3 Steps to Managed Services Pricing Success
By David Weeks
Today’s small to midsize businesses (SMBs) demand nearly 24/7 reliability from their IT infrastructures — yet they don’t typically have the IT budget to justify staffing their own technicians to manage this level of business continuity. That’s where managed service providers (MSPs) come in, with offerings that give SMBs the ability to shift away from hourly IT service rates and into a new fixed fee approach to managed IT. The benefits are huge, and the bottom line is that moving to a model with consistent monthly fees provides stable IT costs for the end customer organization and predictable recurring revenue for the provider.
While the rewards of managed IT are paying off for many MSPs, there are still a sizable number who are either on the fence or not making the money they should be. But with 75 percent of the market still sticking with reactive IT, a massive opening exists for MSPs to capitalize on the opportunity. For anyone hoping to break into managed services, it’s important to understand how to move away from a break-fix hourly service rate to a predictable, profitable managed services business model. If you are a channel partner considering making the transition, or you’re just starting out as an MSP, here are three pricing strategies to guide you.
1. Get Your Foot in the Door With Free Monitoring Licenses
Every SMB can benefit from better monitoring of their infrastructure. Having an IT services firm come in and offer free monitoring licenses is very appealing to these businesses. At the same time, when an MSP can take an entry-level freemium approach to deploying monitoring services through remote monitoring and management (RMM) and other tools, it’s easier for them to quickly and easily bring in new customers and onboard new devices as well. As time goes by, once the MSP has gathered information about its client networks through the freemium licenses, and has built trust with its customers, it is in position to upsell them to other areas of managed services. This could include services such as managed security and patch management, as well as mobile support, backup, compliance and more. Additionally, these services are supported by empirical evidence gleaned from the monitoring and reporting services — evidence that provides valuable insight into the happenings and health of the client network as well as all the devices attached to it.
2. The Art of A La Carte Add-On Services
Most of your reactive customers just want basic IT services (backup, antivirus protection and patch management, for example). Ideally, you should be able to purchase and deploy these a la carte add-ons on top of your free monitoring licenses. With a la carte pricing, MSPs will in most cases only pay their vendors for what they need. This gives you complete flexibility to purchase according to the number of devices you manage and then deploy them in any configuration your clients need. With a RMM or managed services partnership structured in this way, MSPs can minimize their investment in the technology required to support their customers and accelerate profits and revenues by building their book of business with their reactive customers.
3. Per-Device Licensing
As an MSP, the way you price your services has a lot to do with what you pay for the technology driving them, so make sure the rates you’re being charged are fair and flexible for your business. For example, you charge customers less for monitoring a workstation than a server so it makes sense that a desktop node should also cost you less. This kind of tiered, per-device licensing enables you to pay appropriately for the services you use — without regard for the way you use them — and can help you drive stronger profits, too. The key is to work with your vendors to create a pricing strategy that benefits both of you.
Beyond pricing, other strategies to help you establish and grow your MSP practice include specializing in distinct vertical markets, whether medical/dental practices, banking, retail, education or niche markets and other industries. Having a specialty allows you to develop your knowledge of market trends, regulations and best practices, and build a deeper, more valuable relationship with your customers.
Also essential in managed services is reporting, including executive summaries. When you’re out of sight, you might also be out of mind with your clients, which means you need to regularly provide cost justification vs. monthly spend via reporting. Monthly or even weekly reports enable MSPs to show clients such things as the number of alerts handled in a given period of time, or the way in which requests for help have dropped as a result of a more stabilized IT environment. Through a centralized managed services dashboard, clients can also get direct insight into the value they are deriving from the relationship.
Most of all, as you consider the transition to a managed services model, don’t forget that your entire business — from the top down — needs to buy into an entirely new culture of how you deliver service and manage customers. Approach the transition with a united front and you’ll be able to streamline the process, reach your goals faster, and capitalize on a greater share of the opportunity.
As channel strategy manager for N-able by SolarWinds, David Weeks works closely with the company’s top tier partners and major accounts worldwide to understand their needs, provide insight into current market conditions, and offer strategic sales and marketing recommendations. A regular presenter at N-able’s global and regional summits, Weeks is passionate about ensuring the success of N-able’s partner base.
