Q: I’m currently selling managed services using a per-gigabyte model, and at a conference I went to recently I heard other MSPs talking about how the fixed pricing model works well for their business. It sounds interesting, but I want to learn more about it before I make the change. What are the advantages of using a fixed price model to sell data protection solutions?
We recognize that the per-gig price of data storage is falling at a rapid rate, and this presents a challenge for MSPs, making it more difficult to find a price that is both agreeable to your customers and profitable for your business. But, there’s a solution —the fixed-price model.
We agree with your peers, pricing your managed services using a fixed-price model is the best option. While there are a number of other pricing models available to you—including per-gigabyte and per-device approaches—the fixed-pricing model will provide your MSP business with a solution to the storage price challenge and introduce new growth opportunities for your business. Specifically, fixed pricing will enable your MSP business to bring in more recurring revenue and keep your existing customers satisfied.
Here are the top three advantages to offering fixed-price data protection services:
1. Better positioned to win against the competition
You’ve probably noticed that it’s difficult to justify the cost of data storage to your customers using the per-gigabyte model. With this model, small business customers are inclined to compare the price of your offering to the price of consumer-grade cloud storage providers. It’s not a fair comparison, but it’s one that’s easy for customers to make.
With the fixed price model, you don’t need to worry as much about the competition because you’re in a better position to win with a value-added managed services package. It also means you won’t have to cut your prices drastically to meet the demands of prospects and win their business. The customer is more likely to agree to a price under this model, knowing that the cost won’t rise over time as their data storage needs grow.
2. Relief from storage overage conversations
With your current per-gigabyte model, you have to react to changes in your customers’ data storage needs. This leads to awkward conversations about unforseen overage charges and increasing the amount they pay for storage to support their growth.
Overages and unpredictable monthly bills can leave your small business customers feeling dissatisfied and unsettled, and that can ultimately mean losing their business to a competitor. Moreover, in an attempt to avoid awkward overage conversations, you’re forced to micro-manage their storage allotment. With the fixed price model, you’ll free up time that you can spend focusing on bringing in more recurring revenue.
To avoid inconsistent billing and strain on your relationships with your customers, charge them a flat bill per month for their data protection needs. This will allow you to guarantee price certainty for your customers and ensure that you never have to have an awkward conversation about price again. Moving to fixed pricing will also help you and your customers better forecast long-term costs and more easily manage budget expectations.
3. Control margins to bring in more recurring revenue
Another added benefit of the fixed-price model is the ability to charge more profitable margins for your data protection services. MSPs serving up this model are able to change the conversation from the amount of storage a customer needs to the value of the IT services that they provide. With fixed-pricing, you can include additional services like remote monitoring and on-site support as added value in your data protection service agreements.
With the per-gigabyte pricing model, you’re unable to accurately predict revenue over time as customers’ storage needs fluctuate. If you charge a fixed-price each month, you can more easily plan profitable margins because you’ll know exactly how much you’re earning in billings each month. With this model, you have more flexibility over margins to bring in more monthly recurring revenue.
Along with these three advantages to the fixed price model, you’ll gain peace of mind knowing that all of your customer’s data is protected. To get started with the fixed-price model, you’ll need to decide how to package and re-sell data protection along with your other IT services. Once you’ve determined which value-added services to include in your fixed price, you’ll be able to bring in more recurring revenue.
Don’t just take our word for it; many MSPs are seeing the value in this model. Intronis MSP Partner, Andy Harper of Gaeltek, LLC explains why a fixed-price model works for his business, “I no longer have to think about which data sources should be backed up and which ones shouldn’t. That creates a peace of mind not just for my customers, but for MSPs like me who my customers trust to keep their businesses running smoothly.”
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.