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Glossary

MSP billing and finance glossary

Updated 27 August 2026 · 8 min read · By Kyslan, a Northbeams product

Kyslan finds the unbilled work in your own PSA, then writes the change order that bills it. First report free, read-only. Claim it back →

How to use this glossary

Forty one terms an MSP owner, service manager or finance lead meets when the conversation turns to billing and money. Definitions are written to be usable rather than academic: each one says what the term means and, where it matters, what goes wrong with it in practice.

Contracts and billing

Agreement

The contract record in a PSA that says what a client has bought. In ConnectWise Manage it is called an agreement and its billable detail sits in child records called additions. In HaloPSA and Autotask PSA it is called a contract. The header rarely goes stale; the child records holding quantities and prices are what drift.

Addition

A child line on a ConnectWise agreement carrying a quantity, a unit price and its own effective dates. Additions are where an agreement's money actually lives, which is why an agreement can look correct in every summary view while under-billing every cycle.

Block of hours

A quantity of support hours a client buys in advance at a discounted rate and draws down as work is delivered. Also called a prepaid block or a retainer block. The characteristic failure is a balance that reaches zero and keeps being drawn against, because no service desk will refuse a paying client on its own authority.

Billing cycle

How often an agreement raises an invoice: monthly, quarterly, annually. Distinct from the invoicing period an agreement is measured against, such as a calendar or contract year. Confusing the two produces figures wrong by a factor of twelve.

Annual uplift

A contractual clause increasing a fee each year, either by a stated percentage or by an index. Applying it is usually a manual edit, so it is one of the most commonly missed pieces of MSP revenue. Two missed years of a 4% uplift is 8% of that contract, permanently, because the base never catches up.

Scope

What a contract covers. Useful scope is written at the level an engineer can decide in ten seconds at ticket close. Vague scope is not enforced, it is absorbed.

Scope creep

Growth in what an MSP delivers without a matching change in what it charges. A leading cause of revenue leakage, and invisible on flat-fee contracts because nothing in the billing system reacts when a client grows.

Exclusion set

In Autotask PSA, a definition of work types or roles a contract does not cover. Exclusions only produce revenue if the excluded work is then charged another way; otherwise they document money the provider chose not to collect.

Time and materials

Billing by the hour plus parts. Rarely an MSP's primary model and almost always its secondary one, which is why it leaks: it is the overflow bucket used at the end of long tickets, under pressure, when the default flag is the easy option.

Recurring invoice

An invoice generated automatically each cycle from a contract. In HaloPSA it is the record that holds the real per-cycle charge, joined to the contract by contract id, and it does not bill at all until a schedule is set in the interface.

Money and margin

Monthly recurring revenue (MRR)

Contracted revenue that repeats each month without a new sale. Includes managed services fees, seat and device charges and recurring subscriptions you carry. Excludes projects, hardware and ad hoc time, even from clients who buy them regularly.

Annual recurring revenue (ARR)

Monthly recurring revenue multiplied by twelve. Used for valuation and comparison. It is only meaningful if the underlying MRR excludes non-recurring lines.

Gross margin

Revenue minus the cost of delivering the service, divided by revenue. For an MSP the cost side means fully loaded delivery labour, per seat tooling, subcontracted delivery and any licences or hardware resold. Sales, marketing, admin and premises sit below it.

Cost of goods sold (COGS)

The direct cost of delivering a service. The test for a borderline role is whether you would need more of it if the client base doubled. If yes it is cost of delivery, if no it is overhead.

Effective hourly rate (EHR)

Revenue from a client divided by every hour worked on them, billable and non-billable. The most honest number in an MSP, because it includes the work that was never charged. A published rate of $175 and an effective rate of $61 on the same client is common.

Cost to serve

What it costs to support one seat, device or client per month, fully loaded. The correct starting point for pricing, and it must include the hours you deliver and never bill, because that cost is real and is funded from margin.

Revenue per seat

Recurring revenue from a client divided by their active seats. Your realised price as opposed to your list price. It catches forgotten discounts, missing seats, overdue uplifts and clients who have outgrown their deal, all in one number.

EBITDA

Earnings before interest, tax, depreciation and amortisation. The measure a buyer values an MSP on. Adjusted EBITDA adds back an owner's above-market salary and genuine one-off costs.

