3 MSP Pricing Model Tips
As a channel-only company, Datto aims make things as simple and as streamlined as possible for our partners. One of the common pain points we hear about from managed service providers (MSPs) is difficulty developing a successful pricing strategy. With the right knowledge and tools, it doesn’t have to be a struggle.
As an MSP, making the margins you want largely depends on how you deliver managed services. It’s important to take a look at your costs when developing a pricing strategy. Once you understand your internal costs, you can begin to think about what you will charge for services. MSPs use a variety of pricing strategies today, and yours will ultimately be dictated by your business’ specific needs.
The pricing model you choose will depend on the what you feel most comfortable with. What works for one company may not for another, so don’t try to force a pricing model that doesn’t make sense for you. It’s better to use a strategy you understand rather than an emerging pricing model that promises returns but is largely unproven in the market. Finally, it is essential to measure the profitability of customer relationships over time. Customer metrics will help you identify pricing mistakes to avoid in the future.
1. Start with Your Costs: MSPs expenses typically fall into three categories: technology costs, staffing costs and overhead. Technology costs will vary based on the services you provide and the vendors you partner with. Staffing costs are important as well. When calculating these costs, you have to account for salaries, insurance costs, paid time off, and 401k or retirement plans. Lastly, look at the remaining business expenses. These can include rent, utilities, taxes, office supplies, etc.
2. Carefully Consider Client Needs: Once you understand your expenses, look at costs associated with particular clients. This starts with the number of users, the amount of data and number of servers. Support costs can vary widely from client to client depending on their specific needs.
3. Deliver Services That Drive Profit: Basing your pricing structure on the rates offered by your competitors is dangerous, because it doesn’t take your personal costs into consideration. Your costs may be higher than a competitor’s, requiring you to charge more for your services to make a profit. If two MSPs offer the same services, many customers will compare the two and choose the service that is cheaper. So, you also need to carefully consider how to differentiate your business from your competition and demonstrate the value of your services.
More: Interested in learning more tips like these? Check out the eBook: Pricing Made MSPeasy. This eBook discusses how MSPs can calculate recurring costs and overhead, compares SLA and value-based pricing, describes the benefits of bundled services, and much more.