Managed Services: Time to Abandon Per-Device Prices?
On the one hand, plenty of managed services providers have made a healthy living with per-device/per month business models. But on the other hand I’m starting to hear from MSPs that no longer discuss per-device price quotes with their customers. Is this the start of a bigger trend? Here are some thoughts.
First, some background. In a recent Tweet, marketing consultant Robin Robins pointed out that 78 percent of MSPs charge on a “per device” (i.e., per workstation or per server) basis. And our annual MSPmentor 100 survey includes metrics for how many devices MSPs have under management.
Still, some MSPs are starting to re-think per-device price quotes. Three prime examples include:
- Howard Cunningham, president of Macro Systems LLC;
- Brett Jaffe, president of IT4 Inc.; and
- Alex Rogers, president of ARRC Technology.
During a phone call today, all three MSPs told me they continue to track their per-device costs in order to help set pricing. However, they no longer give per-device price quotes to prospective customers. Instead, they deliver a single price quote listing all of services — without an itemized per-device cost.
By avoiding per-device price quotes, customers can set the value of the services in their own mind, notes Rogers. For instance, say you’re charging two different customers $3,000 per month for a suite of managed services that includes patch management, managed security, online backup and help desk services.
- Customer A may believe the most important piece of the service involves online backup.
- And Customer B may more fully value help desk services.
If you break out the per-device costs for each customer you could wind up charging too little for extremely valued services and too much for low-value services. By offering a single, comprehensive price quote, customers set the value for each service in their own mind, Rogers adds. Cunningham and Jaffe seemed to back up Rogers’ point with similar anecdotes about their own businesses.
All three MSPs will discuss pricing trends a bit more fully during our June 23 webcast. In the meantime, I wonder if per-device price quotes are a fading trend?
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Joe,
When I had my MSP, I had a per user pricing model rather than a per device model. I was able to justify the pricing of this model when I was speaking to my prospects, by telling them that we all know that the computers will break. Our job is to support your staff when they have technology issues. It is this philosophy that I help my partners who I coach in their MSP business restructure their offering to be more competitive.
I wouldn’t say that the “per device” pricing is over, but when you start to factor in a flat rate price, your profit margins go up and the prospects can understand the model more. The flat rate also allows you to be more of a consultant rather than the computer guy.
Just my $.02.
Stu
Stu: I’ve heard from a few MSPs in the legal vertical who promote per-user models as well. The legal MSPs focus on attorney-centric IT customer service rather than device-centric chatter. Sounds similar to your mindset.
-jp
I would love to think that the majority of the companies out there selling managed services are adopting a per user or better yet value based pricing model, unfortunately I think the reality is just the opposite. More and more these days our partners are coming up against companies that are offering quotes to their prospects with the only required information being “how many devices do you have”. These companies are taking a very slim markup on the outsourced services they are providing (and often not even enough markup to cover their costs) and providing quotes to customers over the phone or even via a web form. This makes it quite hard for an MSP to sell a value priced solution when all of their competitors are per device and most likely half the costs.
We need to get out of this downward spiral of per device / cost plust pricing at rock bottom prices soon or the margins for managed services will continue to erode and we will be left looking for the next high margin opportunities.
Lane Smith
Do IT Smarter
NOC, Help Desk and infrastructure managed services like AV, backup amp; DR, etc. are becoming commodities very quickly. I understand services can’t technically become a commodity, but the bottom line is that these services are being delivered very quickly, easily and cost effectively by big players in the Channel, namely your distributors and a few larger vendors. This leaves the “Value add” to be delivered by the reseller, as it should be. Instead of fighting the commoditization, I say acknowledge it and even embrace it.
Resellers have always been challenged to reinvent themselves and we have a tremendous opportunity right now to deliver value as never before through the judicious use of managed services partners that can help you scale your company quickly, easily and profitably.
The challenge then becomes the ability to articulate and demonstrate your value proposition as the reseller. This is nothing new and will always be the challenge of the reseller. Resellers will always have to answer the question, “Why should I (the client) do business with you?”
Amy Luby
Sr. Director Sales Operations (OnDemand)
Synnex Corporation
amyl@synnex.com
I see both sides of this. One thing I notice in the clients I have been financing is that with their technology needs they often have more devices than people. Now I’m sure thats due to the fact that I tend to work mostly with professional services firms.
My view would be some type of value based pricing would be most effective since some 20 person firms have 25 devices and others have 45 or 50. My own company avgs about 2 pc’s per person not counting other peripherals but we are small and mostly virtual.
