Essential MSP Metrics to Boost Cloud Profits | Technology & AI bringing to light

Understanding cloud profitability has become a significant challenge for Managed Service Providers (MSPs) in today’s rapidly evolving tech landscape.

Many organisations continue to grapple with optimising their cloud expenditures while heavily investing in the transformation of legacy systems and addressing persistent inefficiencies tied to outdated software and applications.

After substantial efforts (and hefty expenditures) to migrate their workloads to the cloud, numerous businesses are discovering that the cloud may not be the utopia their MSPs had suggested. They’ve found that maintaining control over costs demands considerable resources and enduring commitment to keep cloud optimisation effective.

This article aims to illuminate ways to enhance organisational visibility regarding cloud profitability.

Challenges in Maintaining Cloud Profitability for MSPs

Efforts directed at cloud cost optimisation impose substantial pressure on an organisation’s finances, from financial operations (FinOps) teams to systemic upgrades. This has led some executives to question the viability of cloud profitability, with reports surfacing about companies successfully moving workloads back from the cloud.

Moreover, it is increasingly tough to keep up with licensing, billing, and pricing changes from cloud providers, who are gradually increasing prices using various strategic methods.

In this competitive climate, MSPs find themselves in a more challenging position than ever. They must strive to provide genuine value for their clients rather than merely existing as another commodity MSP in a saturated market.

From Billing Volume to Value-Based Profitability Metrics

In the past, MSPs centred their profitability around volume:

Volume-Driven Profit: Revenue was tied to cloud consumption—the greater the consumption, the better the margins. Higher volumes equated to increased revenue.
CSP Incentives Based on Volume: Migration initiatives (like Microsoft’s past Azure Migration Programs) were predicated on volume. As a Cloud Service Provider (CSP) client, substantial commitments to cloud migrations could unlock funding for migration projects.
Consumption-Based Discounts: Greater consumption levels unlocked more favourable discounts, motivating CSP clients to spend more.

However, today’s landscape reveals a stark contrast, demonstrating that this approach is no longer sustainable:

Tighter Margins: Recent shifts in CSP pricing structures, diminished margins, and Microsoft’s New Commerce Experience (NCE) have complicated MSP profitability.
Sophisticated Client Demands: Clients now expect advanced FinOps maturity and cost visibility, often revealing inefficiencies instigated by the MSPs themselves.
Increased Competition: A growing number of competitors compel MSPs to review their pricing strategies in a challenging environment.
AI-Powered Automation: Automated cost optimisation mechanisms employing Generative AI are overshadowing traditional FinOps services that MSPs traditionally offered, providing more cost-effective solutions.
Need for Strategic Transformation: The existing economic landscape necessitates a shift in MSP approaches to deliver measurable value to clients.

Redefining the Profit Equation for MSPs

The emphasis on cloud consumption volume for profitability is fading. Current success is anchored in offering measurable value, automating operations, and aligning services with client outcomes. Without this shift, clients are unlikely to regard an MSP as their trusted partner in managing cloud environments.

To maintain margins and ensure sustainability, efficiency and innovation are paramount.

The Influence of Azure Pricing, CSP Model Modifications, and Client Cost Expectations

Clients’ expectations are clear: they demand lower prices. While it can be argued that FinOps encompasses more than mere savings and that cloud solutions may not always be more economical than on-premises alternatives, clients often dismiss these points.

Beyond just seeking cost reductions, clients expect complete transparency over expenses, proactive optimisation (rather than reactive), and flexible services that can be adjusted as needed. Organisations that agilely adapt—by embracing automation, refining cost transparency, and aligning services to client outcomes—are best poised for success.

Microsoft’s recent shifts in Azure pricing and the CSP programme are fundamentally altering how MSPs operate and compete. From November 2025 onwards, volume-based discounts for Enterprise Agreements will be eradicated, compelling all customers to pay a fixed standard price for online services. This transition will result in cost increases—often between 6% to 15%—for various organisations, especially larger ones previously benefitting from tiered discounts. Consequently, MSPs must take a proactive approach in assisting clients to optimise their licensing and cloud usage for cost control.

Simultaneously, Microsoft is tightening the requirements for direct CSP partners, demanding elevated revenue thresholds, enhanced support frameworks, and stricter security protocols. This may compel smaller MSPs to collaborate with larger distributors or transition to indirect models, which could affect margins and client relations.

