If your portfolio's Managed Services Providers (MSPs) are hovering around 10-12% EBITDA, you are leaving massive value on the table. The gap between "good" and "great" in this sector is not subtle; it is existential. Recent data from Q2 2024 reveals that while the median MSP struggles with low double-digit margins, Private Equity-backed MSPs are hitting an average of 18.7% Adjusted EBITDA.
The culprit is almost always Service Delivery Gross Margin (SDGM). Revenue growth has slowed across the industry (down to ~10% organic growth from post-COVID highs), meaning the "grow your way out of inefficiency" playbook is dead. You cannot acquire enough revenue to fix a broken service factory. If your labor COGS are bloated, every new dollar of revenue brings diminishing returns to the bottom line.
For "Portfolio Paul," the diagnostic is simple: ignore the top-line vanity metrics. Look immediately at the Gross Margin of your recurring revenue. If it is below 45%, your technicians are inefficient, your tooling is underutilized, or your pricing model is detached from reality.
To standardize operations across a rollup, you need rigid benchmarks. Based on 2024-2025 data from Service Leadership and industry reports, here is the scorecard you must enforce:
Why are the top 25% of firms performing 2.5x better than the median? Hyperautomation. We are seeing a "curve jump" where best-in-class MSPs are using AI and rigid SOPs to decouple revenue growth from headcount growth. Data indicates that automation can reduce ticket resolution times by 40% and cut operational expenses by up to 30%. If your MSP adds a technician for every $150k in new ARR, you are failing. The new standard is scaling revenue without linearly scaling labor.
Standardization is not a buzzword; it is the only path to that 18.7%+ EBITDA target. Here is your immediate execution roadmap:
Calculate your Service Multiple of Wages. How much recurring revenue does each dollar of service labor generate? If this multiple is stagnant, your automation tools (RMM, PSA) are shelfware. Force adoption or switch stacks.
Routine tickets (password resets, user creation) must be zero-touch. Implement AI-driven ticketing to intercept 20% of inbound volume before it touches a human. This directly impacts your Managed Services Gross Margin.
Stop custom-scoping every deal. Enforce a standardized seat-price model across all portfolio companies. You cannot benchmark margins if every portfolio company sells a different "stack" at different margins.
Conclusion: The difference between a 3X and 5X return on your MSP rollup is not finding a better sales guy. It is fixing the gross margin in the service delivery engine. Measure it, benchmark it, and automate it.
