MSP Pricing: A Guide to Managed IT Services Pricing Models
The rise in remote work and dramatic increase in cybercrimes are reshaping the managed IT services market. As per MarketsAndMarkets research, the global managed IT services market will reach $354.8 billion by 2026, up from $242.9 billion in 2021. There is a growing reliance on managed service providers (MSPs) as businesses look for experts to manage their IT requirements and keep their data secure.
While this is a blessing in disguise for MSPs, especially for those who provide data protection services such as business continuity and disaster recovery (BCDR), MSPs must also realize that the competition is only going to get tougher. There are hundreds of MSPs that provide backup and recovery solutions to clients. This creates a great deal of noise and confusion for MSP clients and prospects. So, how can MSPs cut through the noise and stay on top of the competition? One of the most effective ways MSPs can differentiate themselves from the competition is by appropriately packaging and pricing their BCDR solutions.
Read on to discover the different types of pricing models and strategies to price a BCDR solution accurately to boost profitability.
Six Common MSP Pricing Models
Let’s take a look at some popular MSP pricing models.
- Per-Device Pricing: The per-device pricing model is one of the simplest and most popular pricing models among MSPs. In this model, MSPs charge a single fixed fee on a monthly basis for each device they support. A large number of MSPs prefer this model since it is highly flexible, easy for clients to understand and for sales professionals to quote. However, per-device pricing may become complex as clients add additional devices such as tablets and smartphones. Also, trends like allowing employees to bring their own devices (BYOD) and work from home can complicate things further.
- Per-User Pricing: Just like per-device pricing, in this model, MSPs charge their clients a flat fee on a monthly basis based on the number of users they support. This model is an advantage for clients where each end user is required to connect to multiple devices. Simple pricing, such as “all-inclusive per user,” makes this model easy to understand and adjust for both MSPs and their clients.
- Tiered Pricing: This is one of the most preferred MSP pricing models where service offerings are segmented to provide clients with more options. The prices vary from tier to tier as the types of services and support provided moves from basic to premium. Businesses have the flexibility to upgrade or downgrade the bundle as per their needs and budget.
- Value-Based Pricing: Also popularly known as “cake” pricing, this is another flat-fee pricing model where MSPs provide all services for a single fixed price. In this model, an MSP essentially becomes an extension of the client’s IT department and manages its entire IT infrastructure. This model allows MSPs to adjust the pricing based on the types of clients, service levels, nature of business and other factors, while clients get all the services they require at one cost.
- Monitoring-Only Pricing: This model is an affordable option for clients who have internal IT teams but are limited by budget. In this model, MSPs only provide network monitoring and alerting services while the internal IT teams are responsible for mitigating issues, should they arise. If required, MSPs can provide additional services at extra cost.
- A La Carte Pricing: In this pricing model, MSPs offer options to clients, allowing them to pick only those services that they require to create a customized solution for their business. For instance, clients can choose data backup or disaster recovery, or both, from a list of MSP services. This is a major advantage for clients since they pay only for the services they need.
Four Things MSPs Must Consider When Pricing Their Services
- Costs: MSPs must have a clear understanding of the fixed costs (expenses incurred every month to run the business), direct costs (expenses incurred by delivering the services) and any potential expenses that may arise. MSPs must consider the cost of time and labor for any included services (i.e., maintenance, testing, restores and upgrades) into their solution cost. MSPs must also analyze competitor pricing as well as what the market is willing to pay.
- Target Client Base: MSP pricing will evolve over time; therefore, understanding the target market segment will help MSPs appropriately price or adjust their services. This will also give MSPs an insight into what services their target customers are looking for and the role pricing plays in influencing the purchasing decision. The pricing strategy will differ based on the type of clients or business verticals they are looking to service.
- Technology Trends: Technology is changing rapidly, and this directly impacts the pricing strategies and services offered by MSPs. Staying up to date with the current trends in the technological landscape, including its costs, advantages and disadvantages, will play a crucial role in determining the right pricing strategy.