It is clearer than ever that MSPs must embrace a strategic transformation. To navigate these turbulent waters, we suggest several profitability KPIs to simplify the process while offering clients tangible metrics showcasing the value you provide as their MSP.

Key Metrics for Measuring Profitability

The following metrics serve as a solid foundation for gauging profitability. Each metric will be defined, along with guidance on how to track and measure it effectively.

Gross Margin per Managed Account – The Profitability Baseline Metric

This metric indicates the profitability of each client account, allowing MSPs to prioritise their most valuable relationships.

To calculate, subtract the direct costs associated with service delivery (such as cloud costs, support, and licensing) from the revenue generated by each account. Then divide by the revenue to determine the gross margin percentage.

Gross Margin Calculation

Gross Margin % = (Revenue from Account - Direct Costs) / Revenue from Account × 100

Azure Cost per Customer/Tenant – A Driver of Cost Transparency

Although seemingly straightforward, this metric can often be more complex than anticipated. It is crucial for clients to genuinely understand their expenditures.

From our standpoint, effectively communicating discounts is essential, as these represent part of the value you offer as an MSP under CSP or MCA agreements with Microsoft.

Aggregate all Azure-related expenses for each customer or tenant, incorporating any discounts or credits. Regularly share these figures with clients to fortify trust and underline the value of your cost management efforts.

Resource Utilisation Efficiency – A Metric for Efficiency and Sustainability

This metric evaluates how effectively resources (human capital, infrastructure, tools) are employed in delivering services. Increased efficiency translates to reduced waste and greater value derived per resource unit.

Consider various aspects depending on each type of resource:

Human Resources: Calculate the ratio of billable hours to total available hours for your technical staff.
Cloud Infrastructure: Monitor the percentage of provisioned resources (CPU, memory, storage) that are actively utilised versus those allocated.
Tools and Automation: Keep track of the adoption rates of automation tools and the decrease in manual interventions over time.

Resource Utilisation Formulas

Human Resource Utilisation % = Billable Hours / Total Available Hours × 100 Cloud Resource Utilisation % = Actual vCPUs Used / Provisioned vCPUs × 100 Automation Adoption Rate % = Automated Tasks / Total Tasks × 100

Automation Rate in Cost Optimisation – A Metric of Operational Productivity

This measures the proportion of cost-saving operations (like rightsizing, deactivating underused resources, or updating patches) executed automatically compared to manually done tasks.

Count the number of automated optimisation actions (e.g., scripts, policies, AI-based actions) and divide by the total optimisation efforts. A higher automation rate signifies lower operational costs and quicker responses to cost-saving possibilities.

Automation Rate Calculation

Automation Rate % = Automated Optimisation Tasks / Total Optimisation Tasks × 100

Forecast Accuracy / Budget Variance – A Measure of Proactive FinOps Control

This assesses how closely actual cloud expenditure aligns with forecasts and budgets. High accuracy reflects robust financial control and planning capabilities.

Compare actual monthly or quarterly spend against forecasted or budgeted amounts, calculating the variance as a percentage. Regular updates to forecasts based on changing usage patterns and business needs are vital.

Budget Variance Calculation

Budget Variance % = (Actual Spend - Forecasted Spend) / Forecasted Spend × 100 Forecast Accuracy % = 100 - |Budget Variance %|

Customer Retention / Churn Rate – Connected to Transparency and Trust

This metric indicates the proportion of clients remaining with your MSP compared to those who leave (churn). High retention signifies happy clients and stable revenue.

Retention Rate Calculation

Retention Rate = (Customers at End of Period - New Customers) / Customers at Start of Period

Churn Rate Calculation

Churn Rate = 1 - Retention Rate

Cost-to-Service Ratio – An Overview of Total Operational Efficiency

This metric reveals the overall cost incurred in delivering services to each customer in relation to the revenue they generate.

Divide the total costs associated with service delivery (covering labour, tools, cloud resources, and support) by the total revenue per customer or service. A lower ratio indicates enhanced efficiency and profitability.

