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Customers like known costs when it comes to MSP contracts. They tend to dislike the use of variables such as resource or time charges, preferring either per user or per organization charging instead. While this can work for the MSP as well, it has become a little more difficult over the past couple of years.

Many organizations have moved to hybrid models of working, with more employees working from home. This means that more support may be required, particularly at first level. Energy prices have become far less predictable, with most regions suffering from a considerable price hike. For MSPs operating their own environment (owning a datacenter and hardware), this has been close to catastrophic. Even for those sitting on top of a public cloud such as AWS or Azure, many cloud owners may have to increase their customer costs to cover the rising energy costs.

Be flexible in the face of unpredictability

Again, the large public cloud providers do tend to operate on resource usage charging, making the ongoing underlying cost for those sitting on top of such a platform difficult to predict. Few MSPs are big enough to be able to negotiate special pricing with the likes of AWS, Microsoft Azure, or Google Cloud Platform, and potential changes to costs here must be borne in mind when creating an MSP’s own charges.

As such, long-term, fixed price subscriptions are looking less viable than they have in the past, when underlying costs tended to be more stable. This does not, however, mean that a change to resource-based costs for how customers are charged is warranted. It just means that subscriptions need to be run on a flexible basis – one that creates a stable customer base.

Resist profiteering

For MSPs, this means ensuring that all contracts have review points built into them. At such points, account managers must sit down with the customer and go through why any cost increases are necessary – and even if costs can be reduced in any way. The latter may be due to reports showing that a customer has fewer users than they are paying for or that the MSP’s costs have reduced. MSPs must resist the temptation to follow the route that some telecoms companies are taking – rate of inflation plus an extra percentage. Most organizations are struggling to maintain revenues that keep pace with inflation, and any extra percentage charged is (rightfully) seen as profiteering on the part of the supplier.

During such reviews, the account manager should also look to see if any loyalty bonuses can be applied to the customer. After a period of time, the acquisition cost of the customer has been covered and it may be possible to pass some benefit back to the customer. After all, if a customer leaves, then there will be a new acquisition cost that will have to be applied to bring in a new customer to replace them. It is well worth doing whatever can be done to keep a customer on board.

Cross- and up-selling is also an area where many MSPs can make a customer more ‘sticky’. Incentives can be offered, either along the lines of free usage of a service for a period of time, cut price usage for a longer period of time, or discounted subscriptions based on much longer periods of time (e.g. years, rather than months).

Use due diligence to attract, earn and keep the business

This then leaves the sticky problem of attracting customers in the first place. Special deals or incentives do have their part to play – but it is then down to the MSP to show why the customer should stick with the MSP going forward.

Free incentives are unlikely to lead to enterprise deals as they are more likely to be used on an individual basis by employees or those within the IT department just to try something out. Discounts still require sign off by the prospect – whether this be directly from the IT budget, a line of business budget, or as an enterprise investment. This means that a deeper level of due diligence will have to be carried out by the prospect and requires input from pre-sales to ensure that all information required to make an informed decision is available.

Word of mouth can be very powerful – and small incentives for existing customers to provide honest positive feedback can be useful. Such feedback can be used on an MSP’s website and in its marketing material. Make sure that there are several satisfied customers available for prospects to approach and talk to, so they can gain more real-life information if needed.

Overall, the idea is to come up with contracts that enable an MSP to survive and thrive in the future while providing customers with a degree of certainty as to what their charges are going to be for fixed periods of time. Such a win-win approach requires considerable input from the MSP in account management – but this can be used to identify possible additional cross- and up-sales while ensuring that the customer is happy with the services and support that they have been receiving.

Photo: Zoomik / Shutterstock

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Clive Longbottom

Posted by Clive Longbottom

Clive Longbottom is a UK-based independent commentator on the impact of technology on organizations and was a co-founder and service director at Quocirca. He has also been an ITC industry analyst for more than 20 years.

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