IT Managed Services (MSP) Business Valuation
29 valuation methods · 43 industries · Results in under 10 minutes
In short
A smaller managed service provider whose revenue mixes contracts and projects is valued mainly on seller's discretionary earnings; one that describes its revenue as recurring, or a larger one, on a discounted cash flow, comparable companies, precedent transactions and a bottom-up view. Monthly contracts and retention shape what buyers pay.
Who this is for
Owners of managed service providers, IT support companies and managed infrastructure firms preparing to sell or bring in a partner, and buyers who need monthly contracts, client retention and owner dependence read with the earnings.
How is a managed service provider valued?
For a smaller IT services firm whose revenue is not all recurring, VA puts the most weight on seller's discretionary earnings, EBITDA plus the owner's pay, times the median multiple from small-business sales of IT services companies in its data, with a discounted cash flow, comparable companies and precedent transactions carrying the rest. A firm that describes its revenue as recurring, and a larger firm, is valued on a discounted cash flow, comparable companies, precedent transactions and a bottom-up view of its own economics. Earnings are taken after the add-backs you confirm, and an asset floor keeps the result above what the company's own assets would recover. This tool is informational only. Output is driven by your inputs and does not constitute a formal appraisal or certified valuation.
What drives the value of a managed service provider?
- Monthly managed services contracts, and the share of revenue they make up
- Client retention, and how long the largest clients have stayed
- Technicians and engineers who serve clients without the owner
- Project and hardware revenue, which carries less margin and repeats less
- Tools, security services and standard stacks that lower the cost of each client
- Client concentration, and dependence on one industry
What lowers the value of a managed service provider?
- Revenue that leans on projects and hardware
- Clients who follow the owner
- A few clients making up most of the revenue
- Engineers who could leave
How much is a managed service provider worth? A worked example
A managed service provider, by discounted cash flow
Take a managed service provider with $6 M of revenue and a 15% EBITDA margin, or $900 K of EBITDA. Assume revenue grows 6% a year for five years, capital spending and depreciation each run at 3% of revenue, working capital takes 8% of each year's added revenue and tax is 25%. Cash flows are discounted at 18%, the lowest rate VA uses for a company this size, with 2.5% growth after year five. VA's discounted cash flow gives about $3.86 M before debt, or 4.3× EBITDA. With revenue growing 2% a year instead, it comes to about $3.44 M. In a full report for a company this size, the value from seller's discretionary earnings and the median multiple from small-business sales carries the most weight.
Illustrative figures from VA's discounted cash flow alone, on the assumptions stated. A full report blends it with the industry's other methods, such as comparable companies and precedent transactions.
Value your managed service provider in under 10 minutes
- 1.Upload your financial statements, or type the figures in.
- 2.Confirm the add-backs and the industry details the model asks for.
- 3.Get a valuation range, the methods behind it and a PDF memorandum.
Which numbers matter most?
Seller's discretionary earnings
EBITDA plus the owner's own pay and perks. VA uses the pay your statements or confirmed add-backs show; when none is stated, it estimates a working owner's pay for your industry.
Normalized EBITDA
EBITDA after the add-backs you confirm. Comparable companies and precedent transactions apply their multiples to it, and the discounted cash flow starts from it.
Recurring contract share
Revenue from managed services and support contracts billed every month. Buyers pay more for it than for projects that have to be won again.
Client retention
The share of clients who stay each year. Buyers read it as the best sign the earnings will hold after a sale.
Revenue per technician
Recurring revenue per engineer. It shows how efficiently the firm serves its clients and how it would scale.
What do you need to value a managed service provider?
- Profit and loss statements and balance sheets, ideally for the last three years
- Figures for the current year to date
- A list of add-backs: the owner's pay and perks, and any one-off costs
- Loan and lease balances
- Monthly recurring revenue by client, with contract terms
- Revenue split between contracts, projects and hardware
- A list of engineers with their certifications and the clients they serve
Example scenarios
Contracts against projects
Two providers earn the same. One earns most of its revenue from monthly contracts; the other from projects and hardware. Buyers pay more for the first, because its revenue repeats without a new sale.