Stu
I spent a lot of time 2 weeks ago at Kaseyas User Conf talking to MSPs about “not” selling technology (but selling Business Value Services), and how to price. I belive these are directly related to each other. Selling Business Value Services, then having “tech talk” about how many devices and what types to get to a price, brings you back down to technology and can dilute your Business Value Services value prop. My 2 cents worth.
Hi Everyone…I recently left the MSP community and I am now a client. Here is what I would expect as a “client”. I would appreciate a MSP who came to me and offered me a complete bundle based on the size of my business (per user works). Everyone on my team has three IP addresses assigned which equal three devices when you consider that everyone has a MacBook, iPhone and iPad…some have desktops as well. We are a small business with more devices than some typical small businesses…a device pricing model would price you out of our market. In addition, we just expect everything to work and work when we need it. We expect fast, quality support at a very low monthly cost. Sorry guys, coming from the approach of the client…now having worn both sets of shoes.
I would also appreciate a MSP who can point out when new technology is out there to help our business..and even help us save money by introducing new concepts. We recently turned down a number of MSP offers because they wanted us to “buy a server” and didn’t understand how Ulistic does business. This is the critical deal breaker for a number of my peers in our dark corner conversations about business success…we all need consultants and advisors who understand our business and can help us succeed.
Stuart Crawford
ULISTIC
http://www.ulistic.com
I am going to agree with Lane that many firms are not using the flat rate model. This is an uphill battle that I fight to prove to my clients each and every day. The interesting this is that the clients of mine who adopt this model to their business find it so much simpler to sell their MSP offering.
I am also going to agree with Amy, where she states that the reseller needs to answer the question of what is the value to do business with them. Until they know that answer, they will be selling at the lowest price point to get the business. That low price point is probably per device if they can get it.
This is a great thread Joe, thanks for starting it. I am glad that so many of us are in agreement now I must ask, how do we help the industry implement this type of value based pricing?
Stu
Stuart Selbst Consulting
http://www.stuartselbst.com
Awesome topic Joe. I spent the better part of my keynote at the ASCii summit earlier this month in Chicago talking about this very subject. I would have to strongly agree with either the ‘per-user’ or ‘total contract price’ pricing methodologies.
As MSP’s, there’s no need to break your services down to the lowest common denominator because it’s not a product… it’s a solution you’re selling.
IMHO, I also don’t buy into the notion of embracing commoditization. That inevitably leads to chasing contracts down the pricing hole. I feel as though the interests of MSP’s would be better severed if they took the time to get better at positioning their services and embraced a solution based sales process.
Mike Byrne
Director of Partner MGMT amp; Sales | Quest Software (PacketTrap Networks)
Great topic, Joe! Per device pricing has always been appealing because of its simplicity; a salesperson can generate a quote or set price expectations with minimal analysis. This works well for “a la carte” services that are largely technology based in their delivery (i.e. Managed Anti-Virus).
However more complex, fixed fee, managed services engagements need to take a number of factors into consideration when determining both the MSP’s costs, and final price. Included services like vendor relationship management won’t necessarily scale based on the number of devices, and a thorough assessment of the prospect’s technology amp; business is required to bring together all the information required to set a price with confidence.
Also, by presenting a single, fixed fee price, tailored to the prospect for agreed upon services, MSPs reduce the risk of “death by line item” and losing control of the sales process.
Cheers,
Kevin Kirkpatrick
http://www.n-able.com
Level Platforms has provided its Managed Workplace RMM platform exclusively on a per site basis since 2004. The chief motivation was to free the MSP from the limiting concept of devices and encourage them to focus on value.
Once an MSP delivers an inexpensive entry-level service such as asset management and monitoring, they layer on all kinds of new services at no additional cost.
Since 2004,virtualization, cloud services, UC and other technologies have been making the traditional MSP focus on stand alone PCs and Servers a very business-limiting model that is now highly commoditized.
Our simple agentless model allows MSPs to deploy and manage the latest technologies while discovering new ways to package and deliver value as seen by their customers rather than their competitors.
With creative customer focused packaging and pricing they are reaping their fair share of the value they bring as they help their customers migrate from the fading world of client server computing.
Peter
http://www.levelplatforms.com
Hey Folks: Just a note to assure you I’m reading all the comments and taking in all the feedback. Thanks for all the viewpoints. I’ll be keeping them in mind as we plan additional content involving sales, pricing and business models.
-jp
I think Amy Luby is right. She and I have had some good conversations about the real problem that exists in a typical MSP; knowing how to actually sell. When you include are semantics and per device/user pricing in your sales presentation and quotes you are commoditizing yourself and the entire industry.
An experienced sales exec knows that you don’t actually go out and try to sell what you want to sell. That is how a hot dog stand works. That is a commodity sale!
