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guide to services pricing

For managed service providers (MSPs), it’s obvious that pricing is important. Prospects will generally only pay the going market rate, typically driven by your competition’s offering. As such, you must be careful in how you price your service offerings.

For example, you may offer the most reliable services on the market by employing the best hardware, networking, and security solutions available. However, there is a base cost to you. To make a profit, (and therefore continue to be viable), a margin will have to be charged on top of your base price.

If the total cost of your service is higher than your local competition who are offering ‘good enough’ performance and security, it is very likely that clients will decide to go with the lower priced service provider.

It may be tempting to lower the quality of your service to remain competitive with the rest of the market by using cheaper hardware, less system redundancy, and basic security. However, this can be counterproductive, as you are just another MSP with no market differentiation. The MSP market is already full of JAM (Just Another MSP), and you must differentiate from the pack to showcase your value.

Three tips for pricing

Being creative can go a long way when it comes to service packaging and pricing. Here are a few tips to ensure your competitive edge is not compromised due to other MSPs.

  • Creating a competitive service package at the base level can help counter pricing concerns. The base package may include lower performance hardware, maybe repurposing a previous generation of your platform for sustainability.
  • A shared platform – You can place more customers into shared platforms. This may impact performance; however, it is the price they are paying for.
  • Make security your differentiator – Security is top priority for many businesses. If you have a great security offering, use this as your main differentiator. Ensure your advanced capabilities are prominently positioned in your messaging, and your published pricing includes all your offerings.

By packaging your base service to compete with MSPs who are looking to acquire new clients based on price, you can then offer your high-performance service as a value-add option which can be sold to prospects who require the advanced options, as well as create upsell opportunities for existing customers who find that they need the extra performance.

Different approaches for different scenarios

Different approaches can help you reach more prospects. For instance, leveraging ‘extras’ in your offerings. You can price the base service relatively higher than market price but use the value-added service as an appealing incentive to compete.

Take collaboration services with email and voice for example. You can add in cloud-based storage for documents at a discounted price to seal the deal. By including file sync and storage as the value-added service, you are now beginning to offer a full information collaboration service that is more useful for your customers.

This does not mean to offer the added service at a low profit or at a loss: it should be used as a sweetener that is available for a few months only (generally 3 months to fit in with a customer’s financial quarters). Once that period is up, revert the service to full price, or at a lowered discount than originally offered.

An added advantage here is you are creating ‘stickiness’; the more services they accept from you, the harder it is for them to leave. Not that this can be taken for granted, nor should it be abused. The customer still needs to know they are getting a great service from you and that you are working with them to meet their best interests. As such, taking the same example above, if the customer starts to use the information collaboration services, then you may be able to upsell them to a full workflow package, with added security offerings around data leak prevention (DLP) and digital rights management (DRM).

Another economical approach is to offer something that has minimal incremental cost to you. Once a customer accepts a service from you, then it becomes easier to offer them a second service. For you, the additional overheads of extra support over what you already offer them should be relatively low; for the customers, avoiding the additional cost can be seen as a strong value.

The ‘do not buy this’ approach is the standard approach where you share multiple options and highlight a ‘most popular’ offering. You can find this approach used on many websites where there are three or four different options available to a software subscription. The idea is to offer the base service at a low price, but the fine print will describe the offer as unfavorable. However, the price may attract prospects to you. The higher priced, ‘most popular’ offer is what you want the prospect to subscribe to, probably with services they didn’t realize they needed. The higher price will be justified by the value you include in the messaging.

Pricing your services is a science and an art. It is important to strike a balance between the alternative approaches to come to the right price. Additionally, for MSPs who deliver excellent services, ensuring the adoption of their offerings can be achieved by utilizing the right packaging strategies.

Photo: Philip Steury Photography / 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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