4 Reasons Why MSPs Will Embrace Vendor Consolidation to Boost Profitability in 2025

Your margins are under siege. Rising operational costs, intense competition, and client demands for more for less are squeezing every Managed Service Provider (MSP) in 2025. The numbers don’t lie: 28% of MSPs aren’t profitable, and the average provider is bringing in only 8–9% EBITDA, below the 10% break-even point.

The writing is on the wall. The old ways — relying on disparate vendors for a patchwork of services — aren’t cutting it anymore. You can’t afford inefficiency when Profitability hinges on razor-thin lines.

So, how do you fight back? By doing what the best MSPs already are: embracing vendor consolidation. It’s not just a buzzword — it’s a strategy to optimise your business, enhance service delivery, and, most importantly, reclaim your Profitability. But is it the right move for your MSP?

2025: The Year MSPs Must Fight for Profitability

Here are five pressing reasons why Profitability is more complex to maintain than ever:

Skyrocketing vendor costs: Inflationary pressures and increased licensing fees mean your vendor expenses are climbing faster than your revenue. A 2023 survey by ConnectWise found that the average MSP’s operating costs increased by 15% year-over-year, while revenue growth only averaged 10%. It indicates an evident squeeze on profitability. Let us understand through an example: Imagine an MSP with 10 different security vendors. Each vendor requires separate licensing fees, support contracts, and management overhead. Consolidating to 2–3 vendors could significantly reduce these costs. For instance, a case study from a leading MSP that consolidated its security stack within its platform saw an average cost reduction of 25%.

Client price sensitivity: Businesses are scrutinising IT budgets like never before, forcing MSPs to justify every dollar. A 2024 survey by Gartner found that 74% of businesses plan to cut IT spending in 2025 due to economic uncertainty. The heightened price sensitivity pressures MSPs to demonstrate value and offer competitive pricing. By providing a bundled cybersecurity solution from a single vendor, MSP can present a more compelling and cost-effective proposition to clients than an MSP offering a patchwork of solutions from multiple vendors with separate licensing fees and management costs. This consolidated approach can help MSPs win new clients and retain existing ones in a price-sensitive market.

Complex tech stacks: Managing multiple vendors for security, networking, and software delivery adds layers of inefficiency and risk. A study by Kaseya found that the average MSP manages 8–10 vendor solutions. This complexity leads to integration challenges, increased troubleshooting time, and potential conflicts between different tools. Let us deep dive with an example: consider an MSP using separate tools for endpoint security, network monitoring, and backup and disaster recovery. Consolidating these functions into a single platform from a vendor can streamline management, improve efficiency, and reduce the risk of compatibility issues.

Talent shortages: Finding and retaining skilled IT professionals is expensive and challenging, stretching your resources thin. According to CompTIA, the global IT skills gap projection will reach 4.3 million workers by 2025. This shortage makes it difficult and expensive for MSPs to find and retain qualified technicians. An MSP struggling to fill a security analyst position could leverage a consolidated security platform with built-in automation and threat intelligence. It reduces the need for manual monitoring and analysis, freeing up existing staff to focus on other critical tasks.

Competitive market pressure: Larger MSPs aggressively price services, leaving smaller players struggling to keep up. The global managed services market will reach $329.1 billion by 2025, with a compound annual growth rate (CAGR) of 11.7%. This growth attracts new entrants and intensifies competition, putting pressure on MSPs to differentiate and optimise their offerings. For example, an MSP offering a fragmented suite of services from multiple vendors may struggle to compete with more prominent players that provide comprehensive, integrated solutions. By consolidating their vendor stack, they can create more compelling bundles, improve pricing competitiveness, and attract new clients.

If you’re not proactive, these headwinds can drag your bottom line faster than you realise. But vendor consolidation offers a lifeline.

What Does Vendor Consolidation Mean for Service Providers?

Vendor consolidation is the strategic reduction of the number of vendors you rely on. Instead of juggling ten vendors for ten solutions, you partner with two or three comprehensive providers that offer integrated services.

