FAQ: Managed Services Pricing Question
Each week, readers submit questions to MSPmentor’s Ask a Mentor form. And each week, we take our best shot answering a specific reader question — while updating our Managed Services FAQ section along the way. Here’s the latest submission, from a reader who is trying to nail down his managed services pricing strategy. Got advice? Weigh in.
The question…
“I love the managed service idea and understand how to relate the power of managed services to my clients unique needs. I am falling short on where to start my prices and what it exactly includes. So I get them on maintenance package, then how do I handle if they have an IT issue? Do I bill them for remote support, do I charge them my normal $95.00/hr?
Once I have the maintenance package/pricing down I really need to figure out what else it includes.. This is getting hard and my competition’s websites only explain so much. Any help would be great.”
MSPmentor’s initial reply…
Whether you’re referring to managed services or cloud services, try to focus on a Cake-oriented pricing model, promoted by such consulting firms as TruMethods. Some of the best MSPs in the TruMethods group are charging anywhere from $100 to $150 per month per user for all-in support and IT services — including PC management, security, cloud storage, hosted email and more.
Of course, your prices will vary greatly based on vertical markets served, level of service, etc.
Offer Your Own Advice: Of course, that’s only one example. The real pricing experts are MSPmentor’s readers. Anybody else care to share any pricing tips? Post a comment and perhaps your advice — fully credited to you and your company — will wind up in our Managed Services FAQ section.
Submit Your Own Question: To submit a question simply go here.
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TruMethods helped us answer all the questions and issues you bring up. Great stuff
Kurt: So is the “cake” advice at least somewhat on target or did MSPmentor miss the mark?
-jp
Our clients typically sell workstation packages starting at a base (25), standard (50) and premium (100) bundle to get clients to say yes to managed services! Server support various between 4100 – $400 per server depending on the level of coverage.
Dan,
Thanks for the estimates from ClikCloud. Greatly appreciated.
-jp
It’s all about the cake! Prospects who want to just buy a few of our ‘ingredients’ and use some of thier ‘ingredients’ are never good clients for us.
Great topic …. However, what starts wrong … typically ends wrong. You really need to determine what your services are before going to market. If you take a long look at the types of managed services most of the top MSP’s are selling, they have clearly defined offerings.
These offerings have all the labor, software and any other additional costs baked into them. In the industry today, there are three types of managed services. Basic monitoring, entry level proactive offerings and then you have the all-in, fully managed, unlimited type of offering that’s typically priced per end user.
Figuring all this out from scratch tends to be a daunting task. You have to understand what types of services you should sell, how to price them out, what to include, and most importantly … what to scope out … is extremely important and a critical component to an MSP’s success. It’s not rocket science, but any IT service provider looking at making the transition into becoming an MSP should definitely seek out the guidance form those that have experience in this arena. We here at Quest have an MSP Acceleration program designed specifically to take the guess work out of building, pricing and selling Managed Services. Stuart Selbst’s amp; Gary Pika (True Methods) also have amazing programs that have helped lots of folks through this process as well.
Ask your vendors if they have programs that could help. If you have one of the many software vendors calling you weekly (like us!) if they have anything that will help in this area as I know most do.
Good luck,
Mike Byrne
Director of MSP, Managed Services (MSP) Division
Also, not to ‘ruffle any feathers’ here but it’s really dangerous to toss out ‘pricing averages’ as there are sooooo many variables that involved that change from company to company. i.e.: Labor rates, software used, preventative maintenance check-list (Typically changes from MSP to MSP), etc, etc … I’ve had way too many conversations over the last 8 years with MSP’s who’ve gotten into pricing trouble with pricing methods they’ve adopted without doing their homework or factoring in everything they need to factor in.
There are also 3 different ‘go to market’ pricing strategies in managed services: Per Device, Per End-User and holistic pricing (i.e.: Bronze starts $XXX, Silver starts at $XYZ, Gold starts at $VXY). Each comes with its own pros and cons and you should think about how you’ll be selling your services before deciding on a pricing method. Me personally, per end-user amp; holistic make the most sense and I’ve seen the lots of success with MSP’s that have chosen those methodologies. Most SMB business owners don’t typically assign a large value to a device and the per-device pricing method often leads you down a ‘let’s remove some devices’ discussion. This happens because the business owner is trying to reduce costs by removing devices. This happens when an MSP goes in without selling the value and ROI associated with their offering and can happen with any pricing methodology. However, it’s a little easier to overcome with the per end-user and holistic pricing methods.
Again, I’m not trying to ruffle any feathers and I know there are lots of very successful MSP’s selling every type of pricing method. I just thought I’d add a little more context to the discussion.
Mike Byrne
Director of MSP, Managed Services (MSP) Division
Kurt: Thanks for your thoughts on Cake.
Mike: You’re allowed to ruffle feathers. If there was one MSP pricing model we’d be dealing with commodity services and commodity pricing. The points you make about not getting too caught up in “pricing averages” are good ones. Though it’s still great to hear the pricing anecdotes readers have been sharing.
-jp
Joe, I love this thread.
Aren’t IT services a commodity as a whole? Even a best in class MSP’s services are still a commodity. When getting into the pricing game with a prospect price becomes a symptom of failure or possibly losing the deal. I have always stated give the people what they want and price it accordingly. I discuss pricing all the time with the MSPs that I coach.
Personally I like the per user price model and have coached my clients to offer different levels of services based on the needs of the customer’s business not on what you want to sell to them.