You should have only 1 line item on your quote and that is an annual cost to accomplish X, X being a range of goals and a set of capacity limits (and here is where you may put a limit on number of devices, users, etc). Sure the profit is in Managed Services, but the client could care less how you make money. You aren’t there to sell Managed Services.
Consider that showing up for a meeting to discuss client needs and returning the next day with a line item cookie cutter quote IS NOT going to win you a profitable relationship.
1.) Volunteering to sit in board and business meetings for 30 days and shadow managers or decision makers so you can better understand how the company works. Start brainstorming on ways to streamline operations or cut costs.
2.) During that time, befriend your client and decision makers. Have a beer. Go to the game. Bring the wives along to dinner. Establish a relationship outside of the office!
3.) Ask to present ideas and concepts in a board meeting to decision makers. This isn’t a quote, its an opportunity to gauge interest and receptiveness to your ideas (and potential costs). Talk about current and potential costs. Read their reactions. Give them some equity in your upcoming proposal.
4.) Ask to record all meetings with a digital recorder. You will rarely be denied and you will often find that on a second listen you missed something important.
5.) When you do make your pitch, assume that NO ONE is going to read even a 2 page document. They are going to skip to the end to wherever a price tag is. Make a powerpoint and review the important details of your proposal. Remind them of what they are spending and getting now. Put the annual price tag in the presentation, but not at the end. THEN, leave them with a summary of your proposal and a single annual cost at the end.
A lot of MSP’s out there I meet have very talented staff and really go above and beyond for my clients. Sometimes when you wear the technical hat for too long you end up taking a technical approach to sales. Also, some people just aren’t meant to do sales. These are the same people we see complaining about how beak/fix services are better for them than long term contracts. They have tried and failed to connect the dots and subsequently retreated to familiar waters.
Andy Myers
http://www.MyersMathis.com
To Lane’s point, there are a lot of low priced providers who are flooding the market w/ untenable prices. To ad to our challenge, prospects generally don’t know how to buy managed services, and equate the price of managed services to the per hour rate soem truck slammer is charging them to show up and fix things. Of course, they are pricing it for what they will actually do and then calling that level of service (breakfix) what you and I would define our service offerings as. Our challenge is to sell on value (most mature MSP’s sell on value, not the bits and bytes) AND differentiate between us and the pretenders to help justify the price/service differences. I’ve got 3 pretenders in my market who market themselves as MSP’s, but don’t have the tools and processes in place to even attempt that level of service, so of course, they can price for less, and consequently deliver less to remain profitable (and they are all profitable as they’ve been around for years). I suppose I ought to just scrap my toolset, phone systems, noc guys, etc… then I can sell for 1/2 the price and provide just breakfix services. This seems to be what the customers want
Todd: The pretenders will go away. Their financial models eventually fail. As the old saying goes, you can’t sell below cost and make it up in volume…
-jp
@Todd I think everyone here knows how you feel. The customer is never going to know how to evaluate technical products or support offerings as well as the provider. This is a universe problem in just about any industry or market. However, it’s a problem with the sales approach, not the customer’s IQ.
I agree with Joe and encourage you to stick to your guns on pricing. Whenever these things come down to price you know you are still failing in the sales process somewhere. As I have said before on this site, we generally see low ball prices from MSP’s as a warning sign when evaluated service providers for clients. We sometimes have MSP’s raise their pricing before bringing their proposal to our clients. We need to know the our clients needs are going to be at the top of their list. The client understands this as well.
And if you have built your own NOC and Help Desk that only gives you a lot to talk about other than pricing. Bring clients in to your facility. Ask them what the competitions resources look like. It sounds like you have a lot to offer and have worked hard to get where you are at. Joe is right, industry consolidation and tough economies will take care of those fly-by-night competitors.
Andy Myers
http://www.MyersMathis.com
Andy team: I heard a pretty strong differing opinion today during a phone chat. An MSP software provider mentioned to me that per-device pricing remains a key approach for MSPs and service providers managing big data centers. It was a point well taken.
-jp
@Joe this is explains why my ears were burning today. LOL.
I admit when an account is really large there is no way to avoid per node pricing, but I still believe this should come in the final phases of the sales process. 1000+ nodes across dozens of locations, for example, will require more precise contract terms.
Andy Myers
http://www.MyersMathis.com
Sorry to be late to the post here. I just found this in my Twitter stream.
To the point of pricing as a whole without breaking out costs, it seems to me that this could be a significant issue if the client ever wants to change their services. For example, what if you have a client who needs to cut costs and wants to know how much they are being charged for offsite backup? Do you just repeat that the $3000/month covers everything or do you now assign a value to it that may not be compatible with the client’s view?
