Imagine trying to win a game without checking the scoreboard. That’s what running a managed service provider (MSP) without a mid-year financial review looks like. You’re making plays, but you don’t know if you’re winning. A mid-year financial review is your opportunity to assess your performance and make high-impact adjustments while there’s still time to hit your year-end targets.
In this blog, we’ll explore five crucial areas you can focus on to help achieve your year-end goals.
Key takeaways
- Mid-year financial reviews help assess progress toward year-end goals and identify areas for improvement.
- Focusing on five key financial metrics, revenue, product gross margin, service gross margin, selling, general, and administrative (SG&A) expenses, plus the current ratio, gives you the insights needed to course-correct.
- Improving revenue quality through customer retention, cross-selling, and strategic pricing helps boost sustainable growth.
- Managing SG&A expenses with a focus on return on investment (ROI) and budgeting ensures your growth translates into real profit.
Revenue (growth and mix)
Is your revenue trending in the right direction?
Revenue is the foundation of business success. When it falls short, it triggers a snowball effect, creating a shortfall in gross margin and profitability, which makes reaching your year-end goals significantly more difficult.
But not all revenue is good revenue. Low-value revenue sources often include:
- Companies outside of your
- Clients who are not on your technology stack.
- New offerings that don’t scale well or yield low margins.
To improve both revenue growth and revenue mix and stay on track for year-round success, consider:
- Focusing on client retention. Retaining satisfied customers through consistent service delivery reduces churn and stabilizes recurring revenue.
- Maximizing share of wallet and improving your revenue mix. Cross-sell existing clients on your full suite of core offerings. Top-performing MSPs consistently capture a larger share of wallet than their peers.
- Implementing value-based pricing. Regular, strategic price increases, especially when tied to service value, help improve margins without surprising clients.
- Leveraging referral programs. Ask satisfied clients for introductions to other decision-makers within your ideal customer profile, often during quarterly business reviews (QBRs).
- Pursuing high-growth clients. Align your sales efforts with customers that are scaling, so your revenue grows alongside theirs.
For revenue growth and financial performance insights, download The Service Leadership Index® 2025 Annual IT Solution Provider Industry Profitability Report™ Executive Summary.
Product gross margin
Are your product margins high enough to drive profit?
Product gross margin plays a critical role in an MSP’s financial health. It directly impacts how much revenue remains to cover operating expenses and reinvest in business growth. You can measure product gross margin in two ways: in dollars and as a percentage.
The formula is simple:
Product revenue × product gross margin percentage = product gross margin dollars
To increase product gross margin dollars, you must either increase product revenue or improve your gross margin percentage.
A best-in-class product gross margin percentage is typically 27% or higher, but if your margins fall short, there are clear strategies to raise them:
- Charge more for products. Value-based pricing helps you improve margin without sacrificing sales when paired with strong client relationships.
- Use QBRs to set expectations. Require account managers to lead quarterly business reviews to communicate infrastructure needs and reduce pricing objections.
- Choose vendors strategically. Select vendors that support service profitability and consolidate purchasing to unlock better pricing and terms.
- Bundle offerings. Limit detailed pricing in quotes to reduce customer price shopping and position your services as solutions, not line items.
- Set commission thresholds. Establish minimum gross margin requirements for sales commissions to incentivize margin-conscious selling.
- Avoid product loss leaders. Lead with service and only sell products that support your MSP’s profitability goals.
- Standardize your technology stack. Sticking to approved vendors and pricing improves efficiency and scalability while preventing margin erosion from one-off exceptions.
Services gross margin
Is your service model efficient and profitable?
Services gross margin is a critical financial metric for any MSP. Like product gross margin, it can be measured in dollars and as a percentage, and it directly impacts your ability to cover operating expenses and reinvest in the business.
The formula is straightforward:
Service revenue × service gross margin percentage = service gross margin dollars
To increase services gross margin dollars, you must either increase service revenue or improve your gross margin percentage.
A best-in-class services gross margin percentage is typically 48% or higher. Even if your margins fall below that benchmark, there are proven ways to improve performance:
- Stop discounting and charge based on value. Avoid competing on market pricing and focus on selling the unique value your MSP delivers. This supports premium pricing and higher margins.
- Standardize your technology stack. Implementing consistent technology standards across clients reduces complexity and lowers service delivery costs by avoiding expensive exception handling.
- Serve a focused customer profile. Trying to support a wide range of client types leads to inefficiencies. Build your service operations around a single TCP, such as SMBs or mid-market firms, for better alignment between your people, processes, and tools.
- Document your processes. Standardized, repeatable processes increase efficiency and reduce reliance on high-cost technical resources.
- Design for scalability. Use one technology standard for one customer profile to drive consistency, reduce operational drag, and improve gross margin over time.
Selling, general, and administrative (SG&A) expenses
Are your overhead costs helping or hurting your bottom line?
SG&A expenses represent the operational costs that stand between your gross margin and net profit. While essential, unchecked SG&A spending can erode profitability, even when revenue and gross margins are strong.
Simply tracking SG&A in raw dollars isn’t enough. To truly understand its impact, you need to measure SG&A as a percentage of gross margin dollars. Once this ratio hits 100%, your MSP is at breakeven, which means everything earned is going to cover overhead.
Best-in-class MSPs typically spend $0.58 of every $1.00 in gross margin on SG&A, leaving the remaining $0.42 to contribute to profit or reinvestment. If your ratio exceeds this benchmark, you can take action to improve efficiency by:
- Growing gross margin faster than SG&A. Increase revenue and margin while keeping SG&A growth flat to shift the ratio in your favor.
