Coming up with the right pricing for IT services can be one of the trickiest hurdles to jump. Price services too high, and your prospects and clients might balk. Price services too low and you’ll leave money on the table — or worse, lose money. Some service providers just throw a dart at the wall to come up with pricing strategies, while others price based on the market or competition. Not ideal, right?

Pricing Strategies, and Profitable Managed Services and Bundles

MSP Toolkit’s Len DiCostanzo

According to Len DiCostanzo, CEO, MSP Toolkit, to maintain and bolster profits, leaders of managed services organizations should seek to thoroughly understand one overarching concept. They must grasp their costs and how to price for profit. If they don’t, they may be doomed to spin on the hamster wheel indefinitely, all the while losing money and clients. 

During his session on this topic at the MSP Summit, April 11, co-located with the Channel Partners Conference & Expo, DiCostanzo will share his best tips based on his own success as a profitable MSP.

In addition, he will lead a second session on profit. 

Building a Profitable Hybrid Service Catalog

The mark of a successful MSP/IT service provider is consistently adding new products and services to their stacks. They do this to retain and grow market share across their client base and to attract new customers. Of course, there’s a secret recipe to success in the managed services market. It involves developing a structured approach to adding vendor solutions with profitable services to the MSP stack. 

Channel leaders need a robust process for adding services to their catalogs. If this is not a focus, they risk having profit and productivity drained by a constant barrage of custom sales proposals. 

Now is the time for MSPs to look at SaaS offerings, professional and managed services they want to deliver; then, build a process to organize them into a profitable hybrid IT services catalog. In this second session, DiCostanzo will outline best practices and standards providers can use to build and manage service catalogs; plus, how to launch one with the services they deliver now.

We sat down with DiCostanzo to get a little sneak peak into the two sessions ahead of our show.

Channel Futures: Why is coming up with the right pricing for IT services so tricky?

Len DiCostanzo: Unsurprisingly… because there are many inputs to consider. This includes a few different aspects. What the competition is doing, what the market will bear, that sort of thing. It also includes the internal continual improvement effort needed to ensure you continue to price your services right.

CP: What are one or two of the key factors to consider when pricing your services?

LD: The single biggest factor for MSPs and TSPs to consider is to understand the evolving costs of service delivery. If you understand your costs, you can always price for profitability.

There are several variables to consider as work to understand your costs. One of the key variables … includes the hours your service resources are available to work. The second is that the forecast percentage of their time will be utilized to bill hourly services including projects and T&M work, or to deliver managed services.

CP: How does automation factor into pricing strategies?

LD: Automation is key as it provides MSPs and TSPs a platform to scale service delivery. For MSPs, think about core tools like …

… remote monitoring and management (RMM) for service delivery. Then consider how your team combines to learn client environments and how you deliver your solutions. You can automate incident resolution and task execution to reduce labor costs and increase profitability.

CP: You say that the secret to success in the market is developing a structured approach to adding vendor solutions with profitable services to the MSP stack. Can you elaborate on that a bit?

LD: MSPs and other technology solution providers (TSPs) typically have a solution stack they sell to clients. They should be on the constant lookout for the next best solution. This meets additional client needs they can add to their stack to expand wallet share in their client base. 

They are also often besieged by vendor requests to add the vendor’s solution to their stack. As a result, partners get pretty weary of this. With the inevitable addition of the next solution, MSPs need to have a structured service catalog management process in place — so to ensure the products and services needed to solve client needs are onboarded internally and delivered to clients as planned.

CP: You mention that channel leaders need a world-class process for adding service offerings to their service catalog. What are some elements of that?

LD: When you are looking to expand your service catalog, consider the following process:

CP: What are one or two best practices and standards partners can use to build and manage a service catalog?

LD: Partners need to consider taking an information technology service management (ITSM) approach. Ideally, this needs to be supported by best practice frameworks like the Information Technology Infrastructure Library (ITIL). Following best practices provides an MSP the opportunity to understand all the details behind a process. They can then customize to maintain a profitable service catalog.