Just my $.02
Stu
http://mspcoaching.com
Morning Joe, not to belabor this point, and I do get the ‘averages’ discussion. I also fully understand how people want something to latch onto in regards to a starting point for pricing. This is one of the most asked questions in the space with good reason. However, I think a better way to look at this would be to ask yourself, ‘What types of margin do you want to make off your MSP offerings?’. Once you start thinking about that, the MSP then has to start thinking about what’s going into their services that will impact on their margin.
Rather than trying to use some industry averages they picked up somewhere. Let’s take Dan Shapero’s reply to this post, he uses packages for PC’s starting at a base (25), standard (50) and premium (100) bundle as well as a $400 per server package. However, the key to Dan’s entire post is his last statement … ‘depending on the level of coverage’. That last statement is where all the variance takes place. Dan obviously understands his costs and is using a model they’re both comfortable with, and have flushed out all of their variables. I would be willing to bet ‘dollars to doughnuts’ they didn’t come up with that pricing model based on an industry average they picked up somewhere.
A previous colleague of mine at N-able used to always respond to the ‘pricing averages’ question this way …. ‘well … anywhere from $300 to $10,000/MTH depending on what you’re doing’.
Mike Byrne
Director of MSP, Managed Services (MSP) Division, Quest Software
Stu@9: Some IT services certainly are commodities. But we’ve all got the opportunity to turn individual commodities into high-value services. A simplified example: Google Apps. Pure commodity. But string together a bunch of Google Apps Marketplace components? You’ve got a high-value service nobody else offers.
Mike@10: You’re welcome to belabor the point indefinitely. Only one follow-up point: Instead of asking yourself what type of margin you’d like to make, why not figure out what the market will actually bear? If you want to make a 10% margin but some customers will pay a bigger premium, run toward that market reality…
-jp
Great discussion as usual.
With a pretty deep view into MSP pricing worldwide, I try to stay on top of trends (MSPmentor provided some additional perspective 2/8/12 on Kaseya’s most recent pricing survey results too).
That said, I typically see 4 types of pricing scenarios:
1. Per device
The ranges shared so far seem reasonable and typical. Gross margins are all over the board based on the maturity of the MSP, but most GMs are in the low (very low) double digits.
2. Per event, per hour, per project, etc
Yes, they still exist and likely won’t go away. But they typically deliver 1/3 to 1/2 LESS profit than per device pricing based on what I see. Really.
3. Per user
It’s very common. The ranges shared are typical to what I see as well. But I also see that per user pricing delivers 2x MORE gross profit than per device pricing, for a similar MSP.
4. Per solution
This is a quickly growing trend. It’s an evolution from “managed services” to “solution services.” The big 5 I see are business continuity services, mobile management services, security services, remote services, and support and service delivery services. These solution services deliver 3x to 5x MORE gross profit than per user pricing, for a similar MSP.
Obviously not all MSP partners we work with are ready for “#4” or can actually deliver services this way, but those who do, are very VERY successful because they are highly specialized, typically vertically focused, and very tightly connected – as trusted advisors and partners – with their clients.
Thanks
David Castro
Kaseya
David, you are right on, with #4. Most of the MSP’s I talk with want to understand how to make money with “Solution Services”. They are looking for solutions that support a vertical like Healthcare, Legal or Finance, etc… You have to be specialized in at least one area, be a subject matter expert, which will separate you from the pack. You can charge more for specialization than you can for generalization, and today more than ever, get a specialization and become a subject matter.
If I was an MSP, I would look deep into Healthcare, the numbers are huge, the opportunities are endless and the competition is not overwhelming.
Good Luck
Fred Mayne
HEROware
David@12: On item 2, I don’t hear too much about per event anymore. And the one piece you didn’t mention was per location. I do hear a lot about MSPs offering a blanket service for a branch office, with a single flat price to support that office, even if headcount rises or falls ever-so-slightly.
Fred@13: Yes healthcare is a big opportunity. (Search MSPmentor for “Mike Jones” and you’ll find a ton of background on an MSP-turned-total service provider in the healthcare market.) But I also want to caution readers: Going vertical isn’t easy. Healthcare is a big opportunity — but a complex opportunity.
Lots of failed efforts among VARs and MSPs who underestimated the challenges in that market.
-jp
I am always a little shocked when the prospect grills me, “so you mean if I pay for silver you’ll do this but NOT this when THAT happens?”. Or, “So if I have X Package compared to gold or Y Package you’ll only fix it half way?”. So I changed a bit, and think at least in my area that pricing be staff or user is appropriate. The higher ups think per human resource rather than be “widget”. Then I put some icing on the ‘cake’ based on the other services they may need. Being in a small town $150 per users works provided they get what they ask for (value).
Julius,
Thanks for sharing a bit about your own pricing models and strategies. To your point, I’m not sure a gold, silver, bronze approach works when customers just want great service. Period.
Thanks again.
-jp
Great stuff, as usual, guys.
We’ve added a few tips of our own:
http://www.mspbusinessmanagement.com/blog/msp-pricing-price-right
Hey Scott: Thanks for the tips. Can you disclose to readers if you represent a vendor, consulting firm, media company, somebody else? Thanks.
-jp
I have a question for you guys. Please discuss your experience with these different scenarios in reference to pricing. 1. Whether your services are in the cloud or on site or both. 2. I know you want to sell the cake – but what if they have an IT staff or individual? Would you suggest a bronze, silver gold for that environment as well? At the base of my questions is how do you position yourself so as not to be pushed out by a competitor who does it all? Thanks
P.S. Happy Holidays to All!