March 3, 2025

Last week, I had a great engagement with an MSP from the Carolinas. One of their clients (internal-IT) contributed 30% of their revenue and drove the need for a PSA Front End to monitor SLA metrics, tickets, projects, and licenses. While this level of engagement showed the MSP’s commitment to service, it also highlighted a major risk—having too much revenue concentrated in one client. If that client left, the financial impact would be severe. Worse, adopting a tool just to satisfy one client would erode profitability and create ongoing management burdens without benefiting the broader customer base.

This conversation reminded me how crucial client diversification is for MSPs. Over-reliance on a small number of clients is a dangerous game. If you lose one, your entire business could feel the impact. Beyond financial stability, diversification also makes your MSP more attractive for future mergers and acquisitions. Buyers look at risk, and having 40-50% of revenue coming from a few clients is a red flag.

Here are three key strategies to help reduce risk and build a resilient MSP:

1. Acquire a Mix of Different-Sized Clients A big deal can transform your business, but it also introduces risk. If a few clients make up more than 20% of your revenue, it’s time to rebalance. Aim for a healthy mix of small, medium, and large clients to avoid dependency on any single account. This diversification protects you from sudden financial disruptions and makes your MSP more stable long-term.

2. Develop Scalable, Standardized Service Models Many MSPs fall into the trap of customizing services too much for large clients. This can reduce efficiency and profit margins, as your team must maintain skills and resources for niche technologies. Instead, focus on bundling and packaging services that work across multiple industries. Standardized service offerings not only drive higher profitability but also prevent you from being locked into supporting one-off solutions that don’t scale.

3. Secure Long-Term Agreements with Stronger Terms Client retention is key, but so is protecting your revenue. Sign three-year (or longer) agreements with clear exit penalties. This ensures that if a large client does leave, you have time to adjust without taking an immediate financial hit. Long-term agreements also make your MSP more valuable in an acquisition scenario, reducing perceived risk for buyers.

The Cost of Not Diversifying

Failing to diversify can put you in a difficult position. If a major client threatens to leave, you might feel pressured to lower prices to keep them—further eroding profit margins. Worse, your business could become unattractive to potential buyers due to the risk concentration. The best way to avoid these pitfalls is to keep your sales and marketing engine running, continually bringing in new clients to distribute revenue more evenly.

Future-Proof Your MSP Business

The more you diversify, the better positioned you’ll be for long-term success. Whether you’re looking to scale or preparing for an eventual exit, balancing your client portfolio is a must. If your MSP is overly reliant on a few clients, now is the time to take action.

Stay safe and have a great week everyone!

Tulsie