The Ultimate Guide to MSP Pricing: Strategies and Pricing Models
Introduction:
Pricing is a critical aspect of any managed service provider's business. A well-designed pricing model can help an MSP meet the needs of clients while earning a profit. However, pricing can be a complex and challenging topic that requires careful consideration of various factors, including costs, scalability, target client base, technology, and competition. In this guide, we will explore the different pricing models that MSPs use, their pros and cons, and how to develop an effective pricing strategy.
Developing a Pricing Model:
When developing a pricing model, there are several factors that MSPs should consider, including scalability, costs, target client base, technology, and competition. By taking these factors into account, MSPs can create a pricing model that meets their clients' needs while ensuring profitability.
Scalability:
Scalability is crucial to any pricing model. MSPs must standardize their pricing to prevent stagnated growth as their client list gets longer. By standardizing the pricing model, MSPs can make selling easier and repeatable, enabling them to scale their business faster.
Costs:
MSPs must understand their total cost of delivery to clients so they do not lose money as they sign on new clients. Knowing the break-even cost of an MSP business is critical when setting up a pricing model and understanding operational areas to optimize and improve to drive down that cost. It is also essential to focus on market rates and calculate the difference between the costs of an in-house staff versus the managed IT services offering.
Target client base:
The clients an MSP targets play a large role in the adopted pricing strategy. The scope and depth of services offered will vary depending on the type of businesses and verticals that are targeted. For example, providing managed IT services to a healthcare organization governed by HIPAA law will have different costs than providing services to an SMB on Main Street.
Technology:
Understanding the costs, benefits, and challenges of the current technological landscape will play a role in any pricing strategy. MSPs must keep up with technological shifts and advancements to ensure their pricing model remains effective.
Competition:
Keeping an eye on the competitive landscape is critical to any pricing strategy. MSPs must understand its movements and shifts and know that their pricing strategy must be able to shift to remain attractive to potential clients.
Common MSP Pricing Models:
Monitoring-only pricing model:
This pricing model provides a bare minimum approach to managed services. MSPs only remotely monitor specific aspects of a client's IT infrastructure. Clients are alerted of issues, but solutions support could require extra fees (or be the responsibility of the client). Monitoring service levels can vary from an in-house IT staff receiving basic monitoring and alerts to advanced support and incident resolution.
Tiered pricing model:
This pricing model provides different package tiers that correspond to defined service levels. These tiers are structured based on cost and resources, with a specific price point that provides a profit margin for an MSP while providing necessary services to clients.
A la carte pricing model:
This pricing model offers flexibility and customization that creates an optimized solution for each client. Products and services are sold with a marked-up price so that MSPs achieve a profit margin.
Per-device pricing model:
This pricing model requires that users play a flat fee for each device supported by an MSP, billed on a regular schedule. Prices vary based on the type of device (e.g., desktop, server, mobile device) per network managed.
Per-user pricing model:
Under this model, the number of users that require managed IT services on a network is measured against the number of devices on the network. This pricing model can be more advantageous for clients that have employees using multiple devices.
Value-based (flat-fee) pricing model:
This pricing model offers a flat fee for all services that are
included. This model is more complex and usually involves a per-user cost when coming to a bottom-line price, but can yield greater margins as well. Because MSPs are truly selling a solution with value-based pricing, it can be more difficult to sell and requires confidence.
Selecting the Right Pricing Model:
Selecting the right pricing model for your MSP business is critical to your success. Each model has its pros and cons, and the right one will depend on your business goals, target clients, and the services you offer.
Monitoring-only pricing is best for businesses with a limited budget or a small IT infrastructure that requires minimal maintenance. Tiered pricing offers clients more options and provides an MSP with a profit margin for each service level. A la carte pricing is the most difficult to sell and sustain profitability but offers the ultimate in customization and client-optimized packages. Per-device pricing is simple and easy to adopt, while per-user pricing is flexible for clients and easy to understand. Value-based pricing provides a flat fee for all services and is best for businesses that want an all-in-one IT solution. When choosing a pricing model, it is essential to understand your target clients and their needs. A pricing model that works well for one vertical market may not be effective for another. MSPs should also consider their costs, competition, and the current technological landscape when selecting a pricing model.
Conclusion:
Pricing is a critical aspect of any MSP business. An effective pricing model meets the needs of clients while ensuring profitability. When developing a pricing strategy, MSPs must consider several factors, including scalability, costs, target client base, technology, and competition. There are several common MSP pricing models, each with its pros and cons. MSPs must choose the right pricing model for their business based on their goals, target clients, and services offered. By keeping pricing models malleable enough to shift to meet new market demands, MSPs can ensure long-term success.
