November 19, 2021
How to Find the MSP Pricing Model That is Right for Your Managed Service Provider Business
Even though the price of BaaS, RaaS, or DRaaS is not the only factor driving sales, the right pricing model is a cornerstone of a managed service provider’s (MSP) success.
The MSP pricing model determines both profitability and competitiveness by clearly identifying what is and what is not covered by an MSP and how it shall be charged. Therefore, its choice should be approached with the utmost care. However, given the number of variables involved, choosing the right MSP pricing model is anything but easy. This blog post aims to simplify your decision-making process by introducing different MSP pricing models and delineating the key differences between them.
Types of MSP Pricing Models
- Value-based (flat fee)
- À la carte
The per-device model is one of the most straightforward pricing models. This strategy is commonly used because it is understandable and easy to quote. In addition, it’s easy to estimate the cost. Under this pricing model, the MSP charges its clients a defined fee for different types of devices. The contract has to cover the period of the set fee and the rate for each type of device (for example, laptop, mobile device, printer, server). If your client doesn’t add more devices, there is almost no option to raise prices unless you reconsider the basic rate.
The per-user pricing model is similar to the per-device model. The main difference is that a monthly fee is charged for each user instead of each device. Many clients prefer this model as it doesn’t consider the number of devices the network users have. With some clients, you might end up maintaining a much higher number of devices than users.
3. Value-based (flat fee)
The flat-fee model is one of the most comprehensive pricing models. In this case, the MSP provides all types of IT support, taking care of the whole system management process. Basically, the MSP takes on the role of an outsourced IT department. Usually, the MSP does not only solve current issues but also takes over hidden and potential problems.
4. Monitoring only
As is clear from the name, in this model, the MSP provides monitor and alert services only. This bare-minimum approach is common among clients who are on tight budgets. In this case, MSPs are mainly in charge of alerting clients of current and potential issues. However, the problem-solving process mostly redirects to the client’s internal IT team. If requested, the MSP can assist for an extra fee. Monitoring services can vary from minimal essential assistance to advanced support.
The tiered model is one of the most popular among MSPs. This pricing option gives MSPs the flexibility to create service packages with a graduated price increase, depending on the level of assistance provided. On the other hand, potential clients like it because they have options and can pick the most suitable bundle of services that meets their needs and budget. The packages are categorized according to the price and support levels (for example, Bronze, Silver, Gold, and Platinum). You can start shaping packages with a basic set of remote support, patches and updates. Afterward, add value by incorporating on-site support or emergency and after-hours assistance, for example.
6. À la carte
Unlike the tier model, à la carte is not an MSP favorite, as it significantly limits profitability. It can be compared to an open buffet of services, where clients can pick everything they need, thus tailoring a personal plan. Explaining all the assistance procedures to the clients can get too time-consuming. For the reasons mentioned, most MSPs don’t provide this pricing model anymore.
Break-fix is another pricing model that has lost its popularity over the years. Break-fix pricing refers to solving a current issue and getting paid for it without being involved in the maintenance process. It might sound like an easy solution, but it gets pretty complicated over time. Clients lose control over their infrastructures, while MSPs might end up spending hours learning about an issue and trying to find a fix. However, it is an excellent option if an MSP is looking for a part-time client.
How to Choose the Right MSP Pricing Model
As an MSP, choosing the most suitable pricing model is complicated. You are always balancing between making your clients happy and keeping your business profitable. When making your choice, consider the following aspects:
- Cost. You need a crystal clear idea of the total costs for delivering each service. It includes regular costs and additional ones that may arise.
- Target market. Your target clientele will define the most suitable pricing model, as the strategies for small businesses and larger organizations vary drastically.
- Technology. Having in-depth knowledge of the technological challenges and specifics will not only save you time and money but also influence your pricing strategy.
- Scalability. The key to successful scalability is standardization. By standardizing the core offerings pricing, you will shorten sales cycles, make the selling process easier and repeatable, and as a result, grow your business effectively.
- Competition. Being competitive is crucial in the long run. While the lowest pricing might not be the strategy you are looking for, having an idea of the market situation and tendencies is always an additional ace up your sleeve.
Comparison of MSP Pricing Models: Pros and Cons
|Per-device|| || |
|Per-user|| || |
|Value-based (flat fee)|| || |
|Monitoring-only|| || |
|Tiered|| || |
|À la carte|| || |
|Break-fix|| || |
Creating a long-lasting business strategy and MSP pricing model takes time. Consider all of the individual factors to find the most suitable option for your particular organization. Be consistent yet flexible to ensure client satisfaction and, as a result, a successful, prosper and profitable MSP business. Having reliable partners is key to a coordinated workflow and great results. Download the Free Trial of NAKIVO Backup & Replication for MSPs to simplify the administration process while reaching low TCO and high margins.