K7 Insights

MSP Valuation: What Buyers Read Before They Believe EBITDA

By Kyle Christensen · October 13, 2026

Part of Grow Your MSP

Your MSP’s valuation gets quoted as a multiple of EBITDA, but a buyer won’t believe your EBITDA until two other numbers back it up: net revenue retention and revenue growth rate. Those tell them whether the profit came from a business that grows or from one cutting costs while its customers leave. And if you aren’t selling any time soon, the number to run on is a third one, your real gross margin. Here’s the math on all three, the bar I hold MSPs to, and what multiples look like right now. All of it ties back to how you grow your MSP into a business worth buying, or worth keeping.

Is EBITDA the number that sets your MSP’s valuation?

It’s the number the price gets quoted in, and it’s about a third of the story. I made up that third, by the way, which is kind of the point. A buyer pays a multiple of your yearly EBITDA. Whether they believe your EBITDA is a separate question.

In plain English, EBITDA is a profit number that leaves out what your loans, taxes and past purchases cost you. The letters stand for earnings before interest, taxes, depreciation and amortization.

Picture an MSP posting 15% EBITDA while its customers pay it less every year. Is it healthy?

No. It’s a sinking ship. That 15% didn’t come from growing. It came from cutting. The owner is slashing costs because customers are leaving, and none of that money goes back into the business to get it out of the water. A buyer spots the leak long before they’d ever collect a dollar of that EBITDA.

So why does everyone in the MSP world chase EBITDA? Let me put my tinfoil hat on for a minute. We’re probably in about the tenth year of consolidation in this space. Some of it happened sooner, but it really started ramping up around 2014 and 2015. Plenty of MSPs gave up growing organically by selling their services, and now they grow by buying other MSPs. That makes the rest of us a perfect place for predators to hunt. They sell you the big, beautiful world of eight, nine, ten times EBITDA. Who benefits from every owner obsessing over that number? The vendors and the roll-ups. They want you emotionally attached to the payout.

Here’s my problem with that. If I’m not looking to sell, why am I running the business for the people who want to buy me?

What are MSP valuation multiples in 2026?

It depends on size, and every range you’ll find comes from people who advise sellers. One 2026 report, N2M Capital’s MSP M&A Valuation Report 2026, puts MSPs under $5 million in revenue at about 3 to 5 times EBITDA, and 9 to 14 times above $35 million. Those are an adviser’s estimates.

I don’t have the transaction data, so here’s the hearsay. A business doing about $500,000 a year of EBITDA is probably looking at four to six times. Eight, nine, ten times is for the big shops, or for a business with something truly special about it. Your stack and the way you deliver service aren’t special. I know. I’m going to annoy a few of you today.

If you came here for a single multiple, that’s a little disappointing, and it’s the real answer. The more useful question is what gets a buyer to pay the top of the range. You want those answers in place a couple of years before you decide to sell.

Which of the four boxes is your MSP in?

Put revenue growth on one axis and profit growth on the other, each slow or fast, and you get four boxes. EBITDA by itself can’t tell you which one you’re in. Two MSPs can print the same EBITDA and sit in opposite corners.

Worry about the bottom-right box. The EBITDA magically skyrocketed, but the business can’t grow its revenue, and it can’t get more out of the customers it has while keeping them happy. There are probably skeletons in the closet.

The top-left box is where the criticism lands. I know because I got it. In 2016 I was running an MSP as its hired operator, we were spending hard on growth, and the EBITDA crowd told us we were doing it wrong. I remember that moment vividly. We kept spending anyway.

A buyer checks two numbers to find out which box you’re really in, and they check them before they believe your EBITDA.

What is net revenue retention, and what’s a good NRR for an MSP?

Net revenue retention (NRR) is what last year’s customers pay you this year, as a percentage of what they paid you last year. For an MSP, I want it at 105% to 110% or better.

Say you’re a small IT shop, about eight people. Last year your customers paid you $1 million. This year those same customers pay you $1.1 million. That’s 110% NRR. If they pay you $900,000, that’s 90%, and that’s the leak.

Only last year’s customers count. A brand-new client never goes in the pool. Here’s what moves the number:

• Counts for you: price increases and upsells to customers you already had.
• Counts against you: every cancellation, and every contraction, like a customer cutting users or no longer paying you directly for their licenses.

