Building Monthly Recurring Revenue as an MSP

There is a moment every IT services owner remembers: the first month the managed-services revenue arrives before a single ticket is opened. That predictability is the entire point of the MSP model, and it is what separates a real managed services business from a break-fix shop that calls itself one. Recurring revenue is not just a nicer way to bill; it changes the economics, the incentives, and the value of the business. Building it deliberately is the single most important thing an IT provider can do.

Why Break-Fix Is a Trap

Break-fix income is unpredictable and, worse, adversarial. You get paid when something breaks, which means your revenue is fundamentally at odds with your client's uptime. A month where everything runs smoothly is a month with little income. That misalignment is exhausting to operate and impossible to forecast, and it caps the size and stability the business can ever reach.

Managed services invert the model. The client pays a flat monthly fee for you to keep their systems running, which aligns your incentive with theirs: the more proactively you prevent problems, the more profitable you are. The result is a stable revenue base that smooths cash flow, funds the proactive tooling and staff the model depends on, and lets you plan instead of react. The shift from reactive to recurring is the maturation point of every serious IT provider.

The Recurring-Revenue Target

How much of your revenue should be recurring? Mature, well-run MSPs typically aim for managed-services recurring revenue above 60 percent of total, with the strongest operators exceeding 70 percent. The remainder comes from projects, hardware, and professional services, much of which feeds new recurring agreements: a migration project becomes a managed contract, a security project becomes a monthly security service.

A provider sitting below 40 percent recurring is still largely a break-fix shop wearing an MSP label, and will feel it in cash-flow swings and forecasting blind spots. The path to the higher end is not just signing more agreements; it is making sure each project deliberately lands the client on a recurring plan. Disciplined MSP pricing is what makes those agreements profitable rather than just predictable.

Converting Break-Fix Clients

Most MSPs grow recurring revenue by converting existing break-fix clients, and the winning sequence is consistent. Lead with an assessment that quantifies the client's risk and the real cost of reactive support, the downtime, the emergencies, the unbudgeted invoices. A managed IT readiness assessment turns a vague pitch into a concrete picture of what the client is currently exposed to.

From there, move to a clear monthly price and bundle the proactive work the client was never buying: monitoring, patching, backup verification, and security. Framed correctly, the managed agreement is not a bigger bill; it is predictable cost and less downtime in place of unpredictable emergencies. The assessment is the wedge, the flat price is the close, and the proactive bundle is what keeps the client from ever wanting to go back.

Pricing and Valuing Recurring Revenue

Two pricing models dominate managed services: per-user and per-device. Per-user has largely won because clients understand it and it scales naturally with their headcount. Whichever you choose, price off your true cost to serve plus a target margin, never off what the client used to pay for break-fix, which anchors them to a number that no longer reflects the value you deliver.

The ultimate payoff of recurring revenue is what it does to the value of the business. Acquirers pay premium multiples for predictable, contracted income because it carries forward with low risk. Service Leadership data shows MSP valuation tracks closely with the quality and proportion of recurring revenue, not just total revenue. A book of stable monthly agreements with low churn is an annuity, which is exactly why protecting it through strong client retention and expanding it with cybersecurity services compounds the value you are building.