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What Are The MSP Pricing Models That Works Best For Your Business?

Cyber security 04/17/2020 - 12:29 by Swami Nathan

Managed Service Providers (MSPs) often face the problem of adequately pricing their services. They aim to provide their customers with the best of services, but when it comes to competitively pricing such services, they hesitate for the fear of offsetting their customers.

It typically results in a period of low-profit margins, impeded growth and low-value service provision.

But how does an MSP provide its customers with high-value services, and yet make profits? The first step under the ‘break-fix’ business model is to switch away from hourly pricing. Then, switch on to subscription-based rates, unless you have already done so.

Before designing your pricing model, understand and evaluate the costs associated with running your MSP business. When done, determine the customer’s needs carefully. Consider the size of the business enterprise, the number of users, servers and the volume of data needed to be processed. Establish a Service Level Agreement (SLA) with your client, specifically stating what the contract will cover. Decide which pricing strategy best suits your company after considering all of these variables and help increase margins.

Pricing Models to be Considered

1. Per-Device Pricing Model

In this form of pricing model, for each system supported by an MSP the consumer is charged a flat fee per month. It does not consider the number of users using the app when paying a fee. The per-device pricing model is quick and easy for MSPs to incorporate. Regardless of the device form – whether it’s a server, desktop, laptop or tablet – the consumer is paid annually per unit. For instance, MSPs might charge a flat fee of $110-450 per server, $40-120 per laptop, $10-70 per Network Printer, and $20-80 per firewall, under this pricing model.

Pricing model per system is versatile, as devices can be easily added or removed based on customer needs. Since this pricing model is relatively basic, it has been integrated into their company by approximately 40-45 per cent MSPs. But, one downside to this pricing model, is that the expense to providing IT service to consumers increases considerably as the number of devices increases.

2. Monitoring-Only Pricing Model

This pricing model is also an affordable choice and offers a bare minimum approach to managed services. MSPs only track different aspects of the IT infrastructure for a client remotely. Clients are notified about issues, but support for solutions may require additional fees (or be the client’s responsibility). Monitoring service levels can differ from an in-house IT staff providing basic monitoring and warnings to specialised support and resolution of incidents.

3. Tiered Pricing Model

Some MSPs choose to offer tiered pricing as a way to keep this model offers simplified pricing but break up advanced services into optional offers. Most MSPs include services such as Remote Monitoring & Management (RMM), maintenance, and single offer support. External third parties may provide resources for backup, disaster recovery, archiving, and surveillance, available at an additional cost. The aim is to keep things easy-use “good, better, best” logical lines when designing your price ranges.

4. Value-based Pricing

The focus in value-based pricing is on offering customers value and complete solutions. MSPs do not provide multiple tier options in this approach, but instead provide a complete range of services for every customer. MSPs manage everything under this scheme and are thus referred to as the outsourced IT department for the consumer. This model is essentially a one-size-fits-all approach which provides all clients with comprehensive services and support.

MSPs that use value-based approach pay on the value their services offer to a customer and typically quote a flat rate every month for all the assistance they provide. Since MSPs offer their ‘complete range of services’ under this model, they need to have vast expertise in providing complete packages of solutions. This will help them win their customers trust. They will be able to pay more for value-based pricing services if the consumers see the benefit.

5. Per-User Pricing Model

In this model, the number of users on a network who need regulated IT services is calculated against the number of devices on the network. With companies who have staff use several apps, this pricing model can be more beneficial. 22% of MSPs are engaged solely in per-user pricing as of 2014.

Pricing per device is highly flexible for consumers, and easy to understand, which simplifies SLAs. This will adapt to account for different devices, and consumers pay depending on the number of users—all while servicing remains constant. If a company climbs from three to 300 workers, the standard of service will remain constant. Although there may be less flexibility on the MSP side to handle network complexities, per-user pricing is the way to go for clients who need to be connected 24/7 by multiple devices.

The first step in designing per-user pricing is to decide the “all-in-seat price,” which is the overall cost or responsibility of MSPs, in order to provide all the services to one customer. If that is established, a break-even price, benefit, and a bottom line price can be calculated.

There are a variety of core values that can be ranked in order to reach a final price for a prospective customer, which is critical in assessing a client’s burden on the resources of an MSP. Assessing the following offers a higher level of granularity when assessing per-user pricing for managed services:

  1. Technical complexity of a network
  2. Client computer literacy
  3. Age of devices/technology
  4. Ease of doing business (receptive to advice, willing to submit the best services offered by an MSP)

Through adding a score to these regions, valuations may be set for how they will impact overall distribution costs. Multiply the average score by the all-in-seat price, to achieve a final per-user price.

6. A La Carte Pricing Model

This pricing model provides versatility and differentiation that creates for each customer an optimal solution. Products and services are offered at a marked-up price to reach a profit margin for the MSPs.

Although this pricing model offers the ultimate in flexibility and customer-optimized bundles, there is a trade-off for that freedom; a la carte pricing is the toughest to sell and the toughest to maintain profitability. Customers may get inundated with a multitude of options they may or may not fully understand, resulting in poorly crafted packages that may or may not meet the needs of the SMB company. MSPs using this pricing model have indicated that it has also contributed to time consuming contract negotiations with their prospective customers.

7. All-You-Can-Eat Pricing

Provides the most robust service model which provides remote support, on-site support, which laboratory or bench time – all for a monthly flat fee. Typically, this model is the most competitive for MSPs, and also allows a company to budget annual IT services.

How should You determine Price?

At a high level, pricing is based on three things:

  1. The operating prices;
  2. The target profit margin and;
  3. The impact of the existing market.

The cost of the services is dictated by the technology and the individuals required to provide the service.

Start with what your RMM, email protection, antivirus, or backup vendor would charge you for their services – and this may decrease in total cost as you increase the number of customers using the services of a given vendor.

You would also need to factor in the staffing expenses (both software and back-office), keeping in mind that no one is used 100 percent. Add these costs and find out a cost that aligns with how you are going to price services – per hour, per customer, per unit, etc.

With calculated cost, note that you can only charge what the consumer is going to bear. Identify what the competitor is paying, keeping in mind that the vertical service has been serviced, and the services have provided all ties to market level. Listen to customer feedback; if you keep hearing your rates are too high, they are.

Conclusion

There’s a lot more to explore about pricing. So, this article provides a good description of some of the places you need to think about when you’re working for proper pricing. The delivery of services using a pricing model that provides value to the customer would help to alleviate their fears and start building the relationship. And a model of pricing with solid profit margins is one that will carry you to success.

And find out which MSP pricing model matches you best, take the time and work out exactly what your customers need and what they can deliver. Do not give service to your customers 24/7 unless you have experts trained and ready to work on-call at all hours of the day or night. If your resources allow you to offer the best-in-class service, then go for it — and schedule it accordingly, and make the price.

And get your tariff correct before you do something.

The only way to protect what you’ve worked hard to build is to be vigilant when it comes to cybersecurity. If you’d like to know more about how your business can benefit from managed services, just give us a call, we are here to help.

While MSP pricing models vary from one provider to the next, here are 7 potential paths you can take. |Is per user, per device or some other approach best?