Written by: Charles Weaver, CEO of MSPAlliance
In previous articles and MSPWorld sessions, we have discussed the concept of risk-based pricing for managed service providers. For those of you not familiar with risk-based pricing, it is the practice of adding a variable multiplier to your pricing model factoring in risk based on each client engagement.
There are many advantages to risk-based pricing. I will not go through all of them, but this approach does arm MSPs with the ability to defend themselves against commodity pressures, price shopping clients, and competition from break/fix providers.
What’s Different with Risk Pricing 2.0?
First, if you haven’t already, please read our previous articles on risk-based pricing, so you are familiar with the concept. If traditional MSP pricing models utilized per device and per user units to arrive at a price for managed services, risk pricing includes risk inherent in a particular client and adds that to the managed services pricing agreement.
Risk Pricing 2.0 adds to this theory by encouraging good behavior in your clients by reducing the cost of their managed services spend if they are behaving in a way that reduces their overall risk.
Pricing your managed services in such a way can enforce positive behavior with your clients, instead of punishing them for bad behavior. Here are a few examples of risk pricing 2.0 in action.
Risk Pricing 2.0 Examples
The following are some examples of positive behavior that can be rewarded.
Backup – if your client backs up their data (either on their own or uses an MSP to do it)
MFA – authenticating users beyond their standard username and password credentials
Security monitoring – beyond regular network and device monitoring, having some level of security monitoring is a good baseline level of security protection for clients.
Password management – not just the enforcement of good password policies, but helping clients secure their organization by utilizing password management systems can make a huge difference with minimal investment
Risk Pricing in Action
The above examples are good practices any organization should have in place. Le’ts take a look at how risk pricing 2.0 would encourage these behaviors. You have two clients: client #1 has all these above-mentioned practices in place; client #2 does not. Under this scenario, client #1 would pay less for their managed services agreement than client #2.
Now, before you state the obvious, I know that there could be other variables at play here. But, you get the idea: one client would be incented to behave a certain way through lower fees, and the other would pay more because of their lack of proper “cyber hygiene.”
MSPs could make this pricing model part of their sales process. Potential clients could be shown multiple options depending on what they were willing to do; the riskier they are, the more they pay.
Risk-based pricing is a model designed to give MSPs more control over guiding clients towards safer and more secure IT management.