Know the Risks and the Payoff!
If there wasn’t any risk, there would be no payoff. If there’s no payoff, why take a risk? Last time I checked, there weren’t too many pro-bono MSPs. The key to business success is managing risk to maximize the payoff. So, the old-fashioned return on investment analysis needs to become part of the decision-making process when it comes to setting prices. Once you have a sense of your client’s price and your potential margins, then you can assess risk and weigh your decision to proceed.
Specific pricing arrangements will each have a risk and reward calculation. Risks can be managed through project management efforts, along with healthy communication with clients about any out-of-scope activity. A given deal may have some amount you risk losing if you don’t hit the budget or fail to attain a success goal. But the same deals can have an upside, where you earn premium through efficiency or success. Some deals may even have amounts you are willing to forgo as an investment in that client relationship or given practice area. The main point here is that the decision to take the risk and make the investment should be made with knowledge and awareness—knowledge the actual risk and investment amounts, and awareness that you are investing your resources in the right markets with the right clients.
With these key pieces of data, now you can effectively focus on delivering value.
And by factoring in these three things, you can set a price that matches your client’s value proposition and, just as importantly, clarifies your MSP goals and ensures that the price you offer meets your own value proposition, as shown in the chart below.
In summary, setting prices based on value is a worthy effort. It can be done simply, but it should be done in a thoughtful manner. If you just accept the clients’ definitions of price and value absent understanding your own costs and risks, you will develop an unhealthy client relationship. And leave profit on the table.
For my next MSP pricing blog post, Ill provide a few common pricing tools as a starting point for pricing analysis. If you want to register early, please subscribe to our blog and receive the post via email.
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