Net revenue retention (NRR)

Recurring revenue retained from existing clients including growth from added seats, tier upgrades and expanded services. Above 100% means the existing book grows without new logos. Flat retention while clients are hiring usually means new seats are being served and never added to agreements.

Churn

Recurring revenue lost in a period as a percentage of the recurring revenue at the start of it. Gross churn counts losses only; net churn nets off growth from existing clients.

Days sales outstanding (DSO)

Average days taken to collect an invoice. Recurring billing by direct debit should keep it low. A creeping figure often points at invoice disputes, which in turn often point at billing accuracy.

Leakage and reconciliation

Revenue leakage

Work an MSP delivered and was entitled to bill for, but never invoiced. Distinct from bad debt, which is invoiced and unpaid, and from discounting, which is deliberate. Published billing research puts it at 5 to 15% of revenue for a typical provider.

Unbilled work

Delivered work that never reached an invoice. Causes include time never entered, time marked non-billable by default, hours drawn against an exhausted block, and seats served but absent from an agreement.

Seat drift

The growing gap between the seats on a client's agreement and the users actually being supported. It arises because onboarding happens through a ticket while the agreement is edited separately, and it compounds: a seat missed in month one is missed in every month afterwards.

Device drift

The same gap for endpoints. Agents get deployed by script or as part of an onboarding ticket, and the contracted device count is a separate edit nobody makes.

Zero-time ticket

A closed ticket with no time entry recorded. Not evidence of efficiency but of a missing record, and a missing record cannot be billed even where the entitlement exists.

Non-billable flag

The setting on a time entry that determines whether it produces a charge. Clusters of non-billable hours on a single ticket type or board usually indicate a default set the wrong way rather than individual judgement.

Overage

Hours delivered beyond a retainer or prepaid allowance in a period. Should trigger an additional charge or a top-up; in practice it is frequently absorbed by the agreement and never invoiced.

Ticket to invoice reconciliation

A repeatable check proving every delivered hour either reached an invoice or was written off on purpose. Runs as four gates: work recorded, entitlement identified, charge produced, invoice sent.

Exceptions report

The output of a reconciliation: every item that failed a gate, with its evidence, its annualised value, the gate it failed and a decision. An exception with no decision recorded is functionally identical to a leak.

Recover forward

Correcting an agreement from the next billing cycle instead of invoicing retrospectively. Usually the better answer for findings older than the current quarter, because a recurring correction pays every month afterwards and costs no goodwill.

Operations and systems

PSA

Professional services automation. The system holding clients, agreements, tickets, time entries and invoicing. ConnectWise Manage, HaloPSA, Autotask PSA and Syncro are common examples. It is the record of what was sold and what was done.

RMM

Remote monitoring and management. The system holding agents, patching, alerts and endpoint state. It is the record of what actually exists, which is why it is the correct source for checking contracted device counts.

Billable utilisation

Billable hours divided by available hours per engineer, where available means paid hours less holiday and training. On fixed-fee contracts, billable must be defined as work against a paying agreement rather than work generating a separate invoice, or recurring-heavy teams look idle.

Tickets per endpoint

Tickets closed for a client in a month divided by their managed endpoints. The best early warning of an account becoming expensive to serve, because it moves months before margin does. Meaningful as a trend against your own history, not against an industry benchmark.

Reopen rate

The proportion of closed tickets that are reopened. Read alongside close rate, since close rate on its own rewards closing tickets rather than fixing causes.

Co-managed IT

An arrangement where the MSP works alongside a client's internal IT staff rather than replacing them. Usually billed with blocks of hours or a reduced per seat rate, and prone to scope ambiguity because two teams share the queue.

Onboarding fee

A one-off charge for setting up a new client or a new user. Onboarding is the most labour-intensive part of a relationship, so including it free is the largest discount most MSPs grant without recording it as one.

Minimum contract value

A floor on monthly contract value, set because client-level costs such as account management, reviews and reporting barely change between a six seat client and a sixty seat one. Without a floor, small clients are subsidised by large ones and blended reporting hides it.

Fully loaded cost

The complete cost of an employee: salary plus employer taxes, benefits and insurance. Any cost or margin calculation using bare salary understates delivery cost, and understates it by enough to make an unprofitable contract look acceptable.

Read-only key

API credentials that permit reading data but not creating, changing or deleting it. The correct level of access for any billing audit or reporting tool. Best issued to a dedicated API user with a restricted role rather than attached to a person's login, so it can be revoked without affecting anyone.

Common questions

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