MSP & IT Services Valuation Guide: What Is Your Business Worth?
Your MRR is the most important number in your valuation. Here is how buyers figure out what your MSP or IT services business is worth, and what you can do to get a higher price.
How MSP Valuation Works
The Two Ways to Value an MSP
There are two common ways to figure out what an MSP is worth. Both start with your financials, but they focus on different numbers.
SDE x Multiple
Most common method. Take your annual profit (SDE), multiply it by a number between 4.0 and 7.0, and that is your business value.
SDE = your total profit + your salary + personal expenses running through the business. This is what the owner actually takes home.
Annual MRR x Multiple
Used for larger MSPs. Take your annual recurring revenue from managed services contracts and multiply it. This method is used when the business has very high MRR but the owner is reinvesting profits into growth.
Annual MRR = your monthly recurring revenue x 12.
For most MSPs under $5M in revenue, the SDE method is standard. The MRR percentage is what determines how high your multiple goes. Our free valuation calculator uses the right method for your business size.
What Drives the Multiple
The difference between a 4x and a 7x multiple comes down to these factors, ranked by importance:
- MRR percentage of total revenue (#1 driver), An MSP with 80%+ MRR gets a much higher multiple than one with 40% MRR. Buyers want predictable income. If most of your revenue comes from projects, your multiple drops.
- Contract length and stickiness, Multi-year contracts with auto-renewal clauses are the gold standard. Month-to-month agreements are worth less because clients can leave at any time.
- Client retention rate, Annual churn under 5% is excellent. Under 10% is acceptable. Above that, buyers start worrying about the durability of the revenue.
- Cybersecurity offerings as a premium, MSPs with security services (endpoint detection, SIEM, compliance, vCISO) get 0.5-1.5x higher multiples. Security is high-margin and every client needs it.
- Team scalability, A NOC, helpdesk, and dedicated techs mean the business can grow without the owner doing the work. That scales. An owner-operated MSP does not.
- Tech stack standardization, When every client runs the same tools (RMM, PSA, backup, security), the business is easier to manage and easier for a buyer to integrate.
Real-World MSP Valuation Examples
Here are three examples showing how different MSPs are valued. These are based on typical deals we see in the market.
$600K
$150K SDE x 4.0 multiple
- Owner-operated, 1-2 techs
- 50-60% MRR, rest is projects
- 30-40 managed clients
- Basic security stack
$2.2M
$400K SDE x 5.5 multiple
- Team of 8-12, NOC in place
- 80% MRR from managed services
- 100+ managed clients
- Cybersecurity offerings included
$5.2M
$800K SDE x 6.5 multiple
- 20+ employees, full leadership team
- 85%+ MRR, multi-year contracts
- 200+ clients, no concentration risk
- Full security stack, SOC 2 certified
Where does your MSP fit?
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Common Valuation Mistakes MSP Owners Make
We see these mistakes all the time. Avoid them and you will have a much more realistic picture of what your business is worth.
Valuing on total revenue instead of MRR
A $2M revenue MSP where half comes from projects is not the same as a $2M revenue MSP where 85% is managed services. Buyers care about recurring revenue, not total revenue. When you tell a buyer your revenue, immediately follow it with your MRR percentage.
Ignoring client concentration
If your biggest client is 25% or more of your revenue, that is a red flag for buyers. One lost client could sink the business. Spread your revenue across many clients before going to market. No single client should be more than 10-15% of total revenue.
Not separating project revenue from recurring revenue
Your books need to clearly show which revenue is monthly managed services and which is one-time projects. If it is all lumped together, buyers will assume the worst. Clean financials with a clear MRR line make a big difference in how buyers see your business.
Comparing yourself to SaaS multiples
SaaS companies sell for 8-15x revenue (or higher) because their software scales without adding staff. MSPs are service businesses, you need people to deliver the work. MSP multiples (4-7x SDE) are very strong for a service business, but they are not SaaS multiples. Do not price your business based on what software companies sell for.
Frequently Asked Questions
Should I value my MSP based on MRR or SDE?
Both matter, but they are used differently. MRR (monthly recurring revenue) tells buyers how much predictable income the business generates. SDE (seller discretionary earnings) tells them how much total profit the owner takes home. Most MSP deals use SDE times a multiple, but the MRR percentage is the biggest factor in determining what that multiple is.
What multiple do MSP businesses sell for?
Most MSP businesses sell for 4.0 to 7.0 times their annual SDE. The exact multiple depends on your MRR percentage, client retention, contract terms, team structure, and whether you offer cybersecurity services. MSPs with 80%+ MRR and multi-year contracts can reach 6-7x or higher.
Why do MSPs get higher multiples than other service businesses?
Because of recurring revenue. Most service businesses sell project-based work that stops when the owner leaves. MSPs have monthly contracts that keep paying regardless of ownership. That predictable cash flow is what makes MSPs so attractive to buyers, especially private equity firms doing roll-ups.
How does cybersecurity affect my MSP valuation?
Cybersecurity services can add 0.5 to 1.5x to your multiple. Security offerings like endpoint protection, SIEM, compliance management, and vCISO services are high-margin and in huge demand. Buyers see them as a growth engine because every client needs better security.
Is my MSP worth more than a break-fix IT company?
Yes, significantly. A pure break-fix IT company might sell for 2-3x SDE because the revenue is unpredictable and depends on problems happening. An MSP with managed services contracts sells for 4-7x because the revenue is recurring and predictable. Converting break-fix clients to managed services is one of the best things you can do before selling.
What Is Your MSP Worth?
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