3 Pricing Tips for MSPs

Many managed service providers (MSPs) struggle to develop a pricing strategy that works. In fact, many don’t even realize their pricing model isn’t up to snuff.

Author: Datto’s Eric Torres
Author: Eric Torres

As a result, many shops fail to invest the time and energy necessary to develop a proper pricing strategy. This is likely due to the fact that most MSPs have a background in technology and engineering rather than in business and sales. However, relying on a poorly modeled pricing structure will limit your ability to maximize profits in the MSP game. Delivering managed services is all about making the margins you want on the services you deliver. So, it is important to take a hard look at your own costs first when developing a pricing strategy. Once you understand your own 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. Per-user or per-device pricing is the most popular method, while others opt for fixed-price models or a hybrid of the two. There are also some newer pricing models emerging that may make sense for your company.

Regardless of the structure you choose, there are many factors to consider. The good news is that developing a pricing model doesn’t have to be an exercise in trial and error. Below, we’ll go through the various options for pricing available that have been designed to drive profits from successful MSPs around the country.

1. Start With Your Costs: New MSPs often price services based on their competitors. However, rates can vary widely and this isn’t the most appropriate method. An MSP’s expenses typically fall into three categories: technology costs, staffing costs and overhead. Your technology costs, of course, will vary based on the services you provide and the vendors with whom you partner. When calculating those costs, look first at monthly recurring costs associated with the technologies you use to deliver services. Most vendors catering to managed service providers structure their pricing on a monthly subscription basis because it matches the way MSPs bill their clients.

 2. Carefully Consider Client Needs: Once you understand your own expenses, look at costs associated with particular clients. This, of course, starts with number of users, 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 own personal costs into consideration. Your costs may be higher than a competitor’s, requiring you to charge more for your services in order 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 be able to demonstrate the value of your services.

There is not a one-size-fits-all solution for managed service providers. As a former MSP, I can say these methods above are a MUST to get your pricing strategy right. In our eBook, Pricing Made MSPeasy, we go through the various options for pricing available that have been designed to drive profits from successful MSPs around the country. You’ll learn how to calculate recurring costs and overhead, SLAs and value-based pricing, the benefits of bundled services, and more.

Eric Torres is channel development manager at Datto Inc. Read more Datto blogs here.