Boost Profitability by Pricing Your Services Appropriately

Cost Value Graph

Managed service providers (MSPs) often grapple with the dilemma of pricing their services appropriately. They strive to offer the best IT services to their clients, but when it comes to pricing those services competitively, they hesitate for fear of off-putting their customers.

This usually leads to a cycle of low-profit margins, hindered growth and the provision of low-value services.

So, how does an MSP provide high-value services to its clients and still make profits? The first step is to move away from hourly pricing under the ‘break-fix’ services model. And, move to subscription-based pricing, if you have not done already.

Pricing Models to be Considered

A few of the popular MSP pricing models are:

Per-device Pricing Model – A flat fee is charged per endpoint device supported in this model. Typically, the fee depends on the type of device. For example, as described in a TechTarget article year ago, the fee could be $69 per desktop or laptop, $299 per server, $29 per network printer, etc. The advantage of this model is that it is easy to quote and easy to adjust as the client adds more devices to their IT environment. Your endpoint management / RMM solution can provide updated asset information to your PSA tool to automatically prorate your monthly billing based on the number of devices under management.

Per-user Pricing Model – This is similar to the per-device model, but instead of a device, a flat fee is charged per user per month and covers support for all devices used by each user. This may mean that you are managing three or four devices per user if they have a company workstation or laptop, tablet, and smartphone. As noted in the recent MSP Success magazine article by M J Shoer, “The key to the per-user model is knowing how to support the operating environment as efficiently as possible, leveraging tools for automation to ensure profitability.” Of course, you might say the same is true for the other pricing models, too.

Tiered Pricing Model – In this model, the MSP offers several different bundled packages of managed services, with more services added to the higher-priced packages. For example, you might have a ‘basic’ desktop managed services package with remote management, patch management, and basic antivirus/anti-malware security, an ‘advanced’ package that adds more security services, and a ‘premium’ package that offers the ultimate endpoint security and after-hours support.

Of course, figuring out the right pricing strategy and price points for your MSP business is critical. According to an article last year in Channele2e, the best MSPs are charging around $125 to $150 per user per month. This is under the per-user pricing model.

Selecting Your Target Market

As an MSP, figuring out who you can serve the best will allow you to develop the right service and the right price for your target market.

Ask yourself:

  • Am I in the right market?
  • Should I go after a broad set of SMBs or specialize in a particular vertical?

To differentiate yourself from your competitors, consider targeting a specific market vertical, such as healthcare or financial services, and use that as a value driver.

Minimize Your Service Delivery Costs

Evaluate the direct and indirect costs associated with your current managed services – including the cost of lost productivity and lost revenue due to inefficient, manual IT processes.

Minimize your costs by:
  • Leveraging IT automation to drive down operational costs by reducing or eliminating technician time for many common IT tasks. (Read this recent blog: How Automating IT Processes Saves Time and Reduces Costs).
  • Documenting IT processes and procedures to enable your technicians to get work done quickly and accurately.
  • Make use of IT management tools that deliver seamless workflows that allow easy transitions from one tool to the other and incorporate IT documentation at your fingertips. (See our Omni MSP Product Brief).

Learn more about MSP pricing by joining our webinar Maximizing MSP Profitability. Hear from our special guest speakers — Michael France and Dennis O’Connell from The Taylor Business Group!

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