MSP Pricing Strategies

Pricing IT services used to involve little more that deciding on an hourly consultancy rate and having a vague idea of the additional products and services you could offer to clients.happy dollar bill

Pricing MSP services is far more complex and it’s imperative that you get it right.

It is important to get out of the “old-school IT” mindset when working out an MSP pricing structure.

Ultimately, your MSP pricing structure has to achieve two things simultaneously:

  1. It must provide your clients with a compelling service-based offering that gives them peace of mind and predictable costs.
  2. It must allow you to make a healthy profit after covering the cost of the products, services and resources needed to meet your obligations to the customer.

 

Calculating Costs

msp man with calculatorCalculating your own costs should be the first step. Working out the cost of any outsourced products and services that are bundled within your MSP offering is the simple part.

Calculating the cost of support is more subjective and will always be somewhat unpredictable. The most important thing is to ensure that, across your client base, the revenue generated through providing support and consultancy as part of the MSP service equals or exceeds what would be generated by charging for this work on an hourly basis. Err on the side of caution.

Once you have an idea of the cost of providing the service, you can start to apply a profitable price tag, which will probably fit within one of usual pricing models:

Per-User Pricing

Charging per-user is usually attractive to clients as it makes logical sense and gives them a predictable IT service cost across the organization (for example, they know that a new member of staff will cost them an additional $xxx per month).

Per-Device Pricing

While perhaps fairer and more profitable to the MSP, due to mobile devices and some users having multiple PCs, per device pricing is typically less attractive to potential customers. It also often results in clients wishing to exclude certain kit from the support agreement in an attempt to reduce monthly payments!

Tiered Pricing

Many MSPs offer “Level 1, 2, 3” or “Bronze / Silver / Gold” options, each offering a subsection of services. While this gives customers more choice and provides the potential to hook in clients frightened off by a higher price-point, the different levels can be hard to police and cynical clients may wonder what shortcuts are taken on the lower tiers.

After deciding on your preferred model, apply a price based on your earlier calculations and create a detailed list of exactly what you provide to your customer for that price.

For example: patch management, security, online backup, unlimited phone support etc.

It would be pointless to suggest any sample monthly figures here as many factors come into play including your competitors pricing, the sectors you are targeting and the exact set of services you provide. The most important thing is to refer to your own costs.

Consider your profit margin and well as a margin for error, to cover the inevitable moments when unexpected system problems drain your internal resources.

After all, the worst thing you could do is pitch your prices too low and end up with clients who cost you more to support than you are billing them!

Need More Pricing Advice?

Check out our Maximizing Business Success video series.

Be sure to register for our other upcoming webinars if you like what you hear!

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