To work out yours, pull last year’s revenue by customer from your PSA or accounting system and keep only the customers who paid you last year. Add up what those same customers paid you this year, counting anyone who left as zero. Divide this year’s total by last year’s.

Over 100% means the customers you already have pay you more every year, and that’s how you cover raises and inflation without bleeding margin. It’s hard, and it’s the bar. The 15% EBITDA shop with retention under 100% is the sinking ship from the top of this article. The buyer’s fear is simple: those customers run away after the deal closes.

You probably haven’t heard NRR much in this space. For years, a colleague and I pushed the big benchmarking companies to start reporting it, so when investment bankers started talking about it, I was thrilled. At Top Down Horizons last year, in a room full of MSP investors, a banker whose firm has handled a lot of the large MSP deals told everyone that retention and growth matter more than EBITDA when they work out what a business is worth.

If the EBITDA still holds up after those two numbers check out, that business knows how to grow and keep customers, and it does both efficiently. That’s the one a buyer wants as a platform, the company they put more customers into because it can get a lot out of them.

What’s a good growth rate for an MSP?

My bar is 16% to 20% a year, averaged over several years. That’s your compound annual growth rate, or CAGR. Service Leadership, the MSP industry’s long-running profitability benchmark, says the average MSP grew about 11% a year from 2021 to 2025. That figure is from the full 2026 Annual IT Solution Provider Industry Profitability Report; its executive summary is free.

This is the number I tell owners to be obsessed with. It’s the owner’s KPI. If you aren’t obsessed with it, you’ll make a lot of decisions that don’t move it, and it’s the hardest number in the business to make predictable. The best day to plant a tree was yesterday. Today’s the next best day.

Some of you are thinking, “Kyle, I did 100% last year.” When you’re at $500,000 or $1 million in revenue, your percentages look huge. Average them over the trip to $5 million, $7 million, $10 million, $15 million, and they come down, because that’s how averages work. It’s harder to go from $5 million to $6 million, a million dollars of growth, than from $1 million to $1.5 million, $500,000 of growth. The percentages skew your perspective.

And 16% to 20% is possible without buying anybody. An MSP I coached had closed about $8 million the year before I started working with them. The next year they did about $16 million, and almost $30 million the year after that, without a single acquisition. They’re about $60 million today, and they’ve done an acquisition or two since. They let their underperformers go, which most MSPs won’t do, and the whole team treated growth rate as the lifeblood of the business. That growth was theirs. My job was keeping them pointed at it.

Whatever you sell, the test is the same: are you beating the average in your own industry? If you aren’t, the fix is the one you’re tired of hearing from me. Work on how you sell managed services.

Do you have to sacrifice profit to grow?

For a couple of years, usually yes, and the best MSPs end up growing without sacrificing it. Both are true. The road to the top has a dip in EBITDA on it.

Most of us are accidental entrepreneurs, and I include myself. We’re obsessed with our craft and much less with the business of selling it. So nobody told us that sales and marketing is a reinvestment. You hire a salesperson, and their paycheck hits this month while the deals they close land months from now. On the P&L, that paycheck is an expense today, so EBITDA drops. Then the deals come in, and the new revenue pays for back-office people who make delivery more efficient. That’s how EBITDA comes back.

The MSP I coached let EBITDA drop for a couple of years to grow like that. They hired sales leadership and coaches. They overhired BDRs and AEs to find the right fit. They spent money on agencies and campaigns to prove whether they had product-market fit. You can’t just grow a money tree. You have to spend money nurturing it from a sapling. They still never ran in the red.

So I went looking for data to prove I’m right, or to prove I’m an idiot and shouldn’t say any of this out loud. Service Leadership’s 2026 report found the most profitable 25% of MSPs grew 21.4% a year from 2021 to 2025, about twice the middle of the pack at 10.6%.

They also spent less to win each dollar of margin. The report’s measure: take the margin a new contract brings in over three years. The top 25% spent about 41 cents on sales and marketing to win each of those dollars. The bottom 25% spent about 75 cents, and their EBITDA dollars went backwards. The report calls the idea that you must sacrifice profit to grow faster “common but false.”

