To improve their MSPs profitability, most firm leaders focus either on increasing sales volume or reducing fixed costs. Sadly, a one percent of sales volume increase adds only 3.2 percent, and a one percent fixed cost reduction adds only 2.3 percent to the bottom line. However, a one percent price increase adds 11.7 percent to the bottom line. But increasing price directly may not be practical, so in this article, we will take a look at an indirect price-increasing approach that can lead to the same profitability improvements as a direct price increase. Your pricing silver lining in the storm clouds of price resistance is that you offer three options in your proposals at three price points and three service levels.
If you offer take-it-or-leave-it type proposals with one choice, you have 50 percent probability to lose the gig. But by offering three options, the probability of losing the gig drops down to 25 percent. While logic says, “have more options and you have less chance of losing”, psychology overrules this logic. Having more than three options can backfire, losing you the gig.
Service options MSPs can offer
By offering fixed priced MSP services, you can base your service options on achieving specific objectives. Let’s play with the example that it’s raining. I deliberately use a non-MSP example, so you can unleash your imagination and creativity when designing your own service options.
Let’s say your desired solution is getting dried up and no longer rained on. Then, an expert shows up and tells you about a range of solutions that you can choose from. One important point here… Do you know why airlines board passengers through the first-class section? Because diminishing value towards lower-priced options hit home harder than increasing value towards higher-priced options.
Option #1 – Premium approach (priced at $5X)
The required transaction (getting and keeping you dry) and major element of transformation (mindset change).
- A spa treatment with hot bath and massage.
- A cup of hot tea, coffee, or chocolate, reinforced with a shot of vodka.
- A phone call to notify your family.
- Getting your wet clothes washed, dried, and pressed.
- Comprehensive medical check-up to make sure you haven’t caught a cold.
- Booking a nice gourmet dinner in a fancy restaurant.
- Limo service to take you to restaurant and home from the restaurant. So, you get and stay dry, your health is checked and get home happy, healthy, and well-fed.
Option #2 – Standard approach (priced at $2.2X)
Primarily transaction and minor transformation.
- A bus shelter.
- A cup of hot tea, coffee, or chocolate.
- A hair drier.
- A set of dry clothing.
- A taxi to get you home.
You get and stay dry, but you must keep an eye on your health in case you’ve caught a cold.
Option #3 – Budget approach (priced at $1X)
Pure transaction.
- An umbrella or a poncho.
- A bus ticket to get you home.
You’re still drenched but don’t get any wetter thanks to the umbrella or the poncho. And you also have transportation to get home. But next morning, you need to visit your doctor in case you’ve caught a cold. You’re really ticked off about the lost time at work over the next few days.
Decision-making criteria
Buyers evaluate options differently. Let’s start with the basic criteria.
- Urgency of getting the work done. It’s really about speed. How quickly does the client want to return to normal and then to an improved situation? How quickly does she want her before-rain dry condition restored?
- Importance of doing the work right. How many failures can the client handle? How many times can he do it over and over without getting it right? How much more rain can he tolerate?
- The buyer’s competitive condition. How competitive is the buyer’s market? In a highly competitive industry, even small changes can make a big difference.
- Risk client is willing to take. How much risk can the client handle? Can he handle the risk of catching pneumonia? Is it imperative to eliminate or at least minimise the chances of catching pneumonia?
- Price client is willing pay. How much is the client willing to invest in his own future state to minimise the risk and maximise the urgency of getting it done and the importance of getting it right?
Value-focused quality clients have price at the very bottom of the priority list. Price-focused buyers have it on the very top.
Focus on outcomes
Yes, by offering options in your proposals, you have a higher acceptance rate. But putting together sensible options is not a simple job. You must demonstrate the value differences between options, so the price differences are perceived as proportional to the value differences. And let’s not forget about the differences in effort. Sometimes lower effort results in higher value.
As an MSP consultant, one of your tasks is to explain to your buyers that the effort you exert has nothing to do with the value they derive from your services. The real client value of your services can’t be correlated to the time units your people spend on working your clients’ systems. Yes, use options in your proposals but stay clear from committing to specific number of hours of labour. Focus on expected outcomes. And this is how you can increase your project prices without increasing your prices.
Photo: MR Gao / Shutterstock
Great article. Thanks for posting this.