For any MSP, developing a proper pricing strategy is critical to drive profits and be successful in business. As an MSP, you might be offering the best service in the world, but if you don’t apply the right pricing models, your business will fail. No wonder, the right pricing strategy can make the difference between success and failure in MSP business. MSPs can either attract customers and increase their business or deter customers and lose money depending on the pricing model they choose.
Every business wants to maximize their profitability and MSPs are no different. As an MSP, your purpose is to get the margins you need on the services you deliver. This is possible only when you invest time in designing an appropriate pricing model so that you don’t lose money on the table by charging too less.
Before you develop your pricing model, understand and analyze the costs of running your MSP business. Once it is done, carefully assess your customer needs. Take into account the size of the business organization, the number of users, servers and the amount of data needed to be stored. Create a service level agreement (SLA) with your customer, clearly specifying what needs to be covered in the contract. After considering all these factors, decide what pricing strategy will fit your business and help to grow margins.
Following are some of the common pricing models that MSPs follow:
Per-Device Pricing Model
In this type of pricing model, the customer is charged a flat fee per month for every device supported by an MSP. It does not consider the number of users utilizing the device while charging the fee. Per-device pricing model is straightforward and easy to implement for MSPs. Irrespective of the type of device – be it server, desktop, laptop or tablet – the customer is billed per-device on a monthly basis. For instance, MSPs under this pricing model might charge a flat fee of $120-420 per server, $50-100 per desktop, $20-60 per Network Printer and $30-70 per firewall.
Per-device pricing model is flexible as devices can be easily added or removed according to customer needs. Since this pricing model is fairly simple, approximately 40-45% MSPs have incorporated it into their business. However, one drawback of this pricing model is that client cost of providing IT support rises considerably as the number of devices increase.
Per-User Pricing Model
In this pricing model, MSPs charge a specified price per month per user, irrespective of the devices they are using. The customer is charged according to the number of users utilizing MSP services. A customer has to pay more as user count increases, although the level of services provided by MSPs remain the same. Per-user pricing model does not take into account what MSPs will maintain. No wonder, this pricing strategy is beneficial for customers who are using significantly high number of devices. Even companies that require 24/7 user support, find this pricing model very economical.
Monitoring-Only Pricing Model
In this pricing model, MSPs only monitor certain aspects of the customer’s IT infrastructure. Usually MSPs offer 24/7 Network/server Monitoring Services remotely and warn customers of any issues that occur. The customer’s in-house team takes care of fixing issues. However, MSPs may provide troubleshooting services at an additional cost. Customers who are on a tight budget prefer this inexpensive pricing model.
A La Carte Pricing Model
In this pricing model, customers have the option to select the support and services that an MSP is offering. In simple words, customers pay only for what they have chosen. So instead of using the entire service package, customers can pick the services that they want. From the customer’s perspective, the ‘a la carte’ pricing model offers maximum flexibility and customization. Thus, customers can build their own service plan depending upon their needs.
From the MSP’s perspective, allowing customers to choose their own service package means preparing tailored service agreements (SLAs), which can be tedious and time consuming. Also, since ‘a la carte’ pricing model provides high level of customization, it can be difficult to accurately calculate the final price to charge the customer’s account. This pricing model complicates the billing for customers and moreover MSPs are unable to maintain healthy profit margins.
Tiered Pricing Model
The basic premise of tiered pricing is to offer services at different price points. MSPs offers a range of package services, each one priced at a different rate. These service packages might be categorized using levels like Bronze, Silver, Gold, and Platinum. The Bronze level might be the basic or the cheapest tiered package while other levels can be more expensive. Each tier option comes with its own set of services and support. Customers will choose a tier option that best meet their needs and budget parameters. However, one drawback of this pricing model is that service packages may not fit into the needs of every client. Also, offering too many tier options can confuse the customers, thereby delaying the sales process.
In value-based pricing, the focus is on offering value and complete solutions to customers. In this approach, MSPs do not provide multiple tier options, instead provide complete range of services to every customer. Under this model, MSPs handle everything, hence are referred to as customer’s outsourced IT department. This model is essentially a one-size-fits-all approach that provides comprehensive services and support to all customers.
MSPs using value-based approach charge on the value their services bring to a customer and usually a flat fee is quoted per month for all the support rendered. Since MSPs are selling their ‘full set of services’ under this model, they need to have deep expertise in delivering complete solution packages. This will help them to earn trust of their customers. When the customers see the benefit, they would be happy to pay more for value-based pricing services.