It isn’t easy standing out in the managed services space. Faced with an increasingly crowded marketplace populated by companies offering largely similar sets of technologies and tools, MSPs are struggling to differentiate their value proposition from the competition. Many have responded to the challenge by slashing prices, but the strategy is a double-edged sword at best.
Sure, undercutting the competition is a proven tactic for garnering customer attention and landing contracts, but it’s a band-aid solution that ultimately leads to narrower profit margins and reduced leverage the lower your prices go. Worst of all, it threatens to transform your business into little more than a commodity play.
While data indicates that the most successful MSPs are competitive on price, it’s far from the only differentiator boosting their visibility (and their bottom line). Here’s what you need to know to join their ranks.
Making sure the price is right
Developing a sustainable but successful pricing model hinges on a number of factors, chief among them:
- Understanding costs. The first step to knowing how to price your services without losing money is knowing the break-even cost. Carefully analyze the total cost of delivery to clients, and pinpoint operational areas to optimize to drive down that cost. Pay close attention to market rates and calculate the differential between the costs of an in-house staff vs. your managed IT services package, making it easier to sell prospective clients on the value your business offers.
- Standardization. Many MSPs do not have a standard pricing plan—they simply adjust prices based on clients’ individual in-house IT environments and requirements. Savvy MSPs should instead standardize their offerings and create a bundled set of core solutions, then establish a fair but profitable price based on a deep understanding of everyday business costs, vendor commitments and additional expenses that may arise.
- Flexibility. Price your services according to the depth and scope you offer, as well as the clients you serve and target: A customer in a vertical with unique regulatory demands (for example, a healthcare provider contending with HIPAA restrictions) is a much different proposition from a small startup, and prices should reflect that difference. Also understand that technological innovations can and will play havoc with managed service pricing strategies: New services and solutions will reach the market, shaking up the status quo and transforming the economics of doing business.
Keeping up with the competition
The most successful MSPs thrive on both the quality and quantity of their IT services, not aggressive pricing, according to the results of IT management solution firm Kaseya’s 2016 Managed Service Provider Global Pricing Survey. Based on data from close to 400 firms across more than 30 countries, Kaseya reports that high-growth MSPs charge more on average for monthly server support and maintenance; they also charge more per hour for their technicians.
How do they do it? Many offer security services, citing ‘heightened security risks’ as the top IT problem or service that they expect their clients to face in 2016. Three-quarters of respondents offer desktop security services; in addition, identity and access management services have increased at 33% compound annual growth rate over the last three years. The most successful MSPs are also more than twice as likely to offer cloud-based services such as monitoring, hosting, backup/recovery and desktop/server management, Kaseya notes.
Whatever innovative, in-demand services your company chooses to offer, never forget that cutthroat pricing is a race to the bottom. Remain competitive, but don’t sacrifice your margins in the process. Instead make it harder to be displaced by adding value to your stack of services: The more value you offer, the more difficult it will be for rivals to undercut each line item you invoice.
About the author
Vadim Vladimirskiy is the CEO of Adar, Inc. Under Vadim’s leadership, Adar’s streaming IT solution, Nerdio, has revolutionized the way small to mid-sized organizations handle IT management. Vadim holds an MBA from the Kellogg School of Management at Northwestern University. He currently resides in the Chicago area with his wife and four children.