Q: As an IT service provider, my business has always offered a handful of services to our small and medium-sized business customers, and we’ve done well. But I know we can be even more successful. Specifically, we know that offering cloud backup as part of our services allows us to earn considerably more revenue. So, I want to make sure we optimize how we’re selling cloud backup to our clients. What are the best options for pricing? We want to make sure our pricing model has good margins but is also realistic for our customers.
You’ve come to the right place. We agree that having cloud backup as a part of your managed services offering provides your MSP business with an opportunity for significant growth. In fact, we know it does. Not only does backing up your client’s data to the cloud ensure that their information is protected from the threat of data loss, but it also earns you more consistent revenue.
Last year, one of our MSP partners brought in about 20 percent of their gross revenue from reselling Intronis’ cloud backup. There are a few ways you can price cloud backup that can help transform your business in a similar way. Here are three options for pricing models:
Price per device
Pricing per device is a popular method used by MSPs and VARs reselling cloud backup. The advantage to this model is that it allows MSPs to keep track of how many devices they are backing up with each customer. From there, MSPs are able to stay organized, be more consistent in their billing, and predict more realistic revenue from their customers.
The chart below will give you an idea of some typical pricing for this model. For the sample law firm, you can see possible prices for each type of device. In this example, the MSP stands to earn $550 of recurring monthly revenue. Add that total up across all your customers, and you’ll see the considerable revenue potential.
The disadvantage to using this model is that it can be difficult to sustain. There’s a steady increase in the average number of devices in the workplace, so it can be difficult for a growing business to accurately predict the number of devices they need protected. This in turn leads to changes in billing that bring up questions from your customers.
If you’re managing a few small clients, this model might work well for you. But, for those MSPs managing larger, more dynamic customers, there’s a possibility that you will run into some challenging situations.
For a fixed price model, a flat monthly rate is customized to meet the needs of each individual customer. This means your sales team is able to meet objections and negotiate a price and level of service that works for both your business and the small business customer.
This changes the conversation with prospects, putting the focus on the added value your services bring them rather than the individual price of each service. And customers will appreciate the predictable, flat bill each month. A fixed price model provides predictable revenue and easier budgeting because you’ll know in advance what you can expect to earn from your customers.
Some MSPs avoid this fixed price model because they think they’ll spend more time managing the client’s computers, networks, and servers than initially predicted. By offering an upfront assessment of each client, though, MSPs can accurately predict their specific needs. From there, MSPs can customize the margins based on each specific SMB’s needs and earn consistent reseller revenue.
One drawback to customizing individual fixed price plans per client is that it could create a more complicated billing process for you. When the end of the month approaches and you’re preparing to invoice your customers, you will have to factor in all the individualized prices rather than having one set price across the board.
With the third approach, you can simplify billing by offering only two or three prices to all of your customers. MSPs can do this by determining a few different types of bundles that include certain services, and SMBs can choose the package that best suits their needs. If they need to add more services to their contract down the road, they can easily scale up to the next tier. This approach also provides an easy way to fold in cloud backup with the rest of your current service offering.
When selling service tiers most MSPs begin with a two-tiered approach, offering a basic package and a premium package. If you find that your customers are looking for more of a middle ground, consider taking a three-tiered approach with gold, silver, and bronze bundles. Check out these sample service tiers for ideas of what to include in a two-tier or three-tier approach.
Now that you understand the three different pricing models, chose the one that makes the most sense for your business. From our perspective, we recommend taking advantage of the service tiers pricing model. It helps you meet each of your customer’s needs and earn consistent revenue, which works for both you and your small business customers. At the end of the day, that relationship matters more than anything else.
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.
Photo Credit: Chris Potter on Flickr. Used under CC 2.0 license.