Tips for Negotiating with MSP Clients - Part 1

Richard Tubb

men negotiatingOne of the most common discussions I have with IT Solution Providers and Managed Service Providers (MSP’s) is around pricing of their services.

Lots of MSP’s 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 MSP’s 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

So, 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 un-nerving for you, but is that statement from the client really true? Nine times out of ten, 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 - 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 one simple question to the prospect.

“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.

The value to your prospect

But the job isn’t finished here. You’ve established you provide more value through your services than your competitors, but if those services aren’t the ones your prospect actually values… then they still won’t pay the increased cost.

In part two of this blog post, I’ll share with you how to uncover what is valuable to your prospect.

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As the former owner of an award winning IT Managed Service Provider, Richard Tubb works with MSPs to help them increase sales, take on employees and build up relationships with key industry contacts. You don't have to do it alone any more - contact Richard and have a chat about your needs and how he can help you.

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