It’s the question I hear all the time: “How much should I charge for managed services?” The obvious answer (as my dad often tells me): As much as your customers are willing to pay. Still, that’s over simplifying matters. I realize MSPs use a range of metrics and formulas to set pricing. But perhaps it’s time to go back to basics.
During a sit-down meeting with LegalCloud, an MSP that serves the legal vertical, CEO Mark Hadfield told me his company charges most customers a fix per-employee monthly fee. In separate conversations with Kaseya Senior VP Dan Shapero, I’ve heard about the 3X100 rule: MSPs should try to target 100-seat engagements within 100 miles and charge about US$100 per seat for a range of services.
Pricing models will surely vary from MSP to MSP — based on the verticals and geographies you serve, and the services you deliver.
Back to Basics
As I considered the pricing quandary a bit further, I stumbled onto this article from Entrepreneur magazine. In it, author Joseph Benoit offers six detailed pricing tips. Not all of them apply to MSPs but many of the tips can at least help you to get your arms around a pricing strategy.
Benoit tells readers to (1) check out the local competition’s prices (2) join local associations to keep your finger on the pulse of pricing and local economic issues (3) survey your customers to learn how they feel about the value of your products and services (4) pay attention to local supply and demand (are rival MSPs moving in or are they imploding?) (5) consider new market segments that will help you boost prices and (6) calculate your costs.
Again, basic stuff. But how many MSPs actually sit down and go through that process? And why — oh why — is calculating your cost the final tip? Shouldn’t costs be one of your first considerations?
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Tags: Entrepreneur | Kaseya | LegalCloud | managed services pricing | MSP pricing
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This is all fine if the solution provider is already at the high end of the MSP maturity spectrum or model. If you are currently a time and materials or block hours shop then even trying to figure out what you should charge for an managed service program is crazy. You need to figure out your business goals and then have a clear migration plan to get there. Becoming an MSP is not about what you should charge but rather how you deliver the service/value to your customer and it’s making this transition as seemless as possible for the solution provider, their employees, and customers.
Once the solution provider starts to improve and clearly define and document their service delivery process then price becomes, I believe Joe quoted ” Charge as much as you can” because there is now so much value built into the program. This process does not happen over night no matter what magic pill you may have. There is however clearly defined methods to make this tranisition.
PS I would never walk into a clients site with a price list for managed services… Never limit yourself – have an open discussion to determine your customers needs and in doing so you will be able to determine what service is needed and what price to deliver it for.
Awesome topic Joe, “How much should I charge?” is the single most commonly asked question I receive when talking to MSP’s about building their managed service business here at Quest Software – Network Management Division (PacketTrap Networks). I also get “What’s everyone else charging?” a fair bit as well. In the end, we find it all comes down to how much labor an MSP is using as well as how much software is being bundled into the service offering. For MSP’s that have been delivering Managed Services and tracking their service metrics in a PSA … it’s pretty simple. For those just getting into the game, they need to be fully aware of these details in order to ensure their not hemorrhaging labor or software margin on the services their selling.
All too often folks look at what other MSP’s are charging at the device level (i.e.: per server or desktop) without fully understanding what services those other MSP’s are providing for those prices. Fully understanding all of these components doesn’t take long & in the end, that knowledge will also help you avoid the Managed Service offering commoditization trap.
Mike Byrne
Director of Partner MGMT
Quest Software – Network Management Division
Sean: You’re right. Price sheets can limit your revenue opportunity before you even start the conversation…
Mike: Thanks for the insights. Please keep us posted as Quest moves forward with PacketTrap. I’d welcome an update once Quest is ready.
-jp
Its not that I am right Joe but thanks. It is more important to me to try and help solution providers make this transition properly whether they use LPI or not. There is no pill and it and takes planning and proper execution on that plan. The great news is that once you get to where you want to go, you better have another plan in place as technology is always changing.
I sat in on a conference just last week and I am still hearing; we are moving to managed services but how do I do it? And like every other conference somebody always fires out – “put a fixed fee per month pricing model in place, take it to your customers, and show them the savings”. Not the Value? (which may cost more by the way in the short-term). Next thing out is always “just fire the ones that do not buy-in, that is what we did” but of course they forget to mention the struggles of employees, customers, and the business.
There is a clear and proven model to make the tranisition to an MSP and please do not let anybody tell you that you are or can become an MSP because you sell anti spam priced per seat or have an RMM tool or PSA system or on-line back up. These are just parts of what it takes to mature from an sp to an MSP. All great parts and you need them to stay competitive in todayst market place but they are just parts.
Have a great day everybody and I hope I added a little value to this conversation?
Sean Sweeney
Director Partner Community & Resources
Level Platforms
Sean: I always worry when MSPs try to suggest a fix fee per month pricing model will save customers money. You’re right: MSPs should focus on value, not price. In many cases, customers are going to wind up paying more. But you know what: The best customers are willing to pay that premium for peace of mind.
Oh, and yes you added value to the conversation. Thanks.
