Within the SMB managed services market a multi-year debate has been raging: Should managed services providers develop price-per-user or price-per-device business models for MRR (monthly recurring revenues)? I heard a surprising answer to that debate during the recent TruMethods Schnizzfest event in Philadelphia, Pa. Here’s the answer and the background.
The surprise answer: Increasingly, some of the best MSPs user neither business model. Instead, top MSPs are pursuing a so-called “price per engagement” or “price per experience” model. Privately, top MSPs continue to figure out their per-user and per-device support costs, and then build in the appropriate margin. But publicly, those MSPs refrain from discussing per-user or per-device pricing.
Instead, the top MSPs offer a total services price — covering everything from help desk and NOC services to monitoring and management of IT infrastructure. Building on that theme, TruMethods CEO Gary Pica called on MSPs to stop selling ingredients (patch management, remote monitoring, anti-spam, etc.) and start selling chocolate cake (that is, the total user experience).
Hidden Numbers
During multiple sessions at TruMethods Schnizzfest, top MSPs described how they continue to generate roughly $100 to $130 per user per month in recurring revenues — without breaking out the individual per-service fees to customers. Moreover, several MSPs said that they no longer accept SMB engagements that fall below a minimum MRR (monthly recurring revenue) fee, typically $2000 or so.
Two MSPs who went on record:
- White Glove Technologies CEO Tommy Wald, who said he’s using the price-per-engagement model to blanket small office customers. Instead of nickel and diming customers when they add a piecemeal service or a new managed PC, White Gloves’ contracts include a clause that allows the MSP to raise annual rates — roughly 3 to 4 percent or so.
- masterIT CEO Michael Drake, who said he’s using the per-experience model. Although it sounds like masterIT still sells on a per-user level, masterIT no longer breaks out the price of each individual service. Instead, Drake pitches masterIT as a trusted advisor and/or virtual CIO to his SMB clientele. And for that virtual CIO service, customers are going to pay for the complete masterIT experience — rather than one-off services.
No Magic Bullets
Are all MSPs taking the approaches outlined above? Certainly not. During the TruMethods conference, plenty of established MSPs mentioned rising competition from aspiring MSPs that charge as little as $10 per seat for basic managed services.
But when low-ball or lower-price rivals emerge, leading MSPs like IT Solutions CEO Ted Swanson re-frame the customer conversation — pointing out that it’s impossible for aspiring MSPs to deliver high-quality service at low-ball pricing. When customers say a proposed price is too expensive, the best MSPs re-frame and re-set the conversation by stating: “Compared to what?” notes TruMethods’ Pica, himself a former MSP.
Once the MSP has pinpointed the customers’ frame of reference, it’s easier to re-set the pricing conversation and drive back to the original value and service delivery conversation.
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Posted In: Finance | North America
Tags: Gary Pica | IT Solutions | masterIT | Michael Drake | Monthly Recurring Revenue | MRR | Schnizzfest | Ted Swanson | Tommy Wald | TruMethods | White Glove Technologies
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Great article! I suppose this is all in the natural evolution of MSP offerings. Very similar to flat-fee project billing; I like the approach. Was getting tired of quoting “this much” for this device and “that much” for that device. Definitley will be putting this to work. Thx for a great read!
Frank: Thanks for taking the time to read MSPmentor. Please keep MSPmentor’s readers posted as you chart your pricing strategies.
-jp
A very interesting article and could be the evolution of MSP pricing. As a follow-up I would be very interested in hearing how the MSPs offering the “complete experience” charge for account growth (e.g., new users, or new laptops on top of desktops with same number of users) without winding up back at a “per unit/user” price.
I like the concept, and it’s how I’ve basically priced our services. What I would be curious to hear would be how they deal with the expansion and contraction of companies they are servicing. For instance, what happens when the 30 person company expands to 40? Or drops to 20? Is there a point that the fixed pricing covers? Or is there a specific charge per person?
I realize that some of the pricing is based on other factors – for instance a 20 person company with 20 servers would be different than a 20 person company that was completely in the cloud and had no servers. I’m just curious how these companies price and scale that pricing as needed.