Growth that slows
A provider's growth slows as its local market fills. The worked example shows what slower growth does to the discounted cash flow.
Guides by type of business
Cloud Consulting
Value a cloud consulting or migration firm on its earnings, with partner status, recurring managed services and utilization read the way buyers read them.
Cybersecurity Services
Value a managed security or cybersecurity consulting firm on its earnings, with monitoring contracts, analysts and certifications read as buyers do.
ERP and CRM Implementation
Value an ERP, CRM or other software implementation partner on its earnings, with vendor status, support contracts and utilization read as buyers do.
IT Consulting
Value an IT consulting or technology services firm on its earnings, with client relationships, utilization and recurring work read as buyers do.
Government Contracting
Value a government services contractor on its earnings, with contract vehicles, recompete dates, set-aside status and clearances read as buyers do.
Further reading
Business Valuation Methods Explained: DCF vs. Comps vs. Precedent Transactions
The five business valuation methods professionals actually use (DCF, comparable companies, precedent transactions, SDE/EBITDA multiples, and asset-based), when each wins, and how they combine into one defensible number.
Is a Business Worth 3 Times Profit? When It Is 2x, When It Is 5x, and Which Profit Counts
Is a business worth 3 times profit? Often, if the profit is SDE. When 2x or 5x applies instead, which profit counts, and what diligence does to the price.
How Much Is a Business Worth With $500,000 in Sales? The Revenue Ladder From $100K to $3 Million
Revenue does not set a price, earnings do. See what businesses at $100K, $200K, $300K, $500K, $1M, $2M and $3M in sales are worth at 10%, 20% and 30% margins.
Frequently asked questions
How is a managed service provider valued?
A smaller firm whose revenue mixes contracts and projects is valued mainly on seller's discretionary earnings times the median multiple from small-business sales of IT services companies. A firm whose revenue is all recurring, and a larger firm, is valued on a discounted cash flow, comparable companies, precedent transactions and a bottom-up view.
Does it matter whether I describe my revenue as recurring?
Yes. VA values an IT services firm that describes its revenue as recurring on its recurring-revenue blend, and a smaller firm whose revenue mixes contracts and projects mainly on seller's discretionary earnings. Describe the revenue as it is; buyers will check the contracts.
Does hardware resale count?
It counts in revenue and earnings, but at a thin margin and without repeating. Buyers read the recurring share first.
Which kinds of IT services firms have their own guides?
Cloud consulting, cybersecurity services, ERP and CRM implementation, and IT consulting firms each have a guide under this one, with what buyers look for in each.
What if I pay myself less than a manager would cost?
Seller's discretionary earnings add back your own pay, so the level you pay yourself does not change that figure. A buyer who hires a manager will still look at EBITDA after a market salary, which is why the EBITDA-based checks are shown too.
Is this a certified appraisal?
No. This is an informational estimate. A bank loan, a partner buyout or an estate matter may require a certified business appraisal, which this does not replace.
Terms used on this page
- Seller's discretionary earnings (SDE)
- EBITDA plus the owner's own pay and perks. It shows what the business earns for one owner who works in it, and it is the figure most buyers of small owner-run businesses price.
- Add-backs
- Costs added back to reported earnings because a new owner would not bear them: personal expenses run through the business, one-off costs, or owner pay above what the role would cost to fill.
- Valuation multiple
- The number earnings are multiplied by to reach a value. It rises with how durable the earnings are and how easily a new owner can keep them.
- Discounted cash flow (DCF)
- A valuation that projects the cash a business will generate over the coming years and discounts it to today at a rate that reflects the risk of receiving it.
- Discount rate
- The yearly return a buyer requires for the risk of owning the business. A higher rate lowers what future cash is worth today.
- Precedent transactions
- A method that values a business at the multiples paid in past sales of similar companies.
As featured in
Value your managed service provider
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Last reviewed September 26, 2026 against VA's valuation models.