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  • Writer's pictureEdgar Fernandez

9 Factors That Will Hurt Your IT Service Provider's Valuation

Updated: Feb 17



This List Applies to Most Service-Based Businesses


  1. www.service-leadership.com has quarterly benchmark charts.

    1. "For sustained progress, accountability, and actionable insight, this confidential benchmark report examines the 17 critical metrics of the annual Fundamentals Diagnostic Report and adds more than 60 key metrics for deep dive analysis and action. The report also includes a basic Operational Maturity Level™ assessment. Each quarter, members are benchmarked against:

    2. Their own previous quarters and year/year

    3. Industry average (across all Solution Provider business models)

    4. Best-in-Class (those in the top quartile of profitability in the member's same specific Solution Provider business model)

    5. Average of your current peer group (if you are in a group)."

    6. Source: https://www.service-leadership.com/solution-providers/quarterly-it-company-optimizer/

  2. Declining Revenue Year Over Year

    1. Keep an eye out for future posts on optimizing your MSP's sales and marketing systems!

    2. On top of not implementing a few of the 93 Extraordinary Referral Systems: Jay Abraham's Money-Making Strategy Clusters by Jay Abraham.

    3. The most common pitfall of MSPs today is not verticalizing and specializing in an industry or two.

    4. The second most common mistake is not designing pre-defined service packages that are easy to sell, implement, and manage.

  3. Declining EBITDA Year Over Year

    1. If your EBITDA is declining, going into a full financial audit of your company is beyond the scope of this post.

    2. But luckily, the fix usually falls within one of these 5 areas:

      1. Reduce COGS

      2. Maintain or raise prices

      3. Increase revenue

      4. Automate on the tech and human systems side

      5. Improve inventory management if applicable

  4. Single or low digit EBITDA

    1. This was addressed in the previous factor, but it's to emphasize how the world works. Even if you think that EBITDA is nonsense, it's become the norm and will be used to judge your company!

  5. High churn rate – the rate at which customers leave your company.

    1. While high churn can be for a plethora of reasons, it will usually be due to poor quality of service or customer service.

    2. Every client should also have an account manager that regularly surveys the customer and checks in on them.

  6. Lack of cloud-based applications

    1. The cloud has allowed everyone to only pay for what they need in real-time, so there is no excuse for not leveraging it!

  7. Narrow geographic focus

    1. Your geo footprint will be determined by how much of a focus you have onsite vs. remote services.

    2. Small cookie cutter installs can be conducted with SOPs and contracted technicians.

  8. Lack of vertical focus

    1. This one is also repeated because it's impossible to be everything to everyone!

  9. One customer representing more than 20% of revenue

    1. Customer concentration is the biggest red flag for a potential buyer! Yes, while the Pareto Principle will tell you to focus on the 20% of customers that bring in 80% of the revenue. There is no reason why you shouldn't be able to profile said dream customers and focus all your sales efforts on that avatar.

For more useful resources like this on buying and selling businesses, check out the rest of our Blog and YouTube Channel:



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