MSP Pricing Tips: How to Maximize Managed Services Profitability
Pricing is everything in a managed IT services provider (MSP) business. But figuring out what to charge for your services can be tricky. Charge too much and businesses won’t want to work with you. Charge too little, and you won’t be able to cover your costs. Finding that right price will help you sell your services better, bring in more profit, and give your customers the value they expect.
So, what do you need to know to ensure your price is right?
Why MP Pricing Strategies Are Crucial
Figuring out a pricing strategy is the most important, and easily forgotten, part of running a business. You can provide the best experience and value to your customers, but if you’re not pricing your services right, you could be leaving a lot of money on the table. The more you focus on services, the further pricing falls on your priorities.
Knowing how even a small change can make a big impact on your profitability is the first step in working on your pricing strategy. And as you begin putting more focus on your pricing strategy, you’ll notice different stakeholders and departments have opinions on the matter too—and they aren’t afraid to let you know them. Pricing isn’t easy, and it will take work to get everyone on board with changes.
Speaking of changes, when you determine the pricing strategy that’s right for your business, you’re going to have the make the difficult decision of changing what you charge your customers. This is always scary for business owners. They fear that any price increase could lead to a mass exodus of customers. But pricing modifications don’t have to be earth-shattering. Even the smallest increase can lead to a dramatic impact on your profitability. How dramatic? A landmark study published by the Harvard Business Review found that a 1% price improvement lead to an 11.1% increase in operating profit. And successfully communicating these changes to your customers will help you show the value of your services.
Determining the Right MSP Pricing Strategy
There’s a lot that goes into pricing your services, and if you’re not familiar with pricing strategies, it can be a little daunting. You’re not the first business owner to go through this. There are common types of pricing strategies to get you started, including Forward Pricing, Penetration Pricing, Neutral Pricing, and Value Pricing. But before you start working on your pricing, you need to understand your costs to ensure you’re charging the right amount. Utilizing a cost calculator will help you determine what your true costs are, and how to price to stay on top.
Figuring out where to start is the hardest part. This is a big decision for your company, and you want to make sure you make the right choice. To get started, you should ask yourself a few questions.
- Should I be reviewing my pricing regularly? (Yes. Reviewing your pricing regularly will help you see if you’re charging the right amount and making pricing changes when necessary.)
- Have I interviewed customers about pricing? (Being informed of how your customers feel about pricing will help you identify price ceilings, the highest price the market can withstand, so you don’t overcharge and start losing customers.)
- Am I in the right markets? (This goes a little further than pricing, but it can help your overall business decision making. Maybe consider specializing in a specific market and use that as a value driver.)
Your answers will get you on the right path to figuring out your new pricing strategy.
After all the research, meetings, and number crunching, you’ve finalized your pricing strategy. All that’s left is making sure it’s actually enforced, which may be easier said than done. Having the right tools in place makes it easier to standardize your procedures and enforce policies, especially around pricing.
How Does Bundling Fit Into MSP Pricing Strategies?
How you offer your services can play a part in determining your pricing strategy. Selling your services individually will be priced differently than if you bundled similar services together. As the industry moves to the as-a-service business model and monthly services, figuring out the right pricing strategy will be more important than ever. (If you’re in the beginning stages of transitioning your business to as-a-service, be sure to study our eBook The Ultimate Guide to As-A-Service for step-by-step advice on future-proofing your business.)
How Your Market Landscape Affects Your MSP Pricing
It’s important to know what other providers in your market are charging, but it shouldn’t stop you from doing what’s best for your business—even if it’s different from everyone else. Just because your competition is pricing their services a certain way doesn’t mean it’s the right way. This is where competitive research makes a difference. You need to see if they are offering the same services as you. What do they include in their offerings, and what isn’t included? How do you compare to them?
This not only helps with your pricing, but it can reinforce the value of your services too. You will get a better idea of what your competition is actually providing. You may discover your packages are more inclusive, or that you have a better understanding of certain industries than other providers do. Use this information to show off your strengths and communicate them to current customers and prospects.
Keep Your MSP Pricing Strategy Flexible
Pricing isn’t something you set and forget. The market and industry changes quickly, and your pricing needs to be able to reflect that. Once you determine a new pricing strategy, put it into action and reevaluate it after a quarter. This lets you see what’s working, what can be improved, and continue to provide the best value to all your customers.