Pricing MSP services is complicated – far more so than when IT services were typically charged on an hourly or daily basis.
The nature of MSP services means that clients are attracted by the idea of a fixed monthly fee, which allows them to budget for IT in a clearer way than under the hourly/daily model. The MSP wins too, with the ability to fix long-term contracts and more accurately predict income.
Things can still go wrong for the MSP if the pricing isn’t spot on. MSPs charging too little may find themselves oversubscribed with clients that they struggle to support to a good standard. Or, they may manage to meet their client’s expectations but fail to make the profit they deserve.
At the other end of the scale, MSPs charging too much may lose clients to cheaper competitors, especially given the popularity of $x per user or $x per device models across the industry.
When pricing services, MSPs should first consider what NOT to do – namely:
1. Pricing services based solely on the competition, either by matching or beating competitor prices.
2. Plucking figures from the air without basing them on real costs and expenses.
3. Pricing services based on an estimate of what each client can afford.
It makes far more sense for MSPs to first calculate, in detail, what it actually costs to deliver a comprehensive MSP service and make an acceptable profit. This should include everything from staffing costs to the trade price of the software and services included in the MSP service “bundle.”
No MSP should even try to price a service until they know these numbers. Often the focus is on pulling in clients, which is perfectly logical, but MSPs first need to know that they will make profit!
It is far better to make profit by realistically pricing a service and delivering it well, than by taking on too many clients at too low a price and having to take shortcuts in day-to-day service delivery. The latter strategy leads to nothing but stress and fast client turnover.
The IT market is ever changing; as such, MSPs do need to keep pricing under constant review. While it is always best to price based on the actual cost of delivering a service and making a healthy profit, that doesn’t mean competitors should be ignored altogether. After all, everyone needs to be aware when new pretenders-to-the-throne come along and attempt to poach customers.
This doesn’t mean that when prices change, they have to go down. Loyal customers who are being well looked after will appreciate that the MSPs expenses will rise with inflation, so nobody should be afraid of an occasional, fair upward price review.
By approaching pricing methodically, MSPs can build a business on firm foundations and give themselves the gift of accurate financial and staff forecasting. While servers, PCs and users will always deliver day-to-day unpredictability; it should be possible to predict income and costs fairly accurately over the medium to long term.
This document is provided for informational purposes only and should not be relied upon as legal advice. SolarWinds makes no warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information contained herein.