Key takeaways
- Customer acquisition is now the #1 challenge for 71% of MSPs, even as deal sizes shrink and profitability polarizes across the industry.
- AI and automation are the top client needs for 2026 (48%), but only 13% of MSPs monetize it yet, leaving a significant revenue gap.
- Cybersecurity (71% YoY revenue growth) and BCDR (50%) remain the most dependable revenue engines, while the talent gap has become the top operational constraint.
The Kaseya 2026 State of the MSP Report surveyed 1,061 managed service providers worldwide and found a market expanding in total size but increasingly difficult to win at the individual contract level.
Deal sizes are compressing, talent is harder to source, and the gap between high-performing and struggling MSPs continues to widen.
Below are 10 Kaseya 2026 MSP report findings that matter most, with context on what each one means for your business:
Finding #1: Acquiring new customers is now the top business challenge
The data: 71% of MSPs cite acquiring new customers as their biggest business challenge in 2026.
Why this matters:
- When 71% of an entire industry names the same top challenge, it isn’t a company-specific issue anymore. It’s a market-wide shift in how buying decisions get made as clients now expect solid proof before they sign.
- This finding signals a market where organic inbound growth has slowed. For MSPs still relying primarily on referrals and existing relationships, this means that a more structured approach to lead generation and value demonstration is overdue.
- Many MSPs are discovering that the growth challenges they face in 2026 require proactive go-to-market strategies rather than passive lead generation.
Finding #2: Deal sizes are shrinking faster than expected
The data: In 2025, 75% of MSPs reported typical customer spending above $25,000 annually. In 2026, that figure fell to 41%. Mid-range contracts ($1,001–$3,500 in monthly recurring revenue) are declining, while the lowest MRR tier (under $1,000) grew from 24% to 30% of the market.
Why this matters:
- If your average deal size is shrinking, you need more clients to maintain revenue. That math puts pressure on every part of the business from sales capacity to delivery costs.
- One likely driver is that buyers are signing smaller, lower-risk engagements rather than committing to large annual contracts upfront. This may reflect difficulty evaluating provider quality before signing.
For deeper analysis of what’s driving this compression, see our article on why MSP deal sizes are shrinking.
Finding #3: The value demonstration gap has nearly doubled
The data: 19% of MSPs now say they struggle to quickly demonstrate value to clients, nearly double the 10% who reported the same issue the year before. Separately, 17% cite difficulty maintaining consistent client documentation, also up from 10%.
What this means:
- Both metrics have roughly doubled year over year. A likely implication is that when MSPs can’t make their work visible, buyers have fewer concrete reasons to justify higher spend. So without visible value, price becomes the only comparison metric. This directly enables deal size compression as smaller perceived value equals smaller willingness to pay.
- This may also help explain the decline in larger contracts described in Finding #2. The two trends aren’t explicitly presented as causally linked in the report, but they do appear alongside each other.
- Value demonstration challenges are often a delivery capacity problem in disguise. When support teams are stretched thin, documentation and SLA tracking are usually the first things to slip and those are exactly the gaps buyers notice during renewal conversations.
LTVplus is a global leader in outsourced support operations, and its managed customer service teams for MSPs help providers achieve the SLA consistency that makes proof-of-value reporting possible. Book a call to see how filling Tier 1 capacity gaps can directly improve your value demonstration.
Finding #4: Cybersecurity and BCDR remain dominant revenue drivers
The data: 71% of MSPs report year-over-year growth in cybersecurity revenue, the highest of any service category. Backup and disaster recovery (BCDR) follows at 50% YoY growth. On the revenue side, 52% of MSPs identify security as a core revenue source and 41% identify backup and recovery the same way.
Why this matters:
- Clients investing in security tend to have higher willingness to spend because the value is easier to articulate: reduced breach exposure, faster recovery timelines, and improved posture for cyber insurance requirements. This is the opposite of the value demonstration problem in Finding #3.
- If you want to protect deal size, building a stronger MSP security operations function is one of the most defensible moves available.
Finding #5: Talent shortage is replacing tooling as the primary operational constraint
The data: 16% of MSPs report difficulty hiring skilled technicians, up from 9% in 2025. Meanwhile, 83% say their IT management tools significantly enhance operational efficiency. This is actually the highest tool satisfaction has been in several years.
Why this matters:
- Tool satisfaction is rising while talent availability is falling. This means the operational bottleneck has moved from “we don’t have the right tools” to “we can’t find the people to use them.”
