Pricing models for managed IT services
Along with the quality of its service delivery, pricing is one of the most crucial factors for the success of any MSP. Pricing determines an MSP’s profitability, so it requires careful consideration of various factors. Variety and flexibility in pricing is what attracts customers most.
Starting off as simple break-fix vendors, MSPs have come a long way. This transition resulted in MSPs having to create flexible offers and services. As the managed services industry evolved over the years, vendors’ pricing models became more varied and complex.
Let's have a look at the most common pricing models preferred by MSPs around the globe.
This is the simplest of all, an easy-to-quote pricing model in which MSPs periodically charge their clients a flat fee for each type of device that's covered under the contract.
For example, under the basic per-device pricing model, an MSP may designate a fee of say $X per laptop, $Y per printer, and $Z per server.
This is one of the most commonly offered pricing models as it's easy to illustrate costs for prospects. This model also offers the ability to raise the monthly fee as the customer adds more devices.
On the other hand, if the customer doesn’t add more devices, raising prices becomes quite difficult, as the price change will be very visible to customers.
This is quite similar to the per-device pricing model, with the only difference being that the flat fee is billed per user, per month. This model covers all the IT needs of a user, irrespective of the number of devices they use.
A lot of customers prefer this model even though they end up paying more as their number of users increases, because this pricing model doesn't take into account the number of devices the MSP has to maintain. Companies with a significant number of devices benefit from this type of pricing model the most.
This is a flat fee type of pricing model. It's one of the most comprehensive models, as an MSP provides IT services for all components of the client's business. This model is aimed towards not only taking care of immediate pain points but also tending to latent needs and other potential risks.
Basically, the MSP acts as an outsourced IT department for the client. Organizations that want to apply all their resources to strategic goals will opt for this model.
As the name suggests, in this model, MSPs offer only monitoring and alerting services for a portion of their client's IT infrastructure. Customers that are on a tight budget prefer this model; it’s quite inexpensive, as it provides a bare-minimum approach.
With this type of pricing model, the MSP keeps its clients alerted of issues which are then transferred to and resolved by the client's internal IT team. If needed, the MSP will provide assistance for an extra fee.
Let’s say an MSP offers updating (antivirus, other software), patch management, and network/server monitoring for a monthly fee. In this case, it also opens up an opportunity for the MSP to charge for remediation activities found via remote monitoring.
The service levels for monitoring can be as minimal as in-house IT staff receiving basic monitoring and alerts, or the MSP can offer a much more in-depth service, like providing advanced support and issue resolution. This model is sold to all sizes of companies, from SMBs and mid-size companies to large enterprises.
One of the most favored pricing models among MSPs is the tiered model. This model offers MSPs the flexibility to design service packages where prices increases from tier to tier as increasingly more comprehensive services are offered. Organizations can choose the bundle of services that best fits their parameters (needs and budget).
These service packages are mostly categorized as "Bronze,” “Silver,” “Gold,” and “Platinum," where Bronze indicates the most pocket-friendly package with a basic level of services and support, whereas other packages like Silver and Gold will be more expensive.
For example, Bronze may include basic remote support, updating, and patching. Silver support may include the services offered in Bronze along with on-site support, and the Gold bundle may include emergency, after-hours support along with the services offered in the previous packages.
This is one of the most flexible and comprehensive pricing models, which includes remote support, on-site support, as well as lab or bench time for a flat fee per month. In this model, MSPs may provide services for a specific duration per day and charge clients additional fees for services provided outside of that time frame. In some cases, MSPs may also provide 24x7x365 support.
The main reason customers opt for this model is that it enables them to predict costs over a period of time and avoid any billing fluctuations.
À la carte
This model is like an open buffet of services, where clients have the option to pick and choose the desired options to create a tailored plan. This is one of the least favorite models for MSPs because it limits profitability—as opposed to the tiered or all-you-can-eat models—and MSPs must spend considerable time explaining all the services they offer. For these reasons, most MSPs have stopped providing this option to their customers.
Which pricing model is right for you?
As an MSP, it gets quite difficult to select which model best suits your organization, as you need to find the middle ground between charging enough and keeping your clients happy in order to stay in business and remain profitable.
When choosing a pricing model, you need to consider the following factors:
Costs: You must have an idea of the total costs required (or break-even cost) to deliver a service. To develop a successful pricing model, you must have an understanding of all your regular costs and any potential additional costs that may arise.
Scalability: In order to keep your pricing model effective as your business grows, standardization is important. Evolution in pricing over time is only natural, but standardizing the pricing of your core offerings is the key to scalability.
Apart from that, standardization also helps in shortening sales cycles, and since the pricing model you use makes the selling process easier and repeatable, you can scale your business as and when required.
Targeted market segment: Your target client base will greatly influence the pricing strategy you adopt. The scope and depth of the services offered differs based on the type of business and verticals that are targeted. For example, the pricing model that works for an SMB will not work for a large enterprise, as they require a different depth of services.
Technology: It's only natural that shifts in technology will affect your pricing and the services you offer. Knowledge of the current technological landscape and its costs, benefits, and challenges will play a crucial role in coming up with a pricing strategy.
The competition: All other factors aside, you must ensure that your services and pricing are competitive with those of your competitors. Look to add more value to your bundles of services to stay ahead of your competitors and decrease your chances of being replaced.