I recently sat down with Luis Giraldo on ScalePad’s MSP Confidential series to talk through something every owner wrestles with but few talk about honestly: why some MSPs scale and others stagnate. We titled it “Mastering MSP Profitability,” and over the hour we got into the psychology and the numbers behind the plateaus that catch so many owners off guard.
If you have an hour, watch the whole thing — the back-and-forth is where the good stuff lives:
▶️ Watch the full conversation: Mastering MSP Profitability — with Dave Wilkeson (ScalePad MSP Confidential)
If you don’t have an hour right now, here’s a recap of where the conversation went and the ideas I’d most want you to take away from it.
The plateau we opened with
We started where a lot of owners feel stuck — the wall you hit somewhere around $1M in revenue, and then again around $5M. My point in the conversation was that the wall almost always gets built years before you run into it. The decisions you make at $1M tend to either haunt you or help you at $5M: the pricing you never revisit, the service scope that quietly absorbs every client request, the books that lump everything into one bucket so you can’t tell what’s actually making money.
The reason that matters is that the plateau is a design problem, not an effort problem. You can’t out-hustle a broken operating model — and that framing set up most of the discussion that followed.
Why “more standardization” wasn’t my answer
One of the threads I enjoyed most was pushing back on the industry’s reflex to answer every growth problem with more standardization, more best practices, more tooling. Those things matter, but I made the case that they’re table stakes, not the growth lever.
What I told Luis is that real growth usually happens in the gray areas technically minded owners instinctively avoid — the pricing conversation, firing an unprofitable client, taking an honest look at what you actually pay yourself, deciding what not to offer. Standardization gives you a clean, repeatable shop. It doesn’t, by itself, make you more profitable. That distinction is worth the watch on its own.
The myth we spent real time on: “growing into profitability”
A big chunk of the conversation went after the idea that you can grow your way into profitability. You can’t — adding revenue to a chaotic delivery system just gives you chaos at a larger scale. I talked about instrumenting the business: building a data-driven operating model so the hard questions (When do we hire the next tech? Which services actually make money? What should we automate first?) have answers you can point to instead of arguing about.
Two numbers came up again and again.
“True” net profit
I explained on the show why most developing MSPs overstate their profit — usually because the owner underpays themselves on salary and takes distributions instead. “True” net profit normalizes for that, starting with fair owner compensation, so you see the real earning power of the business. The benchmarks I referenced:
- Best-in-class: 18%+ (the very best clear 23%+)
- Median: around 7%
I also made the point that too much profit can be its own warning sign — sometimes it means you’re under-investing in growth or your team.
Labor-Loaded Gross Margin (LLGM)
The other number we dug into was LLGM — essentially, if someone bought your business tomorrow, what would it actually cost them to deliver your services? The targets I gave were roughly 62% for managed services and 52% for professional services, and I flagged the trap of burying delivery costs (like your service manager’s salary) in G&A, which makes your margins look better than they are.
Revenue mix, the metrics that matter, and which “boat” you’re in
A few other ideas from the back half of the conversation, in case they’re the ones that hook you:
- Not all revenue is equal. We talked about aiming for 50%+ of revenue from true managed services — and why going above ~65% can actually be a red flag rather than a win.
- The metrics that matter. I’m not a fan of 40-line dashboards. On the show I argued for a handful of numbers each leader can actually influence — Effective Hourly Rate measured client by client, users per technician, tickets remediated through automation — with everyone owning just one to three of them.
- Which boat are you rowing? We touched on the framework from the book — Dragon Boat, Catamaran, Superyacht — and why the plateau so often hits the owner who keeps rowing a Dragon Boat while expecting Superyacht results.
Each of these gets more color in the interview than I can do justice to here.
Watch the full conversation
There’s a lot more in the hour than I’ve captured here — including the gray-area decisions that separate the MSPs that scale from the ones that stall.
▶️ Watch it here: Mastering MSP Profitability — with Dave Wilkeson (ScalePad MSP Confidential)
If it gets you wondering where your own true net profit or LLGM really stands, that’s the kind of thing we work on every day at MSP Advisor — but honestly, start with the video and see which part hits closest to home.
Dave Wilkeson is CEO of MSP Advisor, co-founder of Instrumental, and co-author of Profit and Growth for MSPs: Dragon Boats, Catamarans, and Superyachts.