How Do You Ensure You’re Charging the Right Amount for Your Services

Packaging and pricing your managed services can be one of the most daunting set of tasks that you face as a managed services provider (MSP)—from determining what to offer, and what it costs to deliver, to making sure you’re not pricing yourself out of the market. However, the problem with this thinking is that it assumes that managed services are a commodity. Yes, antivirus (AV), backup, and firewalls are commodities, but how you employ them is not. Managed services is a value-based model, not a cost-plus model. When comparing yourself to the competition you must consider the value you are delivering, not just the “stuff.” And of course, you need to make sure you are profitable.

Your customers do not care about what kind of AV, backup, or firewalls you sell. They care about their business being operational, reducing the risk to their business, and, in some cases, how their technology gives them a competitive edge. You are selling them a solution, not line items. There are lots of other things that can contribute to added value over your competition and therefore, warrant a higher price. For example:

• How does your ability to deliver your services compare to your competition?
• Are your SLAs better?
• Is your security better?
• Do you actually consult with your customers on a regular basis to adapt to changes in their businesses or industries?
• Do you have unique expertise in their industries?

Where are your competitors on the value chart?

Of course, find out what your competition is charging and what they are delivering. But this shouldn’t be your be all and end all. Instead, you should use this to get a better idea of where they are on the value chart compared to you. Some of the things you should compare are the following:

1. What services do their packages include?
2. Do they have SLAs? If so, what SLAs do they promise?
3. What is their security expertise?
4. Do they have expertise in your specific verticals?
5. Do they provide quarterly business reviews and advice?

Once you know what the difference between your value proposition and theirs is, only then can you price your offerings comparably. Do not offer better value at the same price unless you can do it at a comfortable profit margin. If you can make the margin you want by offering better value at the same price, it will work in your favor. But remember: better value is always better than a better price. If a customer only wants to buy on price, they have no regard for your value and will not value the relationship you bring to the table.

The race to the bottom has no winners

Competing on price will only lead to a race to the bottom. Instead, compete on what really matters: quality and speed of service. The reason RMM tools and PSAs were created was so the MSP could provide better, faster service at a reduced cost. That reduced cost, however, does not diminish the value of the services delivered.

The way I usually describe this is by setting out how, in the old days, we did monitoring and maintenance by going from seat to seat at the customer to check AV definitions, install patches, and verify backups. Because of the labor involved in doing this and the inconvenience to the end user, high frequency was once per month and sometimes went as long as six months between maintenance. Customers gladly paid for the labor involved because they knew it was necessary to keep everything running smoothly. Now we have RMM tools to do all of this daily or even hourly and let us know when something goes wrong. The value has increased massively because the frequency has increased dramatically. Inversely, the cost has dropped to almost nothing compared to the labor we previously expended to do the same tasks much less often. In addition to frequency of delivery, quality of delivery has also improved because we have automated much of the work to deliver those services.

At the end of the day, you are in a service business that has a lot of variables. Those variables make it difficult to compare apples to apples from MSP to MSP. Use that to your advantage to sell the unique value of your services rather than competing on price and features. Make sure you are generating the margins your business needs to be healthy and grow at the rate you want. As long as you can acquire the right kind of customers and retain them long term, if your profit margin is acceptable, and you continue to improve your margins through efficiency and automation, you will be in a better position than your competitors, who are racing to the bottom.

Eric Anthony is the Head Operations Nerd at SolarWinds MSP. Before joining SolarWinds, Eric ran his own managed services provider business for over six years.

You can follow Eric on Twitter at @operations_nerd