Four Dollars in Ten Start Over

Every June the managed services industry publishes its honor roll. Channel Futures’ MSP 501 ranks the 501 best-run providers in the world, and the 2026 class, announced in June, averaged more than $32 million in revenue with 10 percent growth. One line further down sits the number that matters more than either: recurring revenue made up almost 60 percent of the total.

Read that from the other side. The most celebrated tier of an industry named after managed services starts every January with four dollars in ten unsold. Those dollars are projects, hardware resales, break-fix hours, one-off cleanups. They arrived last year because somebody sold them, and they come back this year only if somebody sells them again.

A year earlier the list averaged about 54 percent recurring, so the line is moving the right way. The question is where the bar sits, and on that the people who buy MSPs have been unusually clear.

What the buyer already told you

JFS Partners, a firm that brokers these deals, wrote the bar down in July: buyers want 80 percent or more of revenue from recurring managed services contracts, and project or break-fix work compresses the price, often by one to three turns of profit (EBITDA, in deal terms). N2M Capital’s 2026 valuation report, built from 120 MSP transactions, goes further: it calls 90-plus percent recurring “the single strongest valuation driver in current deal flow.”

The market agrees with the memo. In Drake Star’s second-quarter deal tape, small MSPs traded at five to seven times profit while scaled platforms with strong recurring revenue commanded sixteen to eighteen. Part of that spread is size. The part an operator can move this year is the mix.

You do not need to be selling the company for this to matter. The buyer’s bar is a professional opinion about risk, formed by people who pay for being wrong. The 80 percent floor exists because buyers have watched what the other four dollars do to a business.

What the other four dollars do

A recurring dollar and a project dollar look identical on this year’s income statement and behave nothing alike afterward. The recurring dollar is under contract. It renews unless something goes wrong, and when something goes wrong you can usually see it coming. The project dollar ends when the work ships. Next year’s version of it is a deal you have not won yet.

That difference lands in two places. The first is churn exposure. A book at 60/40 carries two retention problems: the clients who might leave, and the 40 percent that leaves automatically, every year, by design.

The second is the forecast. The recurring share of next year is arithmetic. The project share is a pipeline bet dressed up as a baseline, and when four dollars in ten re-book only if they are re-sold, the annual plan quietly assumes a sales performance nobody scoped or staffed.

Nobody has published a study tying revenue mix to churn or forecast accuracy in this industry, and I am not going to invent one. Walk your own ledger instead. Mark every dollar from last year that came back this year without a salesperson touching it. Everything else is quota you did not know you had set.

Moving dollars across the line

Five moves, in the order I would run them.

Count it the way a buyer’s accountant will. Recurring means contracted and renewing by default. Repeat project work from a loyal client is good business and it is not recurring. Resold licenses renew but carry a fraction of the margin, so track the mix in gross profit as well as revenue. Most books get smaller under this definition. Start from the honest number anyway.

End every project with a contract line. A migration, a deployment, a security remediation: each one creates something that now has to be maintained, monitored, and renewed. The project is the audition. Never close one without proposing the managed line item that follows it, in the close-out meeting itself, with a monthly price attached.

Price the plan, not the hours. Time-and-materials work converts when the recurring version is on paper: a monthly figure, a defined scope, a renewal date. Offer it at the end of every hourly engagement. Some clients will keep buying hours, and the offer becomes the default anyway.

Give the renewal book an owner with a number. Revenue that renews by itself still needs somebody accountable for the renewal rate and for moving project clients onto contracts. If improving the mix is everyone’s job, it is nobody’s quota.

Report the mix beside revenue every month. One line: share of revenue under contract, trended by quarter. What the board inspects, the company fixes.

The number under the award

For an investor the test costs an hour. Pull the portfolio company’s trailing twelve months and sort every dollar into two piles: renews by contract, or has to be re-won. Then set the pile sizes next to the growth plan. A book at 60 percent is committing to re-sell almost half of itself before growth even starts, and the plan should say so out loud, in headcount and pipeline, not in a footnote.

The MSP 501 measures size and growth, and the industry is right to celebrate both. The buyers of these businesses read a different number first. Revenue says how big the company is this year. The mix says how much of it is still there in March.