Service Leadership Report: Less-Profitable TSPs Shelling Out More for Employees

A new Service Leadership report shows the least profitable IT solution providers (TSPs) pay more for both staff and management positions, and they tie less of that pay to incentives.

They also gave the largest increases in 2022 and are planning to do the same in 2023.

This is the 10th edition of the Service Leadership TSP report, but the first since 2016. It was brought back based on high demand for current, industry-specific compensation data, especially due to wage inflation and staffing challenges in 2020-2022.

Survey participants are from the United States, Europe, Canada, and Australia and New Zealand.

Service Leadership is a ConnectWise solution. For the report, it categorizes TSPs as having the financial performance of best-in-class (BIC), median and the bottom one-fourth.

Service Leadership Report Highlights

The report shows more profitable TSPs tend to pay less for staff and non-owner manager positions than less profitable TSPs. For staff positions, BIC paid approximately 9% less than the median and 13% less than the bottom one-fourth.

For managers, BIC paid approximately 9% less than the median and 17% less than the bottom one-fourth.

Service Leadership’s Peter Kujawa

“There is widespread belief that because a TSP is more profitable and financially successful, they pay their employees more, but the data proves the exact opposite is true,” said Peter Kujawa, vice president of Service Leadership, and TSP evangelist. “The data is compelling as to why some companies are doing well and others struggle.”

The report also showed there was a close correlation between TSP profitability and the percentage of variable compensation or pay added to the base salary for both staff and management. BIC paid a materially higher amount of this for staff and managers.

For staff, BIC tied 9.6% of total annual earnings (TAE) to variable compensation while the bottom one-fourth paid 5.8%. For managers, BIC tied 16.9% of manager TAE to variable compensation while the bottom one-fourth tied only 8.2%.

MSP Employee Distribution

In the survey population, the average MSP had 25.5 employees distributed between departments or functions. That’s up 23% from the 2016 edition of this report. The average MSP had around 74% of employees dedicated to service delivery functions in their organization.

For non-service delivery roles, 11% of employees make up sales and marketing. This is followed by 11% for general and administration (G&A), and the remaining 4% are owners.

MSPs had the highest percentage of managed services employees at 45% of total headcount. This is unsurprising as most MSP employees deliver managed services.

The second highest was infrastructure services employees, responsible for service delivery for any projects, at 23% of total headcount. The third highest was application services at 3% of total headcount. This low proportion is common as most TSPs do not offer application services offerings.

The application services business models, and their people’s skill set, service delivery and compensation are different from infrastructure employees. As a result, infrastructure firms and MSPs rarely perform application services profitably.