It isn’t just a cost-saving exercise. It’s a paradigm shift in how MSPs operate. Consolidation simplifies vendor management, strengthens relationships, and allows seamless integration across your service stack. When done right, it transforms complexity into clarity — and inefficiency into opportunity.

For example, consider an MSP that previously used separate vendors for endpoint security, network monitoring, and backup solutions. By transitioning to a single provider offering a unified platform covering all three services, they reduced licensing fees, eliminated integration challenges, and improved service consistency. This change allowed their team to focus on scaling operations rather than troubleshooting vendor conflicts.

4 Ways Vendor Consolidation Can Improve Your Bottom Line

If you’re considering reshuffling your vendor stack, here are four reasons to do it sooner rather than later:

1. Streamlined operations save time and money

Every hour your team spends managing vendor relationships, reconciling invoices, or resolving integration issues is away from client-focused activities. By consolidating vendors, you centralise your operations, reducing administrative burdens and allowing your team to focus on revenue-generating work. Less complexity means lower overhead — and in an MSP world, that’s gold.

2. Integrated solutions enhance service delivery

When your tools and services come from fewer vendors, integration becomes seamless. A single vendor’s ecosystem eliminates the “Frankenstein” effect of mismatched tools. It means faster response times, fewer errors, and more robust solutions for your clients. Better service delivery translates directly into happier clients who stick around.

3. Stronger vendor relationships lead to better deals

As you consolidate, your spending power with each vendor increases. It isn’t just about volume discounts; it’s about influence. Vendors prioritise partners who represent a significant portion of their revenue. That means better pricing, enhanced support, and even co-marketing opportunities. Your business — and your clients — benefit.

4. Improved scalability positions you for growth

In 2025, scalability isn’t optional; it’s survival. Vendor consolidation simplifies scaling. Whether you’re onboarding new clients, expanding service offerings, or entering new markets, fewer vendors mean fewer hurdles. With a streamlined tech stack, you can scale your services quickly and confidently, unlocking growth without sacrificing Profitability.

Vendor Consolidation Best Practices for MSPs: A Step-by-Step Guide

A well-planned consolidation strategy will reduce risk and smoothen the process.

● Assess your current vendor landscape: Create a detailed inventory of your current vendors, including costs, services, and value delivered. Identify redundancies and underperformers.

● Define your consolidation goals: What do you want to achieve? Lower costs? Better service integration? Clear objectives ensure the right decisions.

● Research and vet potential vendors: Look for providers that offer comprehensive solutions, reliable support, and a proven track record in the MSP space.

● Engage your team: Ensure your team understands the changes and is involved in decision-making. Their buy-in is crucial for smooth implementation.

● Negotiate contracts carefully: Consolidation can increase your leverage. Use it to secure favourable terms, including long-term pricing and service guarantees.

● Plan a phased implementation: Transitioning all at once can be disruptive. Roll out changes in phases to minimise risk and ensure continuity of service.

● Monitor and optimise continuously: Consolidation isn’t a one-and-done deal. Regularly evaluate vendor performance to ensure you’re getting the desired outcomes.

In Conclusion, A Word of Caution

Vendor consolidation isn’t without risks. Over-reliance on a few vendors can backfire if one fails to deliver or unexpectedly increases prices. Maintaining contingency plans and periodically reviewing vendor choices is critical to avoid complacency.

· Reduced Innovation: Consolidating may inadvertently stifle innovation by limiting exposure to diverse solutions and cutting-edge technologies from niche vendors.

· Integration Challenges: While consolidation aims to simplify, integrating comprehensive solutions from a single vendor can still present complex technical challenges and require significant time and resources.

The key is balance. Consolidation should simplify, not stifle. Choose vendors that align with your MSP’s vision, invest in strong partnerships, and keep your options open.

The question isn’t whether you should consolidate in 2025. It’s whether you can afford not to.

For more or to share your views, write to me at Arvind@am-pmassociates.com.