The Market Split in Two

Kaseya asks managed service providers about their profit margin every year; the 2026 edition surveyed 1,061 of them in November 2025. Read the headline number and it looks like a story about MSPs losing ground. Read the full results and it is a different story: MSPs are splitting into two groups, and both groups grew.

The losing group grew first. The share of MSPs running at a loss doubled, from 5 percent to 10 percent.

That matches what you would expect from a tighter year: harder deals, slower growth, thinner margins. Most coverage of this data stops there.

It should not, because the winning group grew too. In the same survey, the share of MSPs keeping 16 to 20 percent of every revenue dollar as profit rose from 15 percent to 18 percent. The top tiers barely moved. So this is not a story about the industry getting worse. It is a story about the thin-margin middle emptying out, some companies sliding down and others climbing, in the same market, in the same year.

Why costs are not the real answer

The obvious explanation is cost. Thirty percent of MSPs say rising labor, tool, and infrastructure expenses are constraining growth, and Kaseya’s own report calls the doubling of unprofitable MSPs a combined effect of slower revenue growth and rising operating costs.

But labor, tools, and infrastructure get more expensive for every MSP at once: they hire from the same technician pool and buy from the same vendors. If costs alone explained it, both groups would have slid together. They moved in opposite directions. The other half of Kaseya’s sentence is the part that sorts them: the same report says the share of MSPs reporting recurring revenue growth under 5 percent has increased. Growth is what separated the two groups.

Here is why that matters. Picture two MSPs with the same payroll and the same software bill. Last year, both were growing fast enough that the bill was easy to cover. This year, one kept growing and the other did not. The bill did not get bigger. The company that stopped growing lost the revenue that used to cover it.

That is the whole mechanism. A cost base looks fine at one growth rate and looks like a crisis at a slower one, even though nothing about the costs changed. This is a growth problem wearing a cost problem’s clothes.

What a revenue leader should check

Treat a margin drop as a revenue question before a cost question. Three checks come before any conversation about cutting spend.

Compare this year’s revenue growth rate to last year’s. If growth slowed by more than costs rose, the fix belongs in pricing and sales, not in the expense report.

Check whether contracts are renewing at their full price, separately from what new deals close at. A renewal that quietly loses price is bleeding the same margin a cost review is out looking for.

Look at what it costs to win each new deal. Closing more small deals for the same selling effort dilutes margin one contract at a time, and no expense line will show it, because the problem lives on the revenue side of the business.

Report the split, not just the average

A single margin number hides which of the two groups a company belongs to. Track both the losing share and the winning share every quarter, the same way Kaseya tracks the industry, and a board sees which direction a company is drifting before it needs a rescue plan.

The MSPs that climbed into the 16 to 20 percent band pay the same technician wages and tool bills as everyone else. They hold that margin by growing faster than their own costs, which is a revenue team’s job description. A board that reads this data and sends it to procurement is asking the wrong department to solve it.