Managed Services and the IT industry as a whole is evolving. In 2016, there are more technologies, more services and more variation than ever before. As software-as-a-service reaches maturity in the market and the labor arbitrage phenomenon provides global access to skilled employees, MSPs have more pathways to success—as well as competition—than at any other time. And, as cloud capabilities continue to change the dynamic between provider and client, driving costs down in the process, the opportunity to profitably scale an MSP business is available to virtually every service provider.
However, in order to scale that business, MSPs must keep costs down while driving revenue for each client they take on. Pricing, packaging and distributing managed IT services are becoming increasingly complex, and when coupled with numerous other business decisions, it can be difficult to determine the best pricing strategy for your specific MSP business.
So, what goes into putting together a managed services pricing strategy? Here are a few factors to consider:
Cost to Deliver Services
What is the actual dollar value associated with providing a client the services you offer? With expenses ranging from technology and materials to hiring, training and onboarding, the cost to deliver your services can be significant, and will affect your bottom line. While these may differ between RMM, BDR, Security or Help Desk solutions, it’s important to remember that there are real costs in addition to your platform licenses.
Location
Your geographic location can play a major factor in how you price and page your managed services. Depending on the locale of your clients and their ability to pay, coupled with the prices set by your competition in the area, your price for comparable managed services may differ greatly from an MSP in another region. Additionally, if there is a specific vertical or prevalent industry in your area—especially ones with regulatory or compliance concerns—there may be a pricing method that favors that industry or vertical’s specific service requirements.
Perceived Value
It’s important to remember that MSPs aren’t vendors or resellers; there is more value to the managed IT services approach than the ticket price of any solution. An MSP is a partner in their client’s business; a trusted advisor that an SMB can turn to for technical advice, expertise, support and reliability. In a very true sense, an MSP isn’t selling one solution over another, or one feature over another, they are selling peace of mind as a strategic technology advisor that will prepare their business for any IT concerns they need. The value inherent in this proposition should be taken into account when pricing and packaging your service offering, and the value you bring to the table in this area is just as real as any other.
With these influencing factors in mind, there are numerous pricing models that can be adopted.
Tiered Pricing
Service providers present a series of packages or service levels for customers to choose from, stylized in a “good-better-best” configuration. Each tier comes with its own range of services and support. Profit is easily calculable and predicable for the MSP, but the customer may be hesitant to pull the trigger for a tier that offers services they don’t necessarily need.
A La Carte Pricing
Customers are allowed to choose which services and solutions suit them best, creating their own package as they see fit. The customer may feel they are only paying for what they need, but this bare-bones approach cuts out the valuable role of an MSP as a trusted advisor for services. Additionally, this approach to pricing and packaging can be the hardest to calculate and realize profit margins, and the costs associated with delivering services can shrink and swell erratically.
All Inclusive
A one-size-fits-all, standardized model for delivering your complete suite of services and solutions. This approach represents an optimized, predictable way to calculate profit margins. The MSP works with the customer to find the right price point based on their need for services, but this sort of customized selling approach can lead to longer, more difficult sales.
Per User & Per Device
These are flat-fee approaches to providing services, with the price set by either the number of people or devices covered. Per user pricing can be attractive for the customer who looks to have each seat in their organization covered by the MSP, but profit margins can disappear quickly if each user has multiple devices that require coverage. Per device pricing offers more predictable margins, but can lead to unwieldy packages for the customer if too many devices are added to the network.
Conclusion
So, with all of this in mind, what is the best option? It may be surprising to discover that be it a tiered pricing model, a flat fee, a la carte, or per device or user, it should be stated that there is no smoking gun, no single approach to offering managed services that will lead to the most growth and the most profit. Each MSP business and each client they take on present a range of criteria that must be factored while developing an approach, so what works for one MSP may not work for another. What’s important when developing a winning pricing strategy is to choose a method that works for your business to properly forecast and realize effective profit margins, month over month, and keeps your cost of service delivery down.
