How Do I Price That? was one of the top five breakout sessions at our annual MSP user conference, Navigate 2015. Moderated by Ted Roller of GetChanneled, this partner panel focused on best practices for packaging and pricing managed IT services, insights into cloud pricing strategies, tips for discussing billing with clients, and much more.
We followed up with two of our panelists, Paul Rouse, President and Owner of Rouse Consulting Group, Inc., and Raffi Jamgotchian, President and CTO of Triada Networks, asking a series of three questions to learn more about their individual MSP pricing strategies.
Q1: How Do You Price, and What Do You Charge For?
When it comes to pricing managed IT services, two models are most common for MSPs: per-user and per-device. Historically, Paul Rouse has used a per-device model in which he charges a specific fee per server, workstation, etc. However, Paul mentions how Rouse Consulting Group, Inc. is in the process of migrating from the per-device model, to a per-user model. Currently offering two levels of service, one package available to small-to-medium-sized businesses is Monitoring and Maintenance, which, appropriately named, includes maintenance items like remote monitoring and management (RMM), patching, antivirus and spyware, along with all of the labor required to support these features. The second service is Total Care, which includes everything in the monitoring and maintenance category, and also all labor associated with normal user requests and needs. When special projects like technology refreshes arise, however, Rouse Consulting Group, Inc. charges extra.
As for Triada Networks, Raffi Jamgotchian describes how he bases price on the number of employees in the company, also known as a per-user model. Included in their pricing is unlimited support (remote and onsite), backup and disaster recovery (BDR) appliance and cloud recovery, maintenance, updates and management, and a firewall.
Which approach do you lean towards? Leave a comment below!
Q2: How Do You Establish Your Billable Rate, and How Do You Map That Rate Back to Overall Profitability?
Rouse Consulting Group, Inc. operates in various managed IT services markets and verticals, so Paul knows how each operating environment can have its own unique opportunities and constraints. Regardless of the environment, he begins establishing his rate by having a firm understanding of his fixed and variable costs. This helps ensure that his margins won’t drop below an acceptable level if there are certain pricing pressures within each environment. Paul has witnessed how many MSPs severely under-price their offerings, as well as under-deliver on service, which is why it’s important that Rouse Consulting Group, Inc. is generally viewed as a premium service at a premium price in the markets they choose to compete in.
Similar to Paul’s pricing approach, the first step for Raffi in pricing his managed services is to define his break-even price, and then determine a rate at which he can make a profit. His billable rate is charged per hour, and sometimes he negotiates price with clients that fall within a certain range, depending on the regularity and the need.
Q3: When in the Sales Process Do You Talk Costs, and When in the On-Boarding Process Do You Begin Billing?
Depending on the MSP, budgets and costs are usually discussed between the first and the third meeting. Raffi mentions how he prefers to discuss budget in the first meeting, because he believes “budget talks need to happen upfront otherwise you’re wasting everyone’s time,” both yours and your prospect’s. He also recommends beginning the billing process ahead of the on-boarding month.
Paul adopts a different approach at his MSP company, however. Even though senior management is included in early discussions, estimates and fees are not determined and/or mentioned until at least the second or third meeting. Before determining costs, his goal is to determine pain points and business philosophies, and assess if their services are a good fit for the prospect. Items Paul considers when making this judgment are the health of the prospective business, and the age of its IT infrastructure.
One final thing to note—there is no one pricing model or formula that works for every MSP, everywhere. What works well for Paul and Raffi may not necessarily work the same for you, and that's OK! This post was not meant to sway you in one direction, but rather to get you thinking about the different ways you can price and package your managed services. To learn more about other models and industry standards, we advise you to reach out to other MSPs (ones you don't compete with) that share your company profile or are in your peer group and ask how they'd answer each of the questions we covered. Then, you'll be on your way to achieving the kind of profitability experienced by the MSP featured in the webinar below!