Five Interesting Thoughts from…Peter Kujawa
What the industry’s deepest reporting data says about the managed services industry in 2024 and 2025, according to the man most responsible for assembling it.
Peter Kujawa is vice president and general manager of ConnectWise’s Service Leadership unit. Four times a year, he and his team publish one of the deepest and most detailed benchmark reports on global MSP performance. The latest such report covers Q3 of 2024, and Kujawa recently came on Channel Mastered’s MSP Chat podcast to discuss it. Here are five of his many enlightening, data-driven observations.
1. MSP revenue growth has been declining since 2022. For years, MSP revenue grew 10 to 14 percent on average annually. Then came Covid, work from home, and a sudden, urgent need for remote IT support among businesses of every size.
“What we saw during Covid was we saw a couple of quarters that were over 25% growth on a four-quarter trending basis,” Kujawa says. “That’s unbelievable growth.”
Predictably, it’s been slowing since Q3 of 2022. “The plane appears to be landing,” Kujawa notes, adding that growth remains strong even so.
“We’re still over 10% on a trending basis.”
2. That said, revenue growth was probably down 8.5% year-over-year in 2024 for an unexpected reason. We just had a presidential election.
“We got approached early in the summer by a reporter who asked us if there’s any correlation between U.S. presidential election years and revenue growth for MSPs,” Kujawa says. “We talked about it internally and we thought that’s a ridiculous premise. There’s no possible way that there’s a correlation on these two things. But being curious about it, we decided to run the data set.”
Turns out there’s not just a correlation but a dramatic one. “In the last four presidential election years, revenue growth for MSPs—and this is not just managed service revenue, but project revenue, product, all of it—revenue growth was down from the previous year between five and a half and 11.5 percent.”
The trend is likely to have continued in 2024, adds Kujawa, who has a theory on one reason the trend exists at all. “A presidential election brings uncertainty, and our experience is businesses do not like to sign large project contracts and large new managed service engagements at times when they have uncertainty about the future of their business.”
3. Historical trends have a better story to tell about 2025. Years following a presidential election are usually good ones for MSPs.
“We don’t have a crystal ball, but the best predictor of the future are patterns from the past and after each of those slowdown years, the presidential elections, we’ve seen a nice lift year the following year,” Kujawa says. “That coupled with what’s going on in the industry and customers’ needs for help with automation and AI, and it should be another really good year.”
4. An additional reason growth has been slowing is inflation, which has a hidden effect on MSPs. “When you’re doing 10, 12 percent [price] increases for your customers because you’re getting whacked with 10 to 12 percent price increases and you’re having to pay your team who are doing the services, it looks really fun on the chart,” Kujawa notes. “What doesn’t show up, on that chart at least, is that it really negatively impacted your service gross margins in the meantime. And for MSPs, the downside of negative wage growth is going to hit you much faster than the upside of the revenue growth will.”
5. EBITDA at MSPs backed by private equity is consistently three to five points higher than at non-PE-backed firms. Not because they have better technical skills and not because they have greater purchasing power. The real difference, according to Kujawa, is their more rigorous financial discipline.
“When we talk to MSPs who are not backed [by PE] about budgeting, for example, they either don’t do a budget at all and just try to beat last year, or they do it but they don’t put a lot of energy into it,” he says. “The PE guys, they put a mind-numbing amount of energy into developing their budgets. I know this both from working with them and from working for one. Budgets are a huge deal.”
There’s more from Kujawa where that came from. Tune into the podcast episode featuring his interview to hear it all.