Cost-to-Service Ratio Calculation

Cost-to-Service Ratio = Total Service Delivery Costs / Total Revenue per Customer Service Efficiency % = (1 - Cost-to-Service Ratio) × 100

Effective Savings Rate – A Measure of Cost Optimisation

The Effective Savings Rate (ESR) is a critical KPI for MSPs managing Reserved Instances and Savings Plans for Azure customers. It signifies the average savings rate achieved through reserved capacity, reflecting the discount obtained through reservations.

Managing reserved capacity entails varying levels of administrative effort to plan, review, and acquire Reserved Instances (RIs) and Savings Plans (SPs) in a timely manner. This KPI also serves to demonstrate the ROI of these efforts.

Calculate total savings from RIs and SPs divided by total eligible spend for an effective demonstration of the ROI linked to proactive capacity management.

Effective Savings Rate Calculation

Effective Savings Rate % = Total RI/SP Savings / Total Eligible Spend × 100 ROI of Capacity Management % = (Total Savings - Management Costs) / Management Costs × 100

Common Pitfalls for MSPs in Cloud Profitability Tracking

Poor Cost Visibility: Many MSPs depend on disjointed dashboards or manual spreadsheets, which obscure the complete picture of cloud expenditures and profitability.
Underpricing Services: A fear of losing clients drives some MSPs to set prices too low, compromising margins and hampering investments in quality personnel or tools.
Neglecting True Gross Margin Tracking: Concentrating on top-line revenue rather than gross margin by service line can obscure unprofitable clients or offerings.
Resource Sprawl: Unmanaged provisioning and lack of governance lead to unused or underutilised resources, inflating costs.
Manual Processes: An over-reliance on manual tracking and billing escalates the risk of errors, missed optimisation opportunities, and revenue leakage.
Neglecting Accounts Receivable: Late payments and inadequate AR management can significantly disrupt cash flow and profitability.
Mixing Revenue Streams: Failing to differentiate recurring revenue from project work or hardware sales can distort profitability assessments.

A Roadmap for MSPs to Boost Profitability

Review Client Costs: Regularly assess the real cost of service delivery for each client to identify unprofitable accounts and potential upselling or streamlining opportunities.
Reassess Pricing Models: Transition from hourly or ad-hoc billing to value-based, flat-rate, savings-based, or per-user pricing methods. Compare against industry benchmarks and adjust rates as necessary.
Prioritise Automation and Standardisation: Invest in automation for monitoring, optimisation, and reporting to lessen manual effort and associated errors.
Enhance Cost Visibility: Deploy unified dashboards and tagging strategies to enable accurate cost attribution and transparency.
Maximise Resource Utilisation: Consistently audit cloud resources and team utilisation to mitigate waste and optimise allocations.
Concentrate on High-Value Services: Focus on offerings that deliver measurable value and improved margins, such as security, compliance, or advanced cloud management solutions.
Fortify AR and Billing Practices: Automate invoicing, meticulously track receivables, and uphold payment terms to enhance cash flow.
Cultivate Financial Accountability: Educate teams on cost awareness and align incentive structures with profitability objectives.

How Turbo360 Enhances Profit Tracking and Improvement

Turbo360 is specifically designed for MSPs managing Azure environments, offering a comprehensive FinOps platform that surpasses basic cost tracking:

Consolidated Cost Visibility: Monitor and allocate Azure costs across clients, departments, or projects from a single dashboard.
Anomaly Detection: Swiftly identify unexpected spending spikes and receive alerts to avert budget overruns.
Actionable Optimisation Insights: Gain AI-driven recommendations for rightsizing, reservations, and the termination of unused resources.
Automation: Schedule the shutdown of non-production resources and automate repetitive optimisation tasks.
Professional Reporting: Create branded, client-specific reports to illustrate value and enhance client retention.
Seamless Deployment: Turbo360 integrates effortlessly with Azure, enabling MSPs to offer FinOps-as-a-Service and demonstrate measurable cost savings right from the start.

Conclusion

Cloud profitability for MSPs in 2025 necessitates a fundamental reorientation from volume-based growth to value-driven and efficient service delivery. By focusing on key metrics, steering clear of common pitfalls, and leveraging sophisticated tools like Turbo360, MSPs can sustain robust margins, cultivate client trust, and prosper in an ever-changing market.

The pathway to success hinges on continuous measurement, proactive optimisation, and a steadfast commitment to delivering clear, measurable value to each client.