MSP Pricing Strategy Guide

Pricing
Strategy
Guide
WHITEPAPER

MSP Pricing Strategy Guide

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About the author

David Galiata is a Senior IT Consultant who is passionate about partnering with
businesses to architect, design, and support their technology needs. He works with
customers from sales to project implementation. His blogs at neoslash.net are on
technical topics as well as all aspects of the MSP world.

Pricing is one of the most challenging aspects of running an MSP. There’s no fixed pricing pattern, and
sometimes it can be difficult to develop a proper pricing strategy. The initial strategy adopted by managed
services providers can make or break their businesses.

Price your services too low, and you will eat into your own profitability and affect business growth. Price them
too high, and you run into the risk of losing your potential customers to the competition.

MSPs need to find the right balance in pricing, based on the value of the services they offer, a market overview
and research into the competition.

There are many pricing factors unique to each service provider, and this makes managed services pricing a
complex thing.

Later in this guide, we will discuss how you can build the right offering for your clients, bundle your products
together and determine a proper pricing strategy.

Know What You Can Deliver

The first step in building your MSP offering involves determining the range of services you can offer to your
clients. Most MSPs provide a combination of these services based on their technical capabilities. Typically, they
start with the service where their expertise lies and add new ones as they grow. When adding new services, look
for those that are in high demand. While there are MSPs that offer one specialized service to their customers,
most MSPs offer multiple services to cater to the diverse needs of small and medium businesses.

MSPs that offer multiple products need to think about the best way they can bundle their products together and
sell them as a package. For example:

Remote monitoring and management

Cybersecurity (antivirus, patch management, endpoint protection, etc.)

Data backup and recovery

Network management

Helpdesk support.

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Bundle Your Services

Bundled services can vary from MSP to MSP. You have freedom to create your own but it’s most common to
bundle services based on related IT functions; for example, storage, backup, and disaster recovery. An MSP
focused on smaller businesses or start-ups might include the installation, monitoring, and management of all
technology in their bundled offerings.

With a bundled package, MSPs can streamline their services and standardize their billing process. It also helps
MSPs to sell complete IT solutions even when customers are not aware of what they require. Most importantly,
MSPs can cross-sell or upsell various products they offer and improve their business growth.

Further reading MSPs: How to Upsell Effectively

Bundling is not just about grouping services together and selling them as a package. There is a reason that MSPs
bundle RMM, patch management, and antivirus solutions together in their basic package. This package takes
care of some of the most crucial IT issues faced by small businesses. Similarly, medium and large enterprises
need some additional solutions like cloud backup and network monitoring for their IT operations. Therefore,
MSPs need to have plans that take care of additional requirements.

Further reading MSP Packages: How to Build Your Offer

It is also important for all the bundled solutions to work together; for example, an RMM solution. Many of the
larger RMM solutions have integrations with other platforms. So MSPs need to find solutions such as RMM, PSA,
cloud backup, etc. that can work in harmony, in order to simplify management.

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Here are points to keep in mind when bundling various services together:

Demand
You need to understand the ongoing demand for your services in the market. For instance, if cybersecurity is the
number-one priority for most businesses, it’s wise to include security solutions in all your bundles. Understand
the ongoing demand by performing research; look at trends in the technology space and bundle products
accordingly.

The Needs of Your Current Clients

Your existing customers are important for the growth of your business. It is much easier to upsell to existing
customers than to acquire new customers. Create bundles that are attractive to your existing customers and
provide additional value to them.

Business Valuation
In the MSP business, monthly recurring revenue (MRR) is an important metric to assess your business
valuation. Services that require long-term commitments, such as cloud backup, antivirus solutions, endpoint
management, and network monitoring, will result in steady monthly earnings and boost your business
valuation. Make sure you bundle these services into your offerings.

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Formulate Your Pricing Strategy

When you are formulating a pricing strategy for your services, the first thing you must do is determine your
overall costs. This includes your monthly overheads, subscription fees, employee salaries, rents, etc. Calculating
these costs is essential for MSPs in order to make sure they don’t lose money when providing services to their
clients. Anything you price above the break-even point will add to your profit margin. However, cost should not
be the only criterion you use to determine your pricing strategy.

Sometimes, cost can be difficult to calculate. There might be seasonal expenses that lead to higher costs during
certain times of the year.

Oftentimes it’s better to play it safe and price your products higher than your actual costs. Also, check the
ongoing market prices for similar services before finalizing your price.

The next step in your pricing strategy involves choosing a pricing model that is suitable for your offering. You
can opt for either a flat-rate pricing model or a tier-based pricing model, based on your preferences.

