Top IT services firms anchor their profitability on a foundation built on the backs of entry-level talent. AI is now threatening to upend that model.
Economic unease and automation have already nibbled away at staffing for managed service providers and value added resellers, ConnectWise’s Service Leadership found in its annual compensation report. For the first time in years of conducting the analysis, workforce reductions were the norm, with 43.4.% of IT solution providers trimming headcounts in 2025 compared to 36.4% the prior year.
AI and its capacity to automate elements of the MSP operation are almost certainly a key cause, Service Leadership EVP and GM Peter Kujawa told Channel Dive.
“They're looking at this opportunity, and they're saying, rather than just throwing more bodies at it, let's take a pause, see what we can automate and then, as we need to add more people, we can always add them later,” Kujawa said.
MSP employee retention rates have also flipped, according to the research. Firms in the top quartile for profitability have higher churn rates than their less fortunate peers.
The reason is simple, Kujawa said. Level-one techs dominate the workforce as the most profitable MSPs. Entry-level professionals cost less and are easier to train than more experienced employees and therefore are more populous. Best-in-class MSPs tend to look like a pyramid, with decreasing numbers of higher level techs. Kujawa said.
“They've built their businesses in a way that makes it easier to recruit in and get level-one techs productive faster,” Kujawa said. “They've done it by having a more disciplined approach to their tech stack; their customers look about like each other in terms of size, so they're able to service them with common processes.”
Less profitable MSPs have their fair share of level ones as well. The difference is that profitable MSPs are more likely to let their techs go when they’re ready to advance. Service Leadership found that 38.6% of the top quartile MSPs churned more than 10% of their staff in 2025. Only 22.8% of bottom-half MSPs churned more than 10%.
“MSPs are an unbelievably great training ground for techs. At some point, and it could be a year or two years, that tech is going to be ready to move to the next level, and the best-in-class understand that I can only have so many level-two techs, and I can only have so many level three techs,” Kujawa said.
Kujawa expects the bottom floor of the pyramid to narrow as automation replaces some of the level-one techs and makes remaining workers more efficient.
“The pyramid will still exist, but the base of it will be much more narrow. Ultimately, it'll probably be almost like a diamond. You'll still have level ones, but you'll have more level twos and then fewer level threes,” Kujawa said.
The shift will happen fast.
“I can run my MSP with 35% of my tickets automatically resolving compared to today, that gives me an opportunity to drive massive improvement in gross margin and profitability if I stay disciplined on my staffing,” Kujawa said.
The compensation report celebrated the slowing of wage inflation in the MSP market. Salaries had been skyrocketing since COVID, but the rate of increase has been declining each year since the peak.
The problem, Kujawa said, is that MSPs haven’t improved much in a key KPI: service multiple wages. That’s defined as service revenue divided by total cost of one’s service team. Top quartile MSPs score at about 2.7 or 2.8, but the number hasn’t improved since 2013, Kujawa said.
“AI and automation finally gives us the chance to get ahead of this. Our belief in service leadership is that we should be seeing in a couple of years, service multiple wages [for best-in-class companies], somewhere near 3.4,” he said. “It doesn't mean your people will go away. It just means the amount of growth you'll be able to have and the scalability of your team will get much better.”