- While remote work has expanded the geographic talent pool, it also expanded the pool of competitors bidding for the same candidates. Additionally, certification pipeline gaps (fewer technicians pursuing CompTIA A+ and Server+) add to the problem.
- According to a Deloitte Human Capital Trends study, organizations that redesigned roles for human-AI collaboration exceeded expected ROI on AI projects while improving talent retention. That’s a playbook worth looking into: stop trying to hire your way out of this and redesign how work gets done.
- For MSPs where talent sourcing is slowing growth, evaluating outsourced support capacity may be worth considering as an alternative to extending local hiring timelines.
Sourcing skilled technicians today takes 12 to 16 weeks, and retention remains challenging even after hiring. LTVplus helps MSPs scale by deploying dedicated support agents with fast onboarding. Reach out to learn more.
Finding #6: The market is polarizing into winners and losers
The data: Unprofitable MSPs doubled from 5% to 10%. Those who reported 16 to 20% profit margins increased from 15% to 18%, while those with 25% to 30% experienced a slight dip from 15% to 14%.
Why this matters:
- A polarizing market rewards operational discipline over service breadth. Expanding services without first stabilizing SLA performance, documentation, and value proof tends to widen the performance gap rather than close it.
What tends to distinguish the two groups:
The Kaseya survey doesn’t isolate profitability by specific operational traits, but patterns across the report point toward consistent differences:
| Trait | Struggling MSPs | High-Performing MSPs |
| Deal size trend | Shrinking, reactive discounting | Defended through demonstrated value |
| SLA consistency | Reactive, inconsistent | Proactive, documented |
| Security positioning | Add-on or afterthought | Core, revenue-generating service |
| Value proof | Built at renewal time | Continuous, always available |
Finding #7: AI demand is real, but revenue capture is still early
The data: 48% of MSPs identify AI and automation as the #1 client need for 2026, ahead of security (42%) and backup (36%). Yet only 13% of MSPs identify AI as a meaningful revenue source today.
Why this matters:
- MSPs that formalize AI services early (threat hunting, AI-assisted ticket routing, predictive maintenance) can differentiate while competitors are still figuring out internal automation. Packaging AI outcomes like faster resolution times and fewer escalations supports premium pricing.
- Boston Consulting Group research reinforces this approach. Their multi-company study found that 50 to 55% of roles will be reshaped by automation, with the strongest ROI coming from organizations that treat automation as workflow redesign rather than cost-cutting. That framing applies directly: use automation to improve service quality, then charge for the improved outcomes.
Finding #8: Switcher dynamics favor volume over value
The data: 33% of new MSP clients are switching from a competitor. 49% represent a mix of switchers and first-time outsourcers. Only 12% of new clients are engaging an MSP for the first time.
Why this matters:
- Switchers arrive with a price anchor and often have alternatives already in hand, which creates natural downward pressure on deal size. Chasing switchers makes sense for volume but erodes pricing power since these buyers already have a reference price from their previous provider.
- First-time outsourcers have no comparison point and typically show higher willingness to pay, but they require more education and tend to convert more slowly.
- MSPs with stronger margins generally balance both acquisition types deliberately, rather than chasing whichever is easiest to close in a given quarter.
Finding #9: Most MSPs are still in the efficiency phase of automation, not the revenue phase
The data: 55% of MSPs have automated up to 25% of their workload. 28% have reached roughly 50%. Only 8% have hit 75%, and just 1% are close to full automation.
Automation is generating clear operational results:
- 35% of MSPs report improved first-response times
- 33% report improved customer satisfaction (CSAT/NPS)
- 32% report technician efficiency gains
- 18% report profit margin improvement
Why this matters:
- Automation is delivering real operational wins. But for most MSPs, those gains aren’t yet converting into pricing power. That’s the same gap described in Finding #7, viewed from a performance-metrics angle rather than a revenue angle.
- The MSPs capturing premium pricing are the ones turning their automation improvements into a client-visible story, not just a lower internal cost base.
Finding #10: Competitive intensity will keep growing
The data: Tool satisfaction is rising (83%). Hiring difficulty is increasing (16%). Profitability is polarizing (10% unprofitable, 16%+ at high margins). Deal sizes are compressing (41% of MSPs at $25,000+ annually, down from 75%).
Why this matters:
- Taken together, these signals point to a market that’s maturing and consolidating rather than simply slowing down.
- These signals point to a maturing, consolidating market where MarketsandMarkets projects managed services spending will grow from USD 460.59 billion in 2026 to USD 705.22 billion by 2031. The pie is getting bigger, but the slice each MSP captures depends entirely on execution.
