Gary Pica: 3 best practice strategies for MSP pricing models

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Determining your managed service provider pricing can feel like “damned if you do, damned if you don’t.” Charge too much, and you’re unable to stay competitive. Charge too little, and you undercut your business, leaving you without the revenue you need to grow.

But you can create an MSP pricing model that allows you to charge more for your services while growing your client base. To create effective MSP pricing, use the following strategies to increase revenue, develop client loyalty, and eliminate price as an objection.

1. Sell the Cake

When you walk into a bakery and ask for a chocolate cake, you wouldn’t expect the baker to hand you a basket of ingredients. Would it be less expensive? Yes. Could you use them to make your own cake? Perhaps. But when you go to the baker, you expect to pay for more than the ingredients. You expect that you’ll pay for the baker’s unique recipe, along with their experience and expertise.

You need to look at your MSP pricing the same way. When you set your price, you aren’t simply pricing IT services, you’re also factoring in the unique value you provide to your clients and the expertise of your team.

2. Know What to Charge

One of the biggest problems MSPs encounter when setting prices is that they don’t know how to gauge their costs. In the past, you probably used an hourly model: You determined how much it cost you, on an hourly basis, to provide services and charged the client accordingly.

As the industry and the services provided have evolved, though, it’s become harder to account for all the variables involved in delivering service. Instead, we recommend using a seat price model, which uses monthly recurring revenue as the basis for setting a flat monthly price for your services.

Charging a monthly rate positions you as a partner in your clients’ businesses. Because clients are paying a flat rate for your services, they’re more likely to take full advantage of those services, and they’ll see how much the services can benefit their business. This strengthens your position when the time comes to renegotiate your seat price.

And remember — this isn’t math class, so don’t show your work. Your clients don’t need to know how you determine your prices. If the services you offer provide value, they won’t care.

3. Keep Levels to a Minimum

There’s a joke I like to tell when someone asks me about MSP pricing levels. An MSP salesperson talks to a potential client and says: “Your best choice is the platinum program. It’s got all the features and benefits you need, and it will make technology more of a tool and improve your productivity and compliance.” Then, just as he gives the price to the client, he says, “But if that’s too much, I can sell you my crappy silver program.”

The more levels you offer, the more your clients will see you focusing on the price, rather than the value, of the services you offer. And they’re likely to go for the least expensive option. Instead, you should offer as few levels as possible. Most businesses tend to think in terms of three levels, such as like bronze/silver/gold, but if you can make do with fewer, go for it.

Keeping levels to a minimum provides other benefits. Your support team won’t have to spend time figuring out which client is entitled to specific services, they won’t have to say no to clients, and your clients won’t feel cheated out of the services they don’t get. When your team can deliver the same great level of service across the board, everyone stays happy.

Looking for more ways to improve your packaging and MSP pricing strategies? Watch our webinar MSP Owner’s Guide to Packaging and Pricing to learn more of our proven strategies for packaging and pricing your IT service offerings.

Photo: Mcimage/Shutterstock.com