Your MSP is worth a multiple of its earnings. Not its revenue, not its client count, not the twenty years you put into it. Earnings, adjusted to show what the business really produces, times a number that reflects how safe and transferable those earnings are. Everything else in valuation is detail hanging off that one sentence.
That’s unsatisfying if you were hoping for a number, so let’s build up to one honestly.
The number buyers start with
Nobody serious values a services business on revenue. Revenue tells a buyer how big you are, and nothing about whether the business makes money. A $3M shop running 8% margins and a $3M shop running 22% margins are different companies wearing the same shirt.
What buyers measure instead is earnings, and depending on your size they’ll use one of two yardsticks:
- SDE (seller’s discretionary earnings) is profit plus everything the business pays the owner: your salary, your benefits, the truck, the personal expenses that run through the books. It answers “how much cash does this business put in one owner-operator’s pocket?” SDE is the standard measure for smaller shops where the buyer expects to step in and work the business.
- EBITDA is earnings before interest, taxes, depreciation, and amortization, with the owner’s compensation left in at a market rate for the job they actually do. It answers “what does this business earn if someone has to be paid to run it?” EBITDA takes over as the yardstick once a business is big enough that the buyer isn’t planning to sit in your chair.
The line between the two sits somewhere around $700k to $1M in earnings, and it matters more than most owners realize, because the same business measured both ways produces two different numbers. SDE is always larger than EBITDA for the same company, since it adds the owner’s pay back instead of deducting a replacement salary. A shop with $400k of SDE might show $250k of EBITDA once you subtract what a competent general manager would cost. We walk through worked examples of both in EBITDA, adjusted EBITDA, and SDE.
Then the adjustments
No buyer takes your P&L at face value, and honestly, neither should you. The number that gets multiplied is adjusted earnings: the reported figure, corrected for things that won’t exist after the sale. Your above-market salary comes out and a market one goes in. The one-time lawsuit settlement gets added back. The family phone plan, the personal vehicle, the conference in Maui that was mostly a vacation, all of it gets normalized so the buyer can see what the business earns on its own.
Done well, adjustments usually move the number in the seller’s favor. Done sloppily, they burn trust in diligence. Either way, this is where a meaningful share of your price is won or lost, which is why it gets its own post later in this series.
The multiple
Here’s the part everyone wants: the range. With the usual caveat that market conditions move and every deal is its own animal, MSPs at the smaller end (SDE under roughly $500k) have commonly traded around 2x to 3.5x SDE. Businesses measured on EBITDA, roughly $750k and up, have commonly traded around 4x to 6x, with larger and cleaner businesses commanding more. These are wide bands, and your business lands in them somewhere specific for reasons you can actually name.
Why do buyers pay a multiple at all? Because they’re buying future earnings, and the multiple is just the price of those earnings expressed as years. A 4x deal means the buyer expects roughly four years of current earnings to return their money, before growth or improvement. The safer and more durable those earnings look, the more years a buyer will pay for in advance.
Which brings us to the question that actually determines your outcome.
Why two identical MSPs sell for different prices
Take two MSPs, each doing $2.5M in revenue and $500k in adjusted earnings. Same market, same size, same tools. One sells for a full turn or more above the other. The gap comes from a short list of things buyers can see within an hour of opening the books:
Revenue mix. Contracted monthly recurring revenue is the most valuable dollar you can show a buyer. Project work and time-and-materials billing count for much less, because they have to be re-won every year. A shop at 75% contracted MRR and a shop at 30% are priced off different planets.
Client concentration. If one client is 25% of your revenue, the buyer is pricing the day that client leaves. Concentration is one of the fastest ways to lose half a turn off your multiple, and one of the slowest things to fix.
Owner dependence. If you are the senior engineer, the sales team, and the relationship every client actually trusts, then the buyer isn’t acquiring a business so much as hiring you, and the price reflects the risk that you leave. Businesses that run without their owner sell for more, every time.
Contracts and terms. Multi-year agreements that can be assigned to a buyer are worth real money. Handshake arrangements and month-to-month invoices are worth real doubt.
The books themselves. Clean, consistent financials that match the tax returns make everything above easier to believe. Messy books discount everything they touch.
None of this is exotic. It’s the same list a bank would run before lending against your business, because a buyer and a lender are asking the same question: how sure am I that these earnings show up next year without the current owner in the building?
What to do with all this
If you’re a year or more from selling, the list above is your work plan, and the good news is that every item on it responds to deliberate effort. Improving your revenue mix, spreading your client base, and getting yourself out of the escalation path are worth more than any negotiating tactic you’ll ever learn, and we work with owners on exactly that runway. Our not ready yet page describes how.
If you’re closer than that, the useful move is to find out where you actually stand. A real conversation about value costs you an hour and commits you to nothing, and it beats guessing off a rule of thumb you heard at a conference. That’s what a first conversation with us looks like: no pitch, no pressure, just an honest read on the number and what’s driving it.
Either way, know your number before someone else tells you theirs.