Pricing Strategies to Profitability Grow Your Managed Services and Cloud Business
From streaming music and online content subscriptions to meal delivery and car washing, you can find a subscription model for just about anything imaginable.
The appeal is pretty straightforward: subscription services are reliable, consistent and often the most affordable option available. Whether it’s a worry-free dinner from Blue Apron or a boundless cloud-based play list through Spotify, we rely on these services for convenience, entertainment and information.
In the same way, your own services can be bundled into solutions that include subscription-based cloud products that together solve common problems for your target audience. This includes things like infrastructure scalability, business continuity, as well as workforce productivity and network security. In this two-part Think Tank series, I examine first how best to bundle and price services, then how best to profit from your efforts.
Once combined into a solution (versus an unplanned mix of products and services), these managed service packages or technology stacks can be sold in a few different ways:
- Per Device
With this approach, you charge for each device being serviced. So, for instance, if one employee has a laptop, desktop, iPad, and a cell phone, you’ll charge a separate line item for each device under manage. If your core service offering centers around device management, then this approach may make sense. However, many find this approach—both MSPs and customers alike—unnecessarily complicated and not aligned with the true price driver behind the customer relationship. If the latter is true, then a per-user model may be your best bet.
- Per User
Unlike the previous model, this one is billed by user. So, if the same employee has seven devices, they’ll all be covered under one line item, which dramatically simplifies the recurring billing detail, reduces the hassle and cost of adding infrequently used devices. A per-user model also minimizes opportunities for confusion. That said, to protect yourself against being taken advantage of, consider putting a cap on the number and types of devices you’ll service under this type of a contract.
For instance, if you don’t have any in-house expertise servicing certain device types, require the client to either (a) update their solution to a standard item you service or (b) forgo coverage on that device. Furthermore, avoid having to service an unprofitable number of devices for any one individual by capping the number at around three-to-five devices per person.
If you need to make a minimum amount per customer in order to maintain your profitability, a tiered-pricing strategy might make sense for your practice. You can set pricing brackets based on the number of seats or devices being serviced. For example, using a base per-user tier of $200 per-user per-month allows you to make money for customers with just a few employees. However, you can add a tiered discount when supporting more users. A reduced per-user rate for larger customers allows you to share scale efficiencies with your larger clients while also giving them incentive to add more users as a way to reduce their rate.
- A la carte
Some clients aren’t going to follow you into the full coverage, monthly recurring subscription model. They may not want to sign up for the premium recurring service package right from the start. To keep them aboard, you might have to have and a la carte offering to entice these prospective customers to start small while you build up your book of recurring business solutions.
- Hybrid model
This model enables you to mix and match any of the aforementioned pricing models to achieve your version of success. For instance, you could aim to make 80 percent of your business recurring-revenue projects, but still take on occasional one-time-need projects to supplement your efforts.
How Much to Charge for Your Cloud Services
Before you can determine how much to charge, you need to ask yourself a few questions. For example, if your business has taken on any kind of debt that it needs to pay down, that needs to become a factor in your pricing decision-making.
Here are five factors to guide price-setting:
Do you have business debt? If not, skip to #2. If you do, consider factoring this into your pricing model, earmarking certain funds to be used to pay down debt each month.
Are your technical resources only booking about 50-65 percent of their billable time each month because of internal meetings and paperwork? If that’s the case, is there a way you can free them up to spend more time on billable projects? Look at whether or not you need a dedicated dispatcher or technical resources manager to take administrative burdens off your highly skilled technical team.
What can your current market bear? Could delivering services via the cloud expand your reach by removing geographic constraints into more profitable market locations where you can get a higher price for your services?
How is your offering unique? Is there something you can offer that no one else can? If that’s the case, use that to fetch a higher price for your services.
Has a client ever told you that your services helped them do something incredible—like increase the efficiency of a certain process by 200 percent? If so, talk about this. If you’re delivering a smooth customer experience that produce results that would make your competitors green with envy, charge accordingly. And build ROI reporting into every service plan, so you can demonstrate the cost savings your services deliver.
Next up: Profitability. Be sure to check out part two of this series, “Cloud Profitability Hacks: How You Can Increase You Can Increase Your ROI.”
Ryan Walsh served as vice president of product management for MX Logic, a cloud-based email and web security company that was acquired by McAfee in 2009. Following the acquisition, Ryan directed the product teams responsible for McAfee’s portfolio of cloud-based email and web solutions for the Content and Cloud Security division, and later led the product unification and hybrid cloud development effort for the company’s web security product lines. Ryan has dedicated his career to enabling business improvements with Internet or IT-based solutions and startups. He started his career building a reengineering practice at Deloitte & Touche in the Consulting division. Ryan holds a BA in Business Economics from Colorado College and an MBA from the Harvard Business School.