Four MSP Pricing Strategies for the New Managed Services Provider
IT service providers face far-reaching challenges as they transition to managed services, and deciding which technologies and services to offer isn’t the biggest one. In fact, pricing and the need to adopt a recurring revenue mindset may be the most complicated part of a new MSP’s business strategy. For those just breaking into managed services, here are a few tips to keep in mind:
1. Price for Your Business:When it comes to establishing pricing, it makes sense for a new MSP to start by evaluating how competitors price their offerings. But many MSPs make the mistake of aligning pricing with the rest of the market—without first considering their competitive advantages. This puts the MSP on a level playing field with everyone else, leaving prospects to wonder how the MSP stands out. A better approach is to figure out what makes your business unique and then price accordingly. For example, how experienced is your staff, how are your SLAs better than the competition, and why is your data center a cut above? If an MSP truly can make a business case for their competitive advantages, and if those advantages map to prospects’ needs, then there are valid reasons for higher pricing. The reverse may be true as well: you may have valid reasons for offering lower pricing in some areas of your business, for example, when your solution might be considered a “light” market alternative.
2. Price to Your Value: Many MSPs underestimate themselves by pricing based on costs alone. Don’t just do the math and call it a day. Ensure your price covers your costs and your intellectual capital. Always remember, you’re the expert. It’s taken years for you to perfect your trade. Your certifications, your automation, and your service levels are all investments that need to be accounted for as you price your services. Be sure you are being paid for all of that collective expertise.
3. Price for the Future: When it comes time for an MSP to raise their prices, there’s no escaping the uneasiness that sets in. The best way to address a price increase is to do your homework and be prepared with a justification for your ask. Is it due to higher levels of service that were not properly accounted for in the contract? Is it due to special circumstances with this customer that are leading to more time and expense for your firm? Either of these reasons might be justifiable. Before moving forward, evaluate where you can maximize efficiency and profitability within your business. You might be able to avoid a price hike with increased use of automation, for example.
4. Price A La Carte: Many new MSPs will immediately dismiss the idea of an àla carte pricing and sales model. But it’s worth a second look, because it offers the easiest way for MSPs to attract new business. To start, this model often includes essential services such as AV, backup, and patch management. Gaining a foothold with a bundled approach in this way gives MSPs the opportunity to gather insight into client needs, leverage information secured throughout à la carte support processes, and then tailor future offerings and proposals based on the needs of the customer. As time goes on, and trust and success are built, à la carte offerings become your stepping stone to winning more of the customer’s business.
No matter how you price your services, remember that in the end, the personal touch and the value that you offer can ultimately earn you more customers and fuel your ability to retain them over the long haul. So provide those valuable touch points with your clients as often as possible, whether it’s a personal thank you note, a weekly check in, or a quarterly lunch or dinner invitation. And above all, listen to their needs and challenges and actively work to help them achieve their business goals. If you do all of these things, it can help grow your managed services success.
Mike Cullen is VP of worldwide sales and business strategy at SolarWinds MSP. Read more SolarWinds MSP blogs here.