Common pricing models for MSPs in Australia and New Zealand
The most common question I have been asked over the past 11 years that I’ve worked with consultants in the IT industry is, “how do I best price my offering?” The constant pull of customers wanting perceived savings by only calling in a professional when they have to, compared with the need for a well maintained network to prevent any downtime to begin with, is a constant struggle.
More often than not business owners call IT consultants because they need the skills they do not have in their own business. This means that when they call in the professionals, it’s sometimes difficult to understand the value they provide, especially considering most work is “virtual” so there may not be an instant, tangible outcome the business owner can see.
That said, the most successful businesses have an ongoing, steady relationship with the IT providers that support them. In short they pay the consultant to keep their network running rather than to simply patch it up when it breaks. Of course, this type of relationship doesn’t develop overnight and IT providers must first prove their value and skills to their business customers.
As an IT provider you should consider the below stages as a core part of progressing the consultant/business relationship and demonstrate its value.
Time and Materials (Hourly Rates)
This is always the first agreement an IT provider will have with a new business. Customers pay as they go, and it is easy to manage spending with no risks. It allows customers to feel in control of the relationship. However, for the IT provider it does mean they can lose customers at any time and have no scope to actually monitor and improve network performance; they’re simply supplying band-aids. From an IT service provider’s business perspective, this relationship doesn’t allow you to scale your business profitability. In this situation, hours worked always equal dollars made, yet hours tracking and invoicing take a large chunk of your time and it is a constant battle with customers over their perception of service and the dollar amount they pay.
Pre-purchased Blocks of Hours
This is the easiest next step to take with a new customer. Instead of paying by the hour (or whatever block you chose to bill in), customers can buy credit in advance but use it in the same way. This way, they feel they have credit to use with you when you need it, and only consider going elsewhere if they run out of hours. This can help keep customers stay in credit rather than debit to help your cashflow, and by using monitoring tools you can find issues and repair their network and use purchased hours before they affect the network. This is the very similar to a Time and Materials approach, but in this case the customer is a little more “sticky”, as they won’t want to lose hours they’ve already paid for.
Flat Service Fee Per Month (Tiers of service)
With a monthly agreement, you can be paid to keep your customer’s network running rather than hoping it fails. This provides a reliable cashflow for your business to help with staffing and planning, plus it’s much easier to invoice as less time is spent on tracking and reviewing hours. Adding automated services into your agreement will add value to the customer while also saving you money in staffing. You may have a short-term concern over increased workload that is not offset by larger hours bill, however as you establish a solid network environment it will fail much less. In the long run this will mean less work but constant billing. If you’re including automation and remote management in your agreement, you will need to remember that while you know you’re doing a great job, you must keep up regular communication (often in the shape of reporting) with the customer to demonstrate value so they continue to pay.
You can add to this by bundling in additional services like software or even hardware. This is an excellent path to introduce a client to a flat service fee, they are already paying for antivirus, backups and O/S licensing as well as new desktops and network infrastructure. By bundling this with your service it will smooth their spend into monthly payments, while you can outsource that monthly cost with an external leasing agreement. Also over time as their hardware needs to be refreshed, their new desktops and laptops are simply part of your service fee.
In addition to this, by charging per user, you can allow for the expansion and contraction of your customer’s business. As part of this agreement, each user gets a workstation, tablet and mobile that you fully support and refresh on a regular basis. This way you get to standardize the entire network so your staff are fully trained on their environment – not trying to support a different setup for every client saves you time and money.
So, there are a number of different pricing models available to you, depending on what stage of the relationship you are at with your clients. However, ultimately, moving towards a flat fee structure is a progression IT consultants need to take with the businesses they support to demonstrate their value in maintaining and improving infrastructure to help the business they support be more efficient. As an IT consultant, it is important for you to continue to progress your customers towards an all-inclusive service. This is to help them grow their own businesses, but most importantly, so that they are paying you to keep their network running, rather than hoping it breaks so that you are able to get more billable hours.