Q: At the moment, we’re using pricing tiers at my MSP to standardize our services and make it easier to price out new clients. While this seems to help sales go more smoothly, we’re second guessing ourselves when it comes to service. Some of our clients are high maintenance and require a lot of support, so it seems like we might be losing money. Going into the New Year, how can I price appropriately to fit the needs of my clients without wrecking my margins?
Pricing appropriately can be a challenge for MSPs, especially when you have standardized pricing for all of your customers. Some customers may be larger than others and some simply might need more support, so finding the right balance can tricky. While you may not be looking forward to evaluating and adjusting your pricing structure, now is the time to make sure you’re positioned to be profitable in the coming year.
To get advice on how to price appropriately as an MSP, we spoke to Chris Johnson, the director of business development and strategy at Wheelhouse IT. With more than 15 years of experience in the IT channel, he’s seen numerous approaches to MSP pricing. Here are his tips on how to price appropriately in the upcoming year:
Pricing fails when you fail to articulate your value
One of the biggest mistakes we make as MSPs is that we believe everything needs to be cookie cutter—that every break-fix needs to be an MSP and that once you’re doing this you should pricing based on users, not devices. The reality is both strategies can work, but where we start making mistakes is by saying that MSPs need to do all of one or the other.
At the end of the day, any of your potential customers can Google search the costs of the products or services you’re offering them, and they can start building out how much each service should cost them. When we break everything out into user-based support or device-based support we’re making it more difficult for ourselves. Focus on separating the user support value from the products themselves.
Another mistake to watch out for is scope creep. One example that comes to mind is a customer who we ran an audit for. Their entire infrastructure had moved to the cloud, so in theory we were no longer managing that for them. Even though that line item was removed from their bill, we were still providing services and support. In fact, we were providing more support for the infrastructure that moved to the data center than before. They were essentially getting this support for free, and if we hadn’t conducted the audit, we might not have caught this.
Mistakes like this come up all the time and they impact the MSP more than the user. Convey your value to your customers and highlight why they should have you manage their IT services instead of doing it themselves.
Who said selling managed services is like buying a gallon of milk?
Something else you need to stop doing is comparing yourself to another MSP. If other MSPs around you are charging $95 an hour, that doesn’t mean you should too. Why can’t you charge $185 an hour? Who came up with that rule? We’re really doing ourselves disservice when we base our prices on others in the market. If you’re comparing yourself to MSPs near you based on cost, what differentiates you? If your audience is willing to spend more or less based on value, why would you want to price your services the same?
We’re a self-imposed commoditized industry, but it doesn’t have to be that way. If someone asks me how much a gallon of milk is, I can give them an answer. It might be a few pennies off from another guy, but it’s close. But, who said buying managed services should be like buying a gallon of milk? We should be able to price and sell our services without having a standard dollar amount associated with it. How much is an hour of IT support? The average person can’t put a dollar amount on that. You could tell me how much it is to buy anti-virus at Best Buy. But, what does that get you? If we were a commoditized market, you would be able to put a whole bunch of us in a room and come to a consensus about how much services cost. But, when you come down to it, we aren’t a commoditized market. MSPs just fall into the trap of thinking it is.
MSPs also tend to price too quickly. When we’re figuring out costs, we try to throw out a number based on the solutions they need. Often, you’re thinking in advance about what they need based on past experiences with other customers. However, when it comes to pricing, we need to not only think about the products and services they’ll need, but also about what resources we need to support those products and services—especially since the cost of resources like techs’ salaries are constantly going up.
Every company is different, and we need to treat it as such. For onboarding purposes, support might be heavy the first 90 days, but after that I think you can get an accurate feel for how much support you’ll need to provide this particular client. Adjust your pricing accordingly.
What MSPs need to move toward in 2017
I think MSPs should move towards a more consultative approach. As MSPs we’ve done a poor job of creating value around consulting services for our clients. We sell them on a fixed monthly cost, anti-virus, and all the other stuff that goes along with it. But, the truth is no one cares about any of that as long as they’re still functional and can operate from a business standpoint. You need to remember that the reason why they hired you wasn’t so you could take stuff off their plate. They’re assuming you’ll do those things. At the end of the day, businesses want to run more efficiently, and in most cases they are willing to pay for someone to help make that happen. As managed service providers we need to go in prepared to put value on our time as experts at delivering that service. I think that is where MSPs really need to focus in 2017.
As 2017 rapidly approaches, examining your pricing strategy and following Chris’ advice can help you eliminate pricing problems and make sure you’re pricing appropriately in the coming year. Take the time to really evaluate your current approach, make sure it’s still a good fit for you and your customers, adjust accordingly, and start 2017 off right.
Ask an MSP Expert is a weekly advice column answering common questions from MSPs and IT service providers. It covers topics ranging from pricing and selling to marketing and communications—and everything in between.