Service Leadership Q3 Index Data Reveals Revenue Growth Slowdown But Continued Profitability for Managed Service Providers and Revenue Growth for Value-Added Resellers

TAMPA, Fla., Nov. 05, 2024 (GLOBE NEWSWIRE) -- Service Leadership, Inc.®, a ConnectWise solution and the leading source of empirical data on IT solution provider (TSP) performance worldwide, today released its findings from the Q3 2024 Service Leadership Index®. Service Leadership Index, the largest and longest-running industry benchmarking platform, collects data from partners in 10 Predominant Business Models™ (PBMs™) worldwide every quarter. This data provides significant insights into the global managed service provider (MSP) industry. The Q3 Index data shows that managed service revenue growth has continued to slow to pre-Covid levels, but MSP profitability remains near historic highs.

While managed service revenue growth in North America, Australia, and New Zealand showed a continued slowdown, Q3 was a strong quarter in Europe:

A significant factor contributing to reduced profitability in Q3 was a material drop in project/professional services revenue. This drop in projects impacted all geographic regions, including PE and non-PE backed MSPs. Notably, while Europe experienced the highest managed service growth, it had the largest drop in project services revenue at -10.6%. These reductions in projects led to a drop in average project services gross margins, from 25% in Q1 2024 to 18.6% in Q2 2024 to 15.2% in Q3 2024, due to lower project team utilization.

The data also highlights a positive trend of fewer MSPs operating at a loss. In Q2, 14% of MSPs reported a loss, down from 19% in Q1 2024.

In addition to the MSP segment, the report also sheds light on interesting data for value-added resellers (VARs). VARs experienced an exceptional quarter with total revenue growth of 12.6%, up from 3.6% in Q2 2024. This growth was led by non-recurring product (primarily hardware) growth of 15.5% and VARs countered the decline in project/professional services revenue for MSPs with growth of 9.9% in Q3. The report also found that after three consecutive quarterly increases, VARs posted a managed services growth decline of -1% in Q3.

With the material increases in both non-recurring product and project/professional services revenue, VARs posted their best quarterly profit in the past eight quarters, with an average of 5.3% adjusted EBITDA, up from 3.9% in Q2 2024.

"The Q3 Service Leadership data offers invaluable insights into the dynamic and differentiated landscape of the MSP and VAR industries," said Peter Kujawa, VP & GM at Service Leadership. "These findings serve as a compass for industry professionals, empowering them to make informed decisions and fuel growth within their businesses. Despite the current managed service revenue growth slowdown for MSPs, it is noteworthy that MSPs continue to achieve strong profitability."

Service Leadership will be at IT Nation Connect (November 6 - 8 in Orlando, FL) - the premier thought-leadership conference for TSPs. Kujawa will be presenting multiple sessions including an in-depth overview of the Service Leadership Index. Attendees can also visit the Service Leadership booth for information on all of the Service Leadership products.

About Service Leadership, Inc.

Service Leadership, Inc.®, a ConnectWise solution, is dedicated to providing total profit solutions for IT solution providers (TSPs), directly and through industry consultants and global technology vendors. The company publishes the leading vendor-neutral, TSP financial and operational benchmark: Service Leadership Index®. This includes private diagnostic benchmarks for individual TSPs and their business coaches and consultants. The company also publishes SLIQ™, the exclusive web application for partner owners and executives to drive financial improvements by confidentially assessing and driving their Operational Maturity Level™. For more information, visit service-leadership.com.

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