-jp
Over the past 5-6 yrs I’ve seen pretty much three major ways MSP’s charge for their services. One is monitoring for a simple fee with the billable hour still being in place for any support. Two, flat rate per device (server/desktop) somemtimes including the routers and switches with server pricing. Third, price per person, great if you’ve got a business own that really focuses on making their staff as efficient as possible. The problem that I see with two and three is pretty simple, long sales cycle, low penetration, and unorganized service offering that leaves the Solution Provider making low margin and working their butt off to try and get things up to par.
Best thing any Solutions Provider company can do that is on a break/fix, start simple, with a defined offering that you know will get more yes’s then no’s.
Set price for monitoring, alerting, security and reporting, which is a great way to get started for a number of reasons. First, it helps with your close ratio, which turns into more customers on agreement over simple break/fix. Second, you are not pulling a 180 with your services and this means better support for your customers because you aren’t changing your offering so dramatically that you spend the next yr trying to figure out what to do. Third, you can spend the time getting the customers network up to par, this allows you the time and resources to work with the customer, build more trust, and in the end set up your services accordingly. The only real downside that so many solution providers think out of the gate is the flat fee for services, the big paycheck, which to me is way off. With a couple of the products out there you can make easily 50-75% margin on the software, and that isn’t including additional billable hours, project work or saved time for unbillable hours.
Great thing is you then migrate your customer up the chain of service agreements as you go and it always give you the ability to sit down with the customer and find ways to increase sales for your business. Now you’re working on your business more so than working in it.
Just my 2 cents worth.
Ty
Ty: Thanks for sharing some real world experiences. But tell is more: Reminder readers where you’re from and whom you represent. Thanks.
-jp
My biggest potential for growth right now (in my own MSP life-cycle, as well as my local market’s) is the hybrid MSP/Break-Fix agreement. (I also service smaller SMBs in my market).
Regular flat-rate MSP services are pretty easy to price, in my opinion, but I’m struggling with the hybrid model.
Do you discount the hourly support rate if they buy a monitoring only, or monitoring and maintence package?
What do you charge for your RMM only? Do you make money off of this, or just try to get as many seats on your system with the assumption that you will capture the dollars when work comes up?
One MSP that I spoke with said that they make a decent amount of money charging for monitoring/RMM only. They sell it as being a way to reduce the support hours/dollars that the client will need to spend on break/fix.
I would love to hear any strategies or thoughts that you have on the subject! I need to come up with something fast as I have several opportunites with new clients who are interested in this, and old non-transitioned ones who I would like to at least get remote visibility into the network!
Thanks in advace!
Dave
Great topic, Joe.
Pricing, and company numbers in general, is 90+ percent of the time the first thing I work on with my coaching clients. Even if it’s not the #1 issue on their minds. It’s that important to understand and have a handle on. And it’s also usually miscalculated.
With that said, you put together a nice list from Mr. Benoit, but you are 100% right that his point #6 should absolutely be point #1.
Looking at outside party pricing is not useful until you know your own numbers including break even points, understanding profit margins, and of course an excellent handle on the time it takes to perform your services.
All of these are key to properly pricing break-fix, project and especially managed flat fee services. And if you are using, or plan on using, sales people working on commission, a healthy profit margin is a must.
Once all of this is put together you know what you can and can’t discount and you know how low you can price things. Now you are in the position to see what’s going on in your backyard while understanding that you may not be comparing apples to apples with competitors pricing due too many factors including value and internal costs.
Bottom line… your internal numbers mean a whole lot more to the equations than anything else.
George: I wonder how many MSPs and VARs have a handle on their internal numbers?
-jp
Dave,
Hope this helps?
The first piece of the pie is using a business assement tool (even with an existing customer) as it gives you the ability to understand their business needs and IT undertsnding (can be done with a series of questions and a napkin if your vendor does not provide ypu with this type of tool). From ths assessment you can position your offering starting with your highest full service package and work your way backif need be(never start with basic monitoring).
Having said this a basic package would be:
24x7x365 monitoring alerting of entire network
security monitoring
preventative maintenance ( we suggest two autimated scripted jobs – example disc defrag & power off desktops after hours)
Automated monthly reporting
QBR
MSRP $199 but you can adjust up or down depending on your fixed costs, size of the enviorment, ect… Remember all of the work is done for you automatically through your RMM tool. Just because an alert comes across from your RMM tool does not mean you are responding to it, unless you choose too.
This method allows you to quickly show value…
Rare but true story:
The average solution provider adds 5-7 new customers a year. I had one partner over the course of two years add 300 customers with this method and now they are a master MSP and 99% of their customers are on the full monty package.
Their customers were amazed with the service as they were proactively solving problems. (4 person opp serving the SMB market)
To be honest, I find the Keep It Simple method to work the best. Don’t overcomplicated your pricing with a la carte options. Make and offering, add value and charge a fair price. The client will always appreciate the honesty and simplicity never fails. Its not all about price but whatever you charge should be simple, competitive and consistent. Look at where you are and who you are targeting to set your prices.
Sean@11, Donald@12: Thanks for keeping the conversation going. Pricing seems to be the story that never goes away in this market.
-jp
I think we will see/are seeing a shift to user based pricing. I like that. It keeps technology out of the conversation. The MSP sells to the business owner “user” productivity, not technology productivity (technology is a means to the end).
Todd Hussey
Does anyone have a formula that seems to work for pricing and staffing for an MSP solution.
Thanks,
Anthony