- In other words, the managed services market continues to expand, but the number of providers competing for each account appears to be growing faster than the number of accounts.
What these findings mean for your business
Three themes connect all 10 findings, each pointing to a different operational lever.
- Defend deal size through clearer value demonstration. Findings #1, #2, and #3 are related. Deal sizes are shrinking partly because buyers struggle to see the value they’re already paying for. Security positioning (Finding #4) and SLA consistency (Finding #6) are two of the most practical ways to make that value visible and defensible.
- Strengthen operations before adding services. Findings #5, #7, and #9 point to the same underlying constraint. Talent is scarce, automation isn’t generating revenue yet for most providers, and most MSPs are still in the efficiency phase. MSPs that use automation to improve SLAs and then quantify those improvements for clients are in a better position to hold premium pricing.
- Move earlier on AI revenue than competitors. Finding #7 identifies a real window wherein clients already want AI-enabled services, but most MSPs haven’t packaged them yet. Earlier movers may carry a temporary positioning advantage while competitors are still treating automation as a purely internal cost-saving exercise.
How outsourcing addresses multiple findings at once
Several of these Kaseya 2026 MSP report findings point back to a shared operational constraint: MSPs need faster response times, more consistent SLAs, and broader coverage without the extended timelines that come with building that capacity through local hiring alone. Outsourced support can address that:
- Finding #5 (talent gap): A structured outsourcing partner can deploy trained capacity in weeks rather than months, reducing pressure on local hiring pipelines while delivery needs are still being met.
- Finding #3 (value demonstration): Consistent SLA performance is what makes proof-of-value reporting credible. Documentation becomes more reliable and more useful in renewal conversations.
- Finding #7 (AI revenue gap): Offloading routine ticket volume frees senior engineers to build and package AI-driven service offerings, rather than staying in reactive mode.
LTVplus is a customer support and technical support outsourcing company that helps MSPs build dedicated remote teams for helpdesk, NOC, and back-office operations integrated directly into existing PSA and RMM tools.
If several of these Kaseya 2026 MSP report findings reflect challenges you’re currently navigating, book a call with our team to explore what a dedicated support model could look like for your business.
The window is open, but it won’t stay open
The Kaseya 2026 findings paint a picture of a market in transition:
- Deal sizes are compressing because buyers can’t see value.
- Talent is scarce, forcing automation. Differentiation is increasingly critical.
- And the gap between winning and struggling MSPs is widening every quarter.
The good news: the findings also reveal what separates the two groups: Winners invest in SLA consistency, security positioning, and automation-enabled efficiency. They defend deal size through clear value demonstration. They’re also positioning for the next phase of AI-as-a-service before competitors catch on.
The window for this transition is open now. In a few months, repositioning will be far harder.
LTVplus is the go-to partner for MSPs that need to scale support operations without the hiring delays that slow growth. We build fully managed support teams so your internal engineers can focus on revenue-generating work.
Book a call with LTVplus to discuss how outsourced Tier 1 capacity can strengthen your SLAs, accelerate your response times, and free your team to capture the AI opportunity before the market window closes.
Frequently Asked Questions
What is the Kaseya 2026 State of the MSP Report?
The Kaseya 2026 State of the MSP Report is an annual industry survey covering customer acquisition, deal sizes, AI and automation adoption, cybersecurity revenue, profitability, and operational talent constraints. Kaseya fielded the survey in November 2025 with 1,061 respondents across North America, EMEA, LATAM, and APAC, spanning solo operators to enterprises.
Why are MSP deal sizes shrinking in 2026?
The data from the Kaseya 2026 MSP report suggests that MSP deal sizes are shrinking because buyers are signing smaller, lower-risk engagements rather than committing to large annual contracts upfront. MSPs that consistently demonstrate value through SLA performance and documentation tend to retain larger contracts more successfully than those relying on service breadth alone.
Why is hiring skilled technicians getting harder for MSPs?
Hiring skilled technicians is getting harder for MSPs because competitors are also bidding for the same top remote talent. MSPs now compete directly with enterprise IT departments and SaaS companies for the same technicians, and few can match those organizations on compensation alone. The share of MSPs citing difficulty hiring skilled technicians rose from 9% to 16% year over year, while challenges with training and upskilling existing staff more than doubled.
What should MSPs do after reading the Kaseya 2026 State of the MSP Report?
The report points to three priorities: (1) strengthen SLA consistency so value is provable at renewal rather than scrambled together at the last minute; (2) position security as a core revenue driver rather than an add-on line item; and (3) formalize AI and automation into services clients can actually purchase, not just internal efficiency projects.
