if your pricing is built on fantasy, your profitability will always be fragile.
Where Margin Actually Leaks (Hard Costs, Soft Costs, Opportunity Costs)
Margin leaks are not one thing. They're three.
1) Hard Costs
Hard costs are the obvious ones.
Tool costs. Licensing. Vendor commitments.
Sometimes you get trapped in a bad contract.
Sometimes you made a decision at the time that made sense, and now you're stuck.
Sometimes you got screwed by a vendor and you're locked into a garbage product for three more years with a commit you have no interest in hitting.
It happens.
Hard costs also show up as internal bloat:
- Overprovisioned licenses
- Duplicate tools
- Paying for products no one uses
Hard costs are painful, but at least they're visible.
2) Soft Costs
Soft costs are where most MSPs quietly bleed out.
Toolset bloat is one of the biggest culprits.
You have:
- Too many portals
- Too many dashboards
- Too many alerting systems
- No cohesive workflow
Engineers spend their day switching contexts instead of solving problems.
Then you add new tools because they looked cool at a conference or a vendor event.
And you implement them 70% of the way.
Now you have yet another tool your team half-uses.
Soft costs also include cultural exceptions:
- Engineers doing out-of-scope work because "it's that client"
- Avoiding billing because "they've been with us forever"
- Letting standards slip because you don't want confrontation
Those exceptions feel human.
They're also expensive.
3) Opportunity Costs
Opportunity costs are the hardest to measure and the most impactful.
This is the revenue and growth you miss because you're stuck fighting the wrong battles.
Here's a thought experiment.
Say you're at $5M in revenue and $1M in EBITDA.
What if you could wave a magic wand and change that to $2M in EBITDA tomorrow?
What would you do?
Would you hire someone to run marketing properly?
Would you hire more engineers to improve service quality?
Would you invest in better training?
Would you improve benefits and healthcare packages?
What would it change for your employees? Their families? Your family?
That's what opportunity cost actually means.
Most MSPs don't realize how close they are to that kind of shift.
They assume profitability is a slow grind.
Sometimes it is.
But a lot of times, it's one set of disciplined changes away.
And the MSPs who can execute those changes are the ones who win.
Quoting Mistakes MSPs Repeat (and How to Stop)
Most quoting mistakes come from one core issue:
You define the work loosely and hope reality cooperates.
MSPs quote based on optimism, not reality.
Or more accurately: optimism instead of truth.
Here are the biggest repeat offenders:
Undefined finish lines
Every project needs a finish line.
Not a vague scope statement.
A finish line.
You should be able to say:
- Here's what we are doing
- Here's what we are not doing
- Here's what "done" means
- Here's how we'll both agree it's complete
If you don't define "done," the project never ends. It just changes shape until someone gets frustrated.
Pricing without risk
If you price as if everything will go smoothly, you are volunteering to eat the risk.
Projects rarely go smoothly.
Not because people are bad. Because environments are messy.
Price accordingly.
Skipping discovery
Discovery is not a phase you rush through.
It's the thing that prevents margin destruction.
If you don't know what's there, you don't know what you're pricing.
How Disciplined MSPs Protect Margin (What Winning Actually Looks Like)
Healthy MSPs aren't aggressive. They're consistent.
They win by doing a handful of things extremely well.
They define standards and enforce them
They don't treat standards as suggestions.
They have baselines:
- Tooling baseline
- Security baseline
- Device baseline
- Identity baseline
- Network baseline
Clients can deviate, but deviations are documented and priced.
They treat change as normal, not emotional
Change is not a failure. It's information.
When something changes, they don't panic, discount, or absorb it.
They communicate it and price it neutrally.
They stop letting large clients hold them hostage
Large clients do not get to rewrite your operating model.
If a client requires constant exceptions, they aren't a "good client." They're a control problem.
They measure everything that matters
Every client.
Every tech.
Every project.
Every ticket.
Not to micromanage. To define reality.
Where AI Helps (and Where It Absolutely Doesn't)
AI will not fix broken pricing, broken packaging, or an operationally inefficient MSP.
But it can help you execute discipline faster.
AI can help with:
- Normalizing discovery (checklists, requirements gathering)
- Drafting scopes consistently
- Highlighting patterns in tickets and projects
- Surfacing margin risk earlier
- Reducing admin burden on quoting
AI fails when you expect it to:
- Replace judgment
- Avoid hard conversations
- Mask poor standards
- Make bad operations profitable
AI is a multiplier.
It makes strong businesses stronger.
It makes weak businesses faster at being weak.
A Practical Framework You Can Use Immediately
If you want to stop reading and start doing, here's the framework.
- Define your ICP. If your answer is "anyone with money," that's not an ICP. That's desperation.
- Define your target margin. Not incremental improvement. Define the margin you need to provide the service level you want, the benefits you want, and the business you're trying to build. That's the target. Nothing less.
- Know your current EHR. If you don't know it, your first goal tomorrow is to calculate it. No excuses.
- Define a baseline standard for clients. Then measure every client against it today. Score them against the baseline.
- Build a plan with owners and timelines. Assign owners. Set deadlines. Hold them accountable — including yourself.
This is how businesses become intentional instead of reactive.
Final Pro Tip: Hard Conversations Are a Skill
Get comfortable having hard conversations.
But more importantly, get comfortable learning the methods required to make hard conversations feel helpful, informative, and validating of the client's perspective — while still ending at the result you needed when the conversation started.
That skill separates MSPs who survive from MSPs who win.
And it's learnable.
Related Reading
Want to dive deeper into MSP business strategy? Check out our other resources:
- Why MSPs Are Busy, Clients Are Happy — and Your Margins Suck
- Where MSP Revenue Actually Leaks (And Why You Don't See It Until It's Too Late)
- MSP Pricing: Per User vs Per Device
- Stop Being Afraid of 'No' — How vCIOs Win Clients by Focusing on Business, Not Tech
- Browse all MSP insights on our blog