MSP Pricing Models: 3 Keys to Success
As with any business, the right pricing strategy is critical for managed service providers (MSPs) in order to find success and long-term growth. However, for MSPs in particular, developing a pricing strategy can be tricky. There is no one-size-fits-all as no two MSPs are exactly the same. These shops differ by company size, target customers, services they offer and pretty much everything else. Here are three things to keep in mind when deciding which pricing model is right for your MSP:
Determine Your Internal Costs
First thing’s first, figure out exactly how much it costs to run your business. What are your staffing costs? This includes everything from base salaries to health insurance. How much are your technologies charging? As you’re likely billing customers on a monthly cycle, it makes more sense to partner with a vendor who bills on monthly basis as well. What are the rest of your monthly bills averaging out too? Think about mortgage/rent, taxes, utilities, office supplies, etc. The sum of these numbers is important in determining what to charge your customers. After all, if your can’t pay your bills, how are your going to provide service for them?
Consider Client Needs
Each client you take on will differ by number of users or the amount of data they have. These are important factors to consider when assessing which price point to place them at. Assessing their network will also help you determine how much support they’ll need going forward based on the technology they have in place.
Pricing based on service level agreements (SLAs) is also becoming popular. More MSPs are offering certain levels of support that coincide with how much downtime a client can afford. More traditional pricing, where each customer receives the same level of support, is still the norm for the majority of managed service providers. Again, the route you take will depend on your internal costs and the overall business culture.
Deliver and Profit
If increasing profits is the ultimate goal, pricing yourself at the same rate as your competitors may seem like a safe bet. You’ll have a better shot at acquiring new business if you’re offering the same prices as the MSP across the street, right? Wrong. When you take pricing in this direction, you’re failing to acknowledge operating costs. You’re also failing to address the value behind the services you’re offering.
For higher priced MSPs, make sure and present the value behind what you’re offering. Once it makes sense to potential clients, you’ll win the pool of business that requires a more premium service experience.
Summing it Up
You’ve figured out what the running cost of operating your business is, what your clients are looking for, and how to remain competitive – so now what? Now it’s time to decide just how competitive you’ll be. Don’t be tempted by the prices offered by competitors. Seek out clients who see the value in your services. At the end of the day, this will lead to better business relationships. If a client can’t see past the dollar sign, you don’t want them signing on the dotted line.
For more pricing model examples, best practices and guidance, check out the eBook, “Pricing Made MSPeasy.”