Great article Joe. Tommy, Michael & Ted are some of the best in the business.
Glenn@3, Andras@4: In White Glove’s case small adjustments are covered in the contract agreement, where White Glove has the right to adjust pricing by about 3 to 4 percent annually I believe. But when it comes to big adjustments (say, onboarding 10 new employees) I suspect White Glove sits down at the negotiating table with the customer. Still, I’m getting ahead of myself. I’ll defer to the MSP experts to see if they’re up to sharing a bit more.
But I also think the pros (White Glove, masterIT, IT Solutions) have shared quite a few secrets that will let MSPs get started on their own.
Dave@5: People often ask me why the MSPmentor editorial team travels so much. The simple answer: We learn a ton during face-to-face events. And face-to-face conversations with MSP experts like Tommy, Michael, Ted and the TruMethods team are priceless. We’ll stay on the road as long as the experts keep sharing such great insights.
Thanks for reading.
Best
-jp
Thanks Joe – that is along the lines of our SOP as well. But I’m always curious to see how other companies work as well.
Great Article, thanks. So this is more of a customer centric approach, at last we can engage the customer at a business level rather then putting out a quote everytime they wish to speak to us – I love the maturity of the engagement.
We agree with the per-user model. It is much cleaner to explain value in the sales process and the customer understands the model better. There no longer confusion or question of what is included in the price. No need to engage a technical resource to inventory all the assets ie switches, firewalls, mobile devices, etc… All the sales person ask is how many users…period! We are able to give them a price on the spot.
Jeannine@8: Yup, top MSPs are maturing… and pulling away from the pack. I worry about the lack of a “middle class” in the managed services market. Seems like a large # of aspiring MSPs are still struggling to gain critical mass success…
Frank@9: Some of the MSPs at Schnizzfest use their very first customer meeting to put software on the network and take inventory of everything. Of course, it takes a thoughtful conversation about privacy, corporate compliance and security to get the inventory software deployed so rapidly…
Best
-jp
Aligns well with our model, of course we’ve benn part of TruMethods for almost 2 years now. We price per person, and have been for 2+ years as a way to simplify things for the customer. Add a person, add $xxx per month to the invoice. lose a person, subtract. The per person price is going to come into play more in the future. After all, who has just one computing device? Are the typical msp’s going to be charging separately for computer, smartphone, ipad, etc…?
This speeds up the sales process to, I don’t have to inventory everything to understand what they have, they tell me how many employees w/ computers and we are onto negotiating price. This is something I think Gary Pica doesn’t get mentioned for by non Tru Method members, that his process also helps speed up closing deals. My last 4 deals (last 8 weeks) all closed in a week or less.
Todd: Your last line impressed me. One week closing times? You’re doing something right. Please keep us posted. And thanks for the perspectives you’ve already shared.
-jp
Joe: great points. I firmly believe that presenting managed services as a single line item as well. However, at the vSB level it becomes very difficult to do.
Logicomm has been experimenting with various ‘editions’ of our branded service offerings with some success. When dealing with vSBs, there’s a whole level of sensitivity to price that’s different than that seen in, say, the 30+ user segment, where I think it’s much easier to sell managed services as a line item. These bundles do seem to be working out, particularly when converting ‘on-demand’ users over to a management subscription. Stay tuned…
Jim Van
Logicomm
http://www.logicomm-inc.com
Jim: Thanks for the additional insights on very small businesses. I definitely understand your points about their price sensitivity. Some of the folks at Schnizzfest basically said they’re no longer pursuing vSBs, and will only work with customers that can afford a minimum of $2,000 (roughly) in monthly fees… We’ll be watching to see how that trend unfolds as well.
-jp
Does anyone have any recommendations on how to automate the billing process for the “price per experience” model? We currently use Connectwise and Kaseya.
This article was published sometime ago, but I hope that Paul or someone is still available to answer a question or share their thoughts. I really like the idea of the per employee monthly fee, but I am wondering if you would charge more for a server than a desktop user? TIA