- Aligning your sales and marketing efforts with ROI targets. Use high Operational Maturity Level™ (OML) management practices to ensure every initiative and team member is accountable for delivering measurable returns within a defined time frame.
- Conduct a zero-based budget review. Instead of modifying last year’s budget, rebuild it from the ground up, requiring every SG&A expense to be fully justified for the current business strategy.
Current ratio
Do you have enough liquidity to cover short-term obligations and invest in growth?
Your current ratio is a key balance sheet metric that reflects your MSP’s ability to meet short-term obligations. It’s calculated by dividing your current assets by your current liabilities.
Current ratio = current assets ÷ current liabilities
This liquidity metric is crucial for maintaining financial health, especially in times of uncertainty. While conventional wisdom sets a safe ratio at 2.0, recent guidance from Service Leadership, Inc.®, a ConnectWise company, recommends targeting 3.0 to better absorb potential revenue drops and navigate economic volatility.
If your current ratio is below that benchmark, here are proven ways to improve it:
- Increase revenue and profitability. Strengthen gross margin performance to generate more cash and improve your balance sheet.
- Retain cash in the business. Delay or reduce owner distributions when necessary to preserve liquidity.
- Defer non-essential capital expenditures. Postpone large purchases that reduce cash reserves unless they directly contribute to growth or efficiency.
- Invoice promptly and accurately. Timely billing improves your cash and accounts receivable position, helping lift your current assets.
- Pay down short-term liabilities. Reducing outstanding debts lowers your denominator and improves the ratio.
Example:
- If you have $100,000 in current assets and $50,000 in current liabilities, your current ratio is 2.0.
- Pay down $10,000 in liabilities, and your new ratio improves to 2.25 ($90,000 ÷ $40,000).
Use mid-year reviews to course-correct and stay on track
A mid-year financial review is one of the most effective tools MSP owners can use to assess business performance and make timely adjustments before year-end. It’s a checkpoint that helps you reflect on Q1 and Q2 results and strategically plan for Q3 and Q4.
If your key metrics, such as revenue, gross margin, or expenses, aren’t where they need to be, now is the time to course-correct. Start by understanding the key financial levers that impact profitability and performance:
- Employee compensation: Are you paying competitively or over market for certain roles?
- Hiring timing: How is the pace of hiring affecting service margins and profitability?
- Sales and marketing ROI: Are your current investments producing measurable pipeline and revenue results?
- Administrative overhead: Are general and administrative (G&A) expenses aligned with your growth goals?
- Budget visibility: Are you reviewing budget performance regularly and adjusting where needed?
Download the MSP marketing report to learn the top five most leveraged low-cost marketing tactics.
Ask the right questions to align strategy and execution
Use your mid-year review to answer critical business questions, such as:
- How many new contracts do I need to hit revenue targets?
- What’s my acceptable rate of customer attrition?
- Should I pause or accelerate service hiring?
- Am I being proactive enough with price increases?
- Do I need to re-evaluate my sales and marketing strategy?
Make immediate, data-driven changes
Once you identify gaps, take action quickly by:
- Ensuring accurate, up-to-date financial reporting to support fast decisions.
- Comparing current results against both budget targets and prior year performance.
- Reassessing the five key financial metrics outlined in this blog: revenue, product gross margin, services gross margin, SG&A, and current ratio.
- Understanding the levers within sales, service delivery, finance, and G&A management that influence profit and growth.
If you’re feeling overwhelmed, you’re not alone. Balancing financial strategy with day-to-day operations is one of the biggest challenges MSPs face. That’s why working with the right business partner, one that understands your goals and metrics, is essential for scaling without burnout.
Turn your mid-year review into a roadmap for MSP growth
Mid-year financial reviews aren’t just about looking back; they’re your opportunity to take control of the second half of the year. By focusing on key financial metrics such as revenue quality, gross margins, SG&A efficiency, and liquidity, MSP owners can make smarter decisions that improve profitability, drive scalability, and keep long-term goals within reach.
Success lies in acting on the data, asking the right questions, and making timely course corrections. Whether you need to adjust pricing, reallocate resources, or revisit your client mix, your mid-year review gives you the insight and leverage to do it confidently.
But insight alone isn’t enough. You need the right tools and systems to act on it.
Support your financial strategy with ConnectWise solutions
ConnectWise offers purpose-built tools and data-driven resources to help MSPs optimize financial performance, improve decision-making, and take full advantage of mid-year reviews. These solutions can help you track, analyze, and act with precision.
- Service Leadership Index® (SLI): Benchmark your financial performance against best-in-class peers using the industry’s most comprehensive and trusted performance data. Use it to identify where your revenue, gross margins, and SG&A ratios stand, and where they need to go.
- SLIQ™: This interactive business maturity platform gives you a detailed action plan based on your OML, helping you prioritize the right actions across finance, service delivery, and sales to drive profitability.
- Reports and Dashboards (formerly BrightGauge): Turn your financial and operational data into actionable insights with real-time dashboards. Monitor KPIs, including gross margin, revenue mix, and current ratio, to make mid-year course corrections with confidence.
- WisePay™, a ConnectWise solution: Improve cash flow and liquidity by automating invoicing, collections, and payments. These tools help strengthen your current ratio, reduce days sales outstanding (DSO), and simplify financial operations.
- ConnectWise Partner Program™: Unlock access to exclusive enablement resources. The Partner Program helps MSPs drive profitability, sharpen operational efficiency, and align business goals with proven success strategies.
Ready to crush your year-end goals?
Explore how ConnectWise Business Management solutions can help your MSP simplify operations, drive profitability, and accelerate growth.
