In a recent survey, Continuum asked more than 150 managed IT services providers (MSPs) about their service offerings. We received plenty of feedback. Some of the more interesting results came from what MSPs saw as the factors affecting how they price and package their services. These factors differ from MSP to MSP for a variety of reasons, including location, business size, vertical, and breadth of services, among others. However, three major factors stood out. Let’s take a look.
- Cost of Technology or Tools to Support Services
Any kid with a lemonade stand knows that you have to spend money to make money. If your lemons cost 50 cents, your lemonade will have to cost more to recoup the cost and see a profit margin.
It’s a simple lesson, but it still applies in managed IT services. Forty-two percent of MSPs said that the cost of technology and tools is reflected in the price that their customers pay. However, in setting that price, what margins are the MSPs setting for themselves? Does the technology they use set up a situation where the business owner and the company’s technicians are mired in day-to-day minutiae, closing tickets related to wrong passwords? Or, have they invested in a platform that tightly integrates a network operations center (NOC) and a help desk? Going with a fully-managed solution allows the business owner to close more clients and the technicians to focus on strategic, revenue generating client projects.
- Cost of Staff to Support Services
Hiring is an investment, and it can be a costly one. According to SimplyHired, the current average salary of a network technician nationwide is approximately $47,300 per year. That doesn’t include the cost of benefits, training, or specialized experience. Depending on a number of variables, this salary could be significantly higher, which is why 39 percent of MSPs surveyed said that this is a factor that affects the price of their services.
Clearly, MSPs need to be strategic when building a team of technicians, and must utilize their time as efficiently as possible to ensure their investment in labor is generating revenue. They have to make choices, and these choices can result in profit, or wind up costing the business profits and paths to new revenue. The decision here is whether to invest in a fully managed solution that can take on some of the technicians’ tasks, leaving them to focus their time on activities that add value for the customers and positively impact the bottom line.
- Cost of Selling the Services
Marketing and advertising costs money. Travel costs money. Business lunches and dinners cost money. For 37 percent of MSPs, it’s a factor that affects how they price and package their service offering. Selling managed IT services can be a duplicitous aspect of running an MSP practice: Many business owners are natural salesmen. They know how to market their services easily and focus on closing deals day and night. Always be closing, right? However, other MSPs aren’t as comfortable, or just do not have the time to get out and attract new business. Sales and marketing is important, and it’s important to align strategically with the right partners that can help with sales education and enablement materials, as well as seek out peer groups that can help your business’s growth and development.
Other Factors
MSPs also reported these factors as affecting pricing
- Nature of engagement/customer relationship
- Ease of payment for customers
- Ease of billing
- Partnerships needed to support services
- Length of sales cycle
MSPs face several factors that can influence their bottom line, but what separates the average profit from a large profit margin are the strategic investments that they make when selecting the infrastructure they build their business upon.
This article was originally published on Continuum’s MSP Blog. Are you still wondering if it makes sense to expand your business model by offering managed IT services? Download your free copy of Continuum’s Four Reasons Office Equipment Dealerships are Perfectly Suited to Sell Managed IT Services.
