Boosting Profitability Through Smart Incentives

In this edition of MSPCFO Office Hours (Episode hosted in May 2025), Lori Berry and Larry Cobrin were joined by Rex Frank, VP of Academy at Pax8, to explore how MSPs can harness performance-based bonus plans to both motivate engineers and lift the bottom line.

Aligning Engineer Incentives with Business Goals

Rex and Larry introduced the powerful “3x revenue-to-pay” benchmark—a revenue multiplier aiming for engineers to generate at least three times their own compensation, especially for managed services. This aligns crew motivation with client value and company profitability.

Evolving From Process to Performance

They outlined four stages of bonus plan maturity—from discretionary owner payouts to a data-driven structure with both individual and team incentives designed to optimize margins and productivity.

Designing Effective and Fair Bonus Structures

Key principles emphasized:

• Align rewards with outcomes that benefit both the client and the MSP.
• Penalize behaviors that undermine service quality or profitability.
• Ensure data integrity, transparency, and equitable metric tracking to avoid gaming and build trust.

RELATED: Engineer Bonus Plans: How to Drive Revenue and Efficiency in Your MSP

Avoiding Pitfalls

Caution was also given to common risks:

• Poor data quality undermining trust.
• Cultural resistance or conflict over how bonuses relate to pricing or performance.
• Engineers optimizing for bonus metrics at the expense of service quality—careful plan design is essential to prevent this.

Tips for Success

• Start with realistic targets (e.g., begin at 2× multiplier and ramp toward 3×).
• Present clear, transparent data during team meetings.
• Tie bonus outcomes to long-term client satisfaction and profitability.
• Leverage experienced coaches or systems to support rollout.
• Enforce service-quality guardrails so bonus incentives don’t compromise client experience.