For the spring 2015 MSPWorld conference in Orlando Kaseya partnered with one of our very successful MSP customers, Artemis IT, to present findings from the latest Kaseya annual MSP pricing survey in a session entitled “Strategies for Profitable Growth”. A key finding from the survey is that higher-growth MSPs more frequently adopt value-based pricing strategies. A strong trend towards value-based pricing is very apparent when comparing the results of the latest survey with those from the prior year, but how should you go about determining the value of your services?
As the old adage goes, “beauty is in the eye of the beholder”. This phrase has often been modified to “value is in the eye of the beholder” and while you might not expect clients to fall in love with your pricing, it is true that the value perception of your services will vary depending on clients’ needs. Smaller clients with simpler IT systems are likely to be more concerned about price because of their budget limitations, although value for money is still very important. For those companies, an MSP might be the IT department and the value is in saving the client from having to hire and retain a, possibly part-time, IT person. At the other end of the spectrum, mid-sized fast growing companies with more complex or sophisticated IT needs may be more interested in system availability and lack of disruption to their very busy IT team. In fact, the more strategic the perception of IT, and by association your IT services, the more valuable will your services appear, assuming there’s trust in your ability to deliver.
Different customers perceive value based on their own circumstances, not in relation to your costs. For this reason, MSPs who use value-based pricing increasingly quote flat fee, custom pricing. Custom pricing allows you to include non-device/seat related value such as regular review meetings, report production and consulting hours, while at the same time giving the client a predictable monthly payment, even if additional devices/people are added to their networks during the contract period. Such value-based pricing approaches allow you to compare the price of your unique service solution to the benefits the client receives and differentiate you from competitive solutions. Custom pricing should, of course, take into account your total service delivery costs and the gross margin you’d like to make.
There are many ways that your managed services can deliver value. Here are 3 key areas to consider:
Increased revenues. Does the successful delivery of your services free up resources that can better be used to deliver a better service or product to your clients’ customers? Does it enable the delivery of better quality solutions that reduce customer churn and increase stickiness? Does it enable your clients to grow their businesses?
Reduced costs. While implementing a managed service may enable client staff reductions, they are relatively rare. (Of course you may be saving the cost of hiring an IT person for smaller clients). In most mid-sized organizations internal IT staff members are deployed to more strategic areas, which both saves money and has high value. More frequently cost savings come from better hardware utilization (e.g. virtualization), increased employee productivity due to less downtime, lower building and utility costs when hardware is hosted off-site, and better use of financial resources when capex is replaced by opex.
Increased IT staff satisfaction and reduced turnover. While it’s true that many mid-market enterprise employees become concerned for their jobs when outsourcing is discussed, freeing them from some of the more mundane and repetitive tasks such as back-up, AV scanning, system configuration etc….tasks that are better automated, and giving them more challenging work will often increase their satisfaction.
Take the example of a company in the medical records field. They provide an online medical records system to hundreds of doctors and their staffs in medical offices around their region. The company runs with a tight IT group and relies heavily on the services of their managed service provider to maintain system availability. The IT system is the core of their business. If there are issues that prevent their customers from accessing or using the system in a timely fashion, the results could literally prove fatal. In these circumstances the company needs to be constantly kept up-to-date about the status of the infrastructure and what remedial action is being taken to correct any issues.
In the words of Ronald Regan, they “trust but verify” so that no IT issues affect their customers. By using the services of an MSP they get the skills and abilities of the MSP in managing their complex infrastructure. They get regular reports and have regular meetings to discuss potential issues and infrastructure upgrade and investment requirements. They know what there SLA measurements are in terms of aggregate system availability and they free up the time of their own IT staff so that projects can be identified, prioritized, planned and implemented on schedule.
What’s the value of their MSP’s managed services? Consider that without those services they might not be able to expand their business and could lose valuable healthcare customers with frequent outages. What’s more the performance of the system is almost as important as its availability. A portion of their internal resources are focused on development and others on upgrades and infrastructure enhancements. Their MSP is a true business partner who enables their expansion and the value of the services they receive is at least equivalent to the fully burdened cost of several senior full-time IT staff.
There are many more ways to add value. Discuss business needs with each of your prospects and clients to find out what they value most and calculate your pricing accordingly.
About the Author
Ray Wright of is a member of the Product Marketing team at Kaseya. He is a high-tech industry and marketing expert with over 25 years’ experience marketing to and through MSPs and resellers. His product responsibilities have included both network- and system-management solutions; security solutions; tethered, wireless and mobile solutions; and software, hardware and services. His background includes senior marketing roles at Motorola, Cabletron and CA, where he focused on the needs of the IT functions at enterprises and SMBs in a wide variety of industry segments. Ray‘s current responsibility is to help Kaseya’s MSP and mid-sized enterprise customers be successful. He was a speaker at MSPWorld Spring 2015 and delivered the session: Strategies for Profitable Growth which was based on Kaseya’s 2014 MSP Pricing Survey and its findings. He blogs regularly at blog.kaseya.com.