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MSP Revenue Reality Check Amid Coronavirus Economy

Around half (51%) of MSPs saw monthly revenue decreases as a result of the coronavirus pandemic and associated economic fallout, a new IT Glue research report reveals. Moreover, more than a quarter (29%) of MSPs saw their accounts receivable increase, indicating more clients could not meet contractual deadlines to pay for services, the IT Glue findings reveal.

Although the coronavirus pandemic triggered some business challenges, MSPs still have the opportunity to drive value for customers as businesses reopen in the second half of 2020, IT Glue found.

LinkedIn: Nadir Merchant, GM, IT Glue

IT Glue, owned by Kaseya, initially surveyed more than 1,500 MSP professionals in February 2020 about their technology stacks, headcounts, operations and more. IT Glue followed up with a survey to MSP professionals in May 2020 to identify trends that emerged as a result, receiving over 500 responses.

In a prepared statement about the research, Nadir Merchant, general manager of IT Glue, said:

“While no business is fully recession-proof, MSPs are uniquely positioned to drive value to customers and thrive during economic downturns. This year’s survey shows that the shift in priorities to a now greater concern for cybersecurity, compliance and customer retention means MSPs have an opportunity to serve as a guide to their small business customers. They are the epicenter for delivering critical IT services that not only help to maintain the viability of many companies during times of uncertainty and volatility, but will enable businesses to emerge stronger from these trying times.”

Among the additional IT Glue research findings:

  • Staff Turnover: MSPs typically have lower staff turnover than the overall IT industry — which means MSPs could be well positioned to pick up talent that exit other IT firms.
  • Customer Churn: MSP customer churn was about 10 percent — though some of the churn likely involves MSPs firing their worst customers. Regardless, 36% of respondents to IT Glue’s May 2020 survey indicated that customer churn is a high concern both during and after the coronavirus pandemic. This data reinforces the continual imperative for MSPs to demonstrate the value and credibility of the managed services model through expanded service offerings that deliver tangible results for their customers.
  • Diversified verticals. In 2020, MSPs that focused on a specific industry experienced slightly higher revenue than more general MSPs (79% vs. 75%). MSPs that targeted the following four industries in particular were more likely to report profits of 20% or more: legal (43%), government (40%), finance (39%) and professional services (38%). While specialization can be a boon for MSPs, be wary of placing all your eggs into one basket. MSPs that specialized in retail and hospitality were especially hard hit during the pandemic, the research notes.
  • Mergers and Acquisitions: Finally, although MSP interest in mergers and acquisitions had already been declining before 2020, the pandemic marked the most profound shift in M&A sentiment in recent years. In the February survey prior to the pandemic, more than half (52%) of MSPs indicated they were at least somewhat interested in acquiring or merging with another MSP, down from 62% in IT Glue’s 2018 survey. Fast forward to IT Glue’s May follow-up survey, and only 37% said they were considering M&A activity following the move to remote work under quarantine. Though M&As are likely to slow down as a result of the pandemic, market consolidation will continue – however, the pace of which remains to be seen.

ChannelE2E’s own research differs a bit from IT Glue’s findings. Vertical market MSPs tend to have significantly higher profit margins and valuations vs. general purpose MSPs, according to our Top 100 Vertical Market MSPs research. And MSP M&A activity is expected to climb through at least 2022 before leveling off thereafter, ChannelE2E finds.

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