Are you pricing your services too low?

Richard Tubb

One of the most common discussions I have with IT solution providers and managed service providers (MSPs) is around pricing of their services.

Lots of MSPs make the mistake of assuming that their client or prospective client can’t afford a certain price, or wouldn’t want a certain service because of the cost involved – the assumption being that the client or prospect is focused entirely on getting the lowest price possible.

In reality, while the small and medium sized business (SMB) space is undoubtedly very price conscious, as the former owner of an MSP and having worked with dozens of MSPs in my current role, I rarely come across prospects who are focused entirely on price – even if they try to give that impression to the unsuspecting MSP…

You get what you pay for

The reality is, most people understand the old adage “You get what you pay for." The majority of people don’t want to get ripped off, but they view the cheapest price with some suspicion – which is why you get the strange situation that if your service is too cheap, you can often win more business by raising your prices. A higher cost often means people associate more value with your service!

Your competitor offers the same thing cheaper

valueSo, getting back to those prospects who give the impression that price is their only criteria for doing business – how many times have you been asked for a discount on your services? And how many times, if you’ve hesitated to offer the discount has the client said something like: “Your competitor offers the same product/service but cheaper."

This is unnerving for you, but is that statement from the client really true? Nine times out of 10, it isn’t. Your competitor is often cheaper than you because:-

  • They have less qualified engineers
  • They don’t offer out-of-hours support
  • They aren’t as quick at responding to tickets
  • They don’t provide a daily/weekly/monthly health check report
  • They don’t do pro-active maintenance
  • They charge extra for on-site work

… and a myriad number of other reasons. The bottom line being that your competitor may be cheaper, but they don’t offer the same service.

Or to coin a phrase, your prospect is comparing apples with oranges.

Why is your competitor cheaper?

With this in mind, at this stage you may be tempted to try and justify your higher cost to the prospect. But instead of doing this, try asking the prospect one simple question.

“Why do you think our competitors are cheaper than us?”

Most prospects will then share some of the reasons listed above (and usually the ones that are most important to them).

Others, who already understand the game being played here, play dumb and say “I don’t know." It’s your job to them ask (and not tell them) whether the prospect thinks your competitors' engineers are just as qualified, or whether your competitor offers out-of-hours support, and so on.

Eventually both you and the prospect will establish that the reason your service is more expensive is that you’re not offering the same service as your competitor; you’re offering a better service providing more value.

With all that said, some clients will still prefer to go with the cheaper option. Some clients do shop purely on price alone. These clients typically don’t see IT as a value-add, more of a necessary evil with a cost that is a burden.

More fool them! At least you now understand their motivation – getting the cheapest price. At this stage you can gracefully exit the conversation, choosing not to get involved in a race to the bottom. As the saying goes, “However cheap you are, there is always somebody cheaper."

Conclusion

valueWhether prospective clients want to admit it to you or not, they know that you get what you pay for.

It’s your job to work out whether clients are shopping on value, or whether they are shopping purely on price alone.

Do you want your IT business to be the best at what you do, or simply the cheapest? For most IT businesses, they want to provide a valuable service to their clients, and that comes at a cost that some clients won’t be willing to meet.