Package pricing, particularly with the ever increasing bundling of services that many MSPs are doing, can easily be an excuse to not get to know your client. Understanding what your client values most and selling them on the value of things they need, but may not value, is a key job for any services firm. It isn’t easy, but it sets a much better tone for the relationship going forward.
@Chris I appreciate your concern for your clients and their future but how is one supposed to plan and scale a business when he doesn’t obligate his clients to follow through on contracts. To be blunt, are you looking to run a business or a charity? Contracts were not made to be broken! You are better able to serve your clients when you are financially stable. Try canceling your ATamp;T service 2 months after buying a subsidized iPhone and see what the result is. You are invested in these contracts just as they are and building in an out clause is a terrible way to sustain your business.
What MSP’s may not understand is that when you give a client this per device/user pricing the client is taught 1.) they are able to decide for themselves what they need and 2.) your consulting/advisory services are of little to no value.
If somehow you fumble into a situation where a client is asking for the per device/node/whatever pricing you just explain to them you are a partner who can meet their IT challenges and you plan your resources long term. Thus your contracts reflect a price that will allow your company to support and manage all of their needs up to a defined capacity for a preset price.
My suspicion is that most MSP’s who will object to this are wasting their sales engagements trying to sell support services. Business owners do not want to purchase support any more than they want to pay the electric bill. It is an evil necessity and if you are trying to pitch them on the value of your support services you are spinning your wheels. You have to bring more to that to the table and allow the support contract to be a secondary gain.
We are very excited about our NOC, Help Desk capabilities and reports. Business owners will never be excited about these things, although they are necessary pieces to the puzzle. When you give them line item per X pricing they are just going waste hours trying to pick it apart.
Andy Myers
http://www.MyersMathis.com
I too am in a market flooded with msp’s who offer lowwwww per device prices I have encountered many business owners who the first thing they ask is what is the price per computer. Last week I spoke to a business owner who was being charged $250 a month for “managed services” they had 9 computers and a server. I didn’t believe it until they showed me the invoices. How can we compete???? If you take a look at Little Fish, listed on the 100 MSP list, they offer low per device prices. So I don’t get it! What to do?
Dave: Move beyond device monitoring. Got any apps that you can layer onto managed offices?
-jp
Hi Dave,
It was just a week ago I ran up against a very low priced competitor. I was meeting w/ a prospect and the price we quoted was 3 times what he pays a reputable MSP to provide complete managed services. When I did the math, they were fully supporting 32 users (32 computers, 5 servers, 1 network) and a few hundred GB worth of automated offsite storage for ~$1500/mo. assuming a quality backup solution, that translates to maybe $800/mo. left over to fully support the computers and servers. I am at a loss as to how they could do this as I hear good things about their services from multiple clients of theirs. Are they just talking the talk? every other time I come across the “you guys charge twice what everyone else does” statement, i can pretty quickly differentiate between us and the low priced guys. in this case I couldn’t. I’m with you Dave, how do they do it at such a low price.
Dave and Todd: Some key questions…
1. Do you think the low-priced MSPs have staying power to remain in the market?
2. Do you check in with customers who choose those lower-cost options every six months or so to see (A) if they’re pleased with the level of service and (B) if they need other services?
I’ve heard from a range of MSPs that ultimately won back business from low-cost providers. In many cases the low-cost providers couldn’t fulfill promised SLAs or simply imploded because the math didn’t add up.
-jp
I’m pretty new to the MSP realm. One thing I’ve noticed is that the average user can’t comprehend the value of the services provided. People feel entitled to low cost and free things. I think the best way to do business is to be affordable but not overly generous. Your time and abilities are worth something. There are too many people selling services and not doing a good job on their SLA. Using refurbished and remanufactored supplies or parts to save on overhead. The market is flooded with horrible service. I strive off of doing quality work for my customers. I hate non-OEM toners and I use very good parts vendors. Why shoot yourself in the foot. Be smart with your clients and take care of their needs. I might be new to this but I’m getting places. Good luck to my competitors and my partners. You have to be open minded and able to think out of the box. It’s time for the abacus and not the calculator. Use that brain of yours.
Robert: Please keep us posted on your efforts. What were your milestones for 2010? What are your goals for 2011? We look forward to updates when you’re able to share them. Thanks for reading MSPmentor.
-jp
I agree a lot with what People are saying about pricing per device vs
per user. The question is though if you gave a customer with
20 users 2 servers a flat fee price lets say $2000.00 per month
and they add 2 more staff next month. You would then need to increase
their fee which with simple math reveals your pricing per user anyway.. So your back to square one..