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Tiered pricing is one of the ways to sell bundled packages. Here, clients can choose the desired package based
on their requirements and IT budget.

If you are charging a flat price, you can do it on either a per-device or per-user basis. This structure comes with
clear terms and conditions that are easy for clients to understand. When it comes to pricing, having clear and
concise conditions should not be underestimated. Keep in mind that there are always some clients who don’t
want to dig into the technicalities of your offering, and simply go for the cheapest option.

18% other
41% Per-device

23% both
18% Per-er
Per-User Pricing Model
This model charges based on the number of users in an organization. Irrespective of the devices these users
have, they are charged a fixed monthly price.

This means you could be managing your users’ workstations, smartphones, and tablets simultaneously. This is
an attractive model from the perspective of your clients, as it gives them a predictable IT budget every month.
According to ChannelE2E, top MSPs in the market charge around $150 per user per month.

And here is the statistics of how much MSPs usually charge per user, per month for ongoing user support,
according to the 2020 MSP360 Annual Customer Survey.

1% $1$1 * $&00 /device/month

4% $101 * $1$0 /device/month 12% $10 or less/device/month
17% $$1 * $100 /device/month
37% $10 * $&$ /device/month

29% $&> * $$0 device/month

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Per-Device Pricing Model

This model charges a fixed amount for a device, irrespective of the number of users.

Since there are organizations where users have multiple endpoints, this model provides better profitability for
MSPs. Here, MSPs charge based on the type of device they manage.

For instance, managing a desktop could be priced at just $50 to $70, while managing a server could cost as high as $300.

One challenge with this model is “bring your own device” (BYOD), the devices being the users’ own personal
mobile phones and tablets. Be sure only to support devices that are company-owned, since there are security
and litigation risks with supporting employees’ personal devices.

1% $151 $ $2 user/month

23% $25 or less user/month
19% $11 $ $15 user/month

2% $51 $ $1 user/month 30% $2( $ $5 user/month

Tiered Pricing Model

If you have multiple bundled packages, you can sell them under the tiered pricing model. You can classify your
offerings as tiers based on types of services and the IT budget of your potential clients.

For instance, you can have a basic package with remote management, patch management, and basic
antivirus.

Your advanced package may offer everything, including remote management, business management,
network monitoring, cloud backup, premium antivirus, and 24/7 customer support.

You can price the packages accordingly.

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What About AYCE?

While the pricing structures above offer customers a number of packages to choose from, there are clear
benefits to developing one flat, standardized offering. Not only does it keep things simple, it also allows you to
fully commit to your position.

As with any pricing model, there are certainly challenges and potential pitfalls with the “all you can eat” (AYCE) model.

One common mistake is not being crystal-clear up front about exceptions, meaning the things that aren’t
covered. This can result in dissension with your customers and be a cause of friction. Take extra measures to
ensure that you and the client understand exactly what is and is not covered. The last thing you want is to write
off time because of a misunderstanding over the pricing contract.

With that said, flat pricing models continue to gain adoption, and for good reason. If you have the proper tools,
technical abilities, and structure to get AYCE right, it can be very profitable.

Pricing for Profitability

Once you’ve figured out the costs and the preferred pricing model, you need to apply all that to your pricing
strategy and determine the actual price you wish to charge for your services. An MSP’s success is heavily
dependent on its profitability, which has a lot to do with establishing a proper pricing strategy.

According to ChannelE2E, top-quartile MSPs in the market have an average EBITDA profit margin of 19.3
percent. However, typical MSPs struggle with an average EBITDA profit margin of just 7.3 percent. Every MSP is
different, and this applies to their clients as well.

While there are no specific rules on how to price MSP services, keep in mind that you need to price services in a
way that covers your costs and provides a healthy margin in order to ensure sustainable growth.

Competitive pricing is important, but don’t always try to beat your competition by pricing your products the
lowest. In some cases, this might backfire on you. Midsize companies that are growing do not go for the
cheapest solution on the market. Here, the MSPs that provide the best value will have the most success.

Conclusion
In summary, there is no one-size-fits-all solution when it comes to MSP pricing. MSPs can use the tips above to
understand their capabilities and price their services accordingly.

If you think your MSP business is not generating enough profit, you need to act right away and review your
current services. This could help you identify the profitability challenges and turn around towards more
profitable solutions. Incorporating all the changes suggested here might be a little challenging, but it is
necessary if you wish to boost your margins. In the long run, it will be worth the time spent and help you
transform into a leader in the industry.

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