ConnectWise EVP of Service Leadership Peter Kujawa painted a mixed picture of MSP financial performance in front of hundreds of partners at the ConnectWise IT Nation Connect event in Sydney last week.
Overall profitability of Australian and New Zealand MSPs that reported results to the ConnectWise Service Leadership program had improved, Kujawa said.
That’s despite his numbers showing a significant decline in the managed services revenue growth of average ANZ MSPs since the first quarter of 2024, down to near pre-pandemic levels.
Partners have been asking Kujawa: “It's really slow out there. What's going on?”.
“Well, yes, it feels a lot slower when you compare it to the growth that we saw just a few years ago,” he said. “We are not in the mid-20s [percent growth] anymore. We're back down, but we are in a historical normal range.”
MSPs tracked by ConnectWise were more profitable and had better gross margin than they did at the peak of growth during the pandemic, he said.
“Why? Because that growth [during the pandemic], a lot of it was fueled by price increases that were necessary due to massive wage inflation,” Kujawa said.
“When that cost goes up – and it always goes up at a faster clip than you're able to recoup it through price increases – you see a lot of downward pressure on managed service gross margin.”
“So we're not in the end of days. We are in a normal time for managed service revenue growth – and profitability and gross margin today are better than they were at the high-water mark.”
Bottom quartile pain
But the profitability picture is far less positive for a significant proportion of ANZ MSPs reporting numbers to ConnectWise.
Some 23 percent of ANZ MSPs were unprofitable in the second quarter of the 2025 financial year, according to ConnectWise’s Service Leadership data.
“That’s heartbreaking to us. Nobody should be losing money today,” Kujawa said.
The cost of labour is the main reason that the bottom quartile of MSPs is “continuing to go down”, according to Kujawa.
At the other end of the spectrum, high performers also had a well-defined target customer profile (TCP), didn’t cross customer profile “swim lanes”, and had more fully managed customers, Kujawa said.
They also had a well-defined technology stack which they made customers move to, had a “radically different” onboarding process, only launched 1-2 new products a year, and increased prices by four to five per cent a year (Kujawa encouraged MSPs to build yearly prices into customer agreements).
Technician headcount
Unsurprisingly, automation was a key part of the formula pushed by ConnectWise last week for improving MSP efficiency.
Speakers pointed to Queensland-based Mangano IT’s use of automation, which they said reduced the average number of service tickets it dealt with in a month by 63 percent, and enabled it to reduce headcount.
Mangano IT managing director Paul Mangano said his company’s goal in automating service desk functions was to improve customer experience.
“In the end, we want consistency,” Mangano said. “Our guys have got about 50-something bots and workflows and automations that are available to them, without having any technical access directly. Tasks are done repeatedly and very consistently with great documentation output. That allows our team to talk to our customer, get the job done quickly and efficiently, well documented, and we move on.”
ConnectWise talked up the opportunity for MSPs with high operational maturity to use automation to downsize their level one technical teams. A hypothetical scenario was presented in which an MSP reduced its level one technical team from seven to five. In the longer term, ConnectWise predicted that MSP could downsize that team further, and reduce its level two technician headcount by one.
Attendees also heard how The Virtual IT Department and Arinco were automating their operations.
Broader questions about the implications of AI for MSP businesses were also aired.
There is “real concern out in the community about the impact of AI on the business model,” Kujawa acknowledged.
“I get a lot of questions about this. Last week, a partner stopped me in a peer group room and said, ‘Peter, do you think that the best days of the MSP and industry are behind us? What's going to happen with AI?’. Based on the reaction of the rest of the room that he was in, this question was on the mind of a lot of people in the room.”
Kujawa downplayed these concerns, pointing to an article from 2011 that predicted MSPs would be obsolete in five years.
IT Nation Connect attendees heard that customers were “screaming out” for someone to guide them in automating their organisations.
MSPs could be ”coaches and advisors” in translating the use of AI for human workflows.
“Every single person in an organisation is going to become a manager, not of other people, but of agents,” predicted Microsoft MVP Daniel Anderson.
He reassured technology partners that if they hadn’t used Copilot or an AI agent, they weren’t behind.
“I was talking to partners yesterday about still moving people from file shares into SharePoint,” he said.
The bottom line
Last week’s event was a reminder that amid AI excitement, the customer and partner reality lags well behind; and that fundamentals - cost discipline, customer focus and technical strategy - remain key to a high performing MSP business.
techpartner.news is the media partner of IT Nation Connect ANZ 2025.
.png&w=100&c=1&s=0)