- Competition: Having sound knowledge of the competition is a no-brainer in business and MSPs are no exception. Understanding competitor services and pricing will help MSPs add more value and stay competitive.
MSP Client Needs and Challenges
Security threats are a major cause for concern for MSP customers, especially small businesses. In Q3 of 2020, malware attacks increased by a massive 128%. Globally, 75% of organizations experienced some kind of phishing attack in 2020. Cyberattacks are becoming more sophisticated, elusive and harder to detect. Adding to the challenge are the remote workforces and their highly scattered data, which make data protection even more challenging. According to Kaseya 2020 MSP Benchmark Survey, 29% of respondents listed ‘‘meeting security risks’’ as the top IT need for their clients. Another 14% of respondents cited cybersecurity services as a top need.
BCDR to Increase MSP Revenue
With cyberthreats growing in number and complexity, small and midsize businesses are increasingly looking at MSPs to protect their dispersed employee data. On the other hand, MSPs offering security and backup services are seizing the opportunity by ensuring their customers and data are protected. In fact, the Kaseya 2020 MSP Benchmark Survey revealed that nearly three-quarters of MSPs (73%) experienced a revenue increase in the past year through providing security services followed by backup and disaster recovery (59%).
BCDR Pricing Strategies
In today’s unpredictable cyberthreat landscape, both MSPs and their clients realize the importance of having a robust BCDR strategy in place. However, for MSP clients with limited IT budgets, pricing can often prove to be a detriment when it comes to implementing a BCDR solution. Although appropriately pricing their service is critical for MSPs, selecting the right pricing model from a variety of options can be challenging. That said, there is no single recommended or universally correct way to package BCDR into an MSP’s service stack. However, MSPs must determine how they will package their BCDR solution before they work on pricing.
Listed below are some questions that MSPs should ask themselves while pricing and packaging their BCDR services.
- Will the product be a standalone item or bundle?
- If bundled, what other services or deliverables are included, and what elements will have additional fees?
- How does this fit with other services?
- What is the desired profit structure and value?
- What will the target market tolerate?
It is important that MSPs determine what their revenue goals are when finalizing their pricing. This will ensure they are not undercharging or overcharging their clients. At Unitrends MSP. we recommend that MSPs price their BCDR offerings in such a way that they could generate at least a 35% profit on the solution.
There are two accounting methods that MSPs can use to set the final cost of their BCDR services: markup and margin.
- Markup or gross margin determines how much revenue is earned after deducting the cost of goods.
- Margin is calculated by subtracting the sales price from the cost of goods sold.
While MSPs can use either method to set the price of their BCDR services, there are pros and cons for strictly using one or the other. These methods are not interchangeable, and a lack of understanding of both could have negative impacts on the bottom line. The best strategy for MSPs would be to consider both markup and margin when pricing the services to ensure they remain competitive and do not miss out on any profits.
Unitrends MSP Unified BCDR Can Help Boost MSP Margins
Unitrends MSP Unified BCDR brings together enterprise-class backup, ransomware detection and cloud-based business continuity into one powerful platform. Our Unified BCDR platform is complete, automated and priced right for MSPs. This makes backups simple and hassle-free, enabling them to deliver the highest quality business continuity services with high margins and minimal maintenance.
Additionally, since most MSPs build their business around a recurring revenue model, the Unitrends MSP subscription model is in line with the standard MSP service model. It incorporates an all-in-one monthly pricing that includes the enterprise-class backup appliance for on-premises redundancy and the cloud tier of storage that completes a true BCDR program.
This subscription-based model is perfect for both MSPs and their clients. It allows MSPs to provide reliable BCDR services with little or no upfront cost while their clients can simply add additional hardware or refresh their hardware at the end of their contract as their storage needs grow — without any upfront cost.
Priced 30%-35% less than our competitors, our Unified BCDR solution immediately improves MSP margins upon switching. Unitrends MSP Unified BCDR enables thousands of MSPs across the world to grow their business and boost profitability — and so can you.