On paper, I’m an idiot. But that report is a snapshot of where the best ones are today, not the road they took to get there.

Everyone I’ve watched make that trip took the dip, including the MSP I ran. We hired the wrong salesperson and had to learn how to sell ourselves. Nobody is good at go-to-market on day one. You get better at sales the more you do it. You find efficiencies and get consistent, and once you’re consistent you can train more people to do it and, eventually, pay less per deal. Your service desk went the same way. It wasn’t efficient on day one either.

So here’s where I land. Plan for a couple of years of lower EBITDA while you build sales, and know the dip isn’t free. How much to put into sales and marketing and who to hire first are the two decisions that set how deep it goes.

If you’re staring at a sales hire and trying to work out how big a dip you can stomach, bring last year’s P&L to a call and we’ll run the numbers together.

Why is gross margin the number to run your MSP on?

Because it tells you whether the business is healthy and can pay its own bills, and you don’t need a buyer to tell you that. Maybe you’re young, or you’ve got ten or fifteen years left in you, and selling isn’t on the calendar. That’s no reason to stop building. Run it on gross margin until the day you sell.

Gross margin is what’s left after paying to deliver the work, your service team’s pay included. In the last episode, MSP Pricing for Dummies, I built the margin into the price. This number tells you whether it showed up.

Most MSP books I see get it wrong. Put your service team’s salaries in cost of delivery (your accountant calls it COGS, cost of goods sold), and what looked like 40% gross margin on the P&L turns into something in the 30s. I see that pattern coaching MSPs, and I saw it plenty at Sierra Pacific Group, the MSP software consulting firm I co-founded. Any service business makes the same move: the pay of everyone who does client work goes into cost of delivery.

In my experience, the back office of an MSP runs about 18% to 22% of revenue, pretty consistently. Whatever’s left after delivery and that steady slice is what pays your loans, your taxes and you.

Here’s why buyers care. When I look at buying an MSP whose real margin is 35%, 37%, maybe 40%, I can probably get eight or nine points out of it, and that gap helps pay off the purchase. Fix it yourself and those points stay yours.

What does EBITDA hide?

Anything that lives in the interest, taxes, depreciation and amortization lines, and you can hide a lot there. Take the cheap SBA loan a lot of MSPs took during COVID. The interest still comes out of your bank account every month, and EBITDA never shows it. Same with the servers and laptops you bought that wear out and have to be bought again.

That last one was Warren Buffett’s complaint. At Berkshire Hathaway’s 1998 annual meeting he said, “The one figure we regard as utter nonsense is the so-called EBITDA.” His point was that it pretends the equipment never needs replacing. He also said it had been “misused by lots of people to sell lots of merchandise.” Sounds familiar.

Listen to how buyers talk, too. They say things like, “We’re looking for MSPs with a million dollars of EBITDA or more.” They talk in dollars, because dollars are what land in the bank account.

What if you’re selling in the next three years?

Then EBITDA is most of the check, and you’re right to care about it. Build it gradually, in dollars, with no sudden jumps. If your EBITDA goes from 10% in January to 18% in July, you’ll be explaining that jump to every buyer who reads it, and the explanation usually sounds like cost cutting.

The buyer still checks retention and growth rate before they believe the number. So even with a three-year clock, you need to fix your sales problem. Fix it and your growth rate goes up. You get to pick your customers, and you can afford the back-office people who build process. That’s how you earn the EBITDA back.

Do you have to sell your MSP at all?

No, and I want to be direct about it, because the idea gets overblown. I know MSP owners who hired a CEO, did real succession planning, and now put more money into their retirement every year than a single payout would ever have given them.

Do the math. A business that prints $500,000 a year after your salary is a pretty good business to keep. Sell it at four to six times and that’s $2 million to $3 million, once. Keep it, and that’s $500,000 every year.

So which box are you in?

Two numbers a buyer reads before they believe your EBITDA: net revenue retention and growth rate. One number to run the business on until the day you sell: gross margin.

If you do one thing this week, work out your NRR. Pull last year’s revenue by customer and do the division. It tells you which box you’re in, which your EBITDA can’t. Then put it next to your growth rate and your real gross margin and decide what to fix first. The rest of the grow your MSP guide is where to go next.

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EBITDA vs Net Revenue Retention: What Buyers Read First