Undercutting the competition with your MSP pricing may seem like a great way to help you win new customers. However, you should think very carefully before adopting this strategy.
This article presents you with four reasons why being the “cheapest on the block” may be a foolhardy decision.
Average rates for MSP support subscriptions and hourly consultancy may make it seem to those outside the industry that running an IT business is the fast-track to wealth. It’s obviously not that simple.
A large number of costs must be covered from the rates you charge before your business makes any profit; staffing, marketing, office space and maintaining your own infrastructure all eats into your margins – and that’s before the tax man takes his inevitable chunk.
If you don’t charge enough, you can find that your business doesn’t make enough profit – regardless of how many clients you sign up.
“More clients” may not seem a bad thing, but if you charge half as much as your competitors, you need twice as many to make the same amount of revenue.
Twice as many clients means twice as many system problems, twice as many difficult users and twice as many phone calls disturbing your peace when you are on holiday.
Surely, it’s better to have fewer clients, each paying your MSP more money - even if it takes longer to sign them up?
Cheap rates may attract cheap clients; these may be businesses who are “cash poor,” or simply those who make all of their decisions on price alone.
The cash-poor clients may pay you late, or even go out of business owing you money. Those who always choose the cheapest of everything will, inevitably, use cheap equipment that is more likely to go wrong and make life stressful for your and your staff.
There are plenty of customers who run successful businesses and are happy to pay a fair price for good service – the time investment in finding them will pay dividends.
It’s not always good to be seen as the cheapest. People are naturally cynical and suspicious; if your prices are the lowest, many prospective customers will attach negative connotations and assume that you cut corners or employ poorly trained technicians.
If you consider the alternative, it’s clear that it’s better to be associated with competence and quality. Build your MSP to be prestigious and develop your reputation; quite rightly, you will then attract prestigious clients.
The pricing model you choose for your MSP contributes to your branding as well as your bottom line. It is essential to get it right by doing the right calculations, looking at competitors, and deciding on your target position in the marketplace.
There will always be businesses that aim for the low-end of the market. Unless you are determined to be one of them, it’s best to leave them to it and build a profitable, sustainable MSP business with the right kind of clients.