In a recent survey we asked more than 150 managed IT services providers (MSPs) numerous questions regarding their service offering, and received plenty of feedback. Some of the more interesting results came from what MSPs saw as the factors affecting how they price and package their services. Clearly, many of these factors differ from MSP to MSP for a variety of reasons, including location, business size, vertical, and breadth of services, among others, but three major factors stood out. Let’s take a look.
1. Cost of Technology or Tools to Support Services
Any kid with a lemonade stand knows that you have to spend money to make money, and if your lemons cost 50 cents, your lemonade will have to cost more to recoup the cost and see a profit margin.
It’s a simple lesson, but it still applies in managed IT services. Forty-two percent of MSPs said that the cost of technology and tools is reflected in the price that their customers pay. However, in setting that price, what margins are the MSPs setting for themselves? Does the technology used set up a situation where the business owner and their techs are mired in day-to-day minutiae, closing tickets related to wrong passwords? Or, have they invested in a platform that tightly integrates a network operations center (NOC) and a help desk for a fully-managed solution, allowing the business owner to close more clients and their techs to focus on strategic, revenue generating client projects?
2. Cost of Staff to Support Services
Hiring is an investment, and it can be a costly one. The average salary of an MSP technician nationwide is approximately 49,000 per year, and that doesn’t include the cost of benefits, training, or specialized experience. Depending on a number of variables, this salary could be significantly higher, which is why 39 percent of MSPs surveyed said that this is a factor that affects the price of their services.
Clearly, MSPs need to be strategic when building a team of technicians, and must utilize their time as efficiently as possible to ensure their investment in labor is generating revenue. They have to make choices, and these choices can result in profit, or wind up costing the business profits and paths to new revenue. Should the costly investment in skilled technicians be left to tasks that a fully-managed solution could handle, or is their time more profitable doing something more impactful to the bottom line?
3. Cost of Selling the Services
Marketing and advertising costs. Travel costs. Business lunches and dinners cost. For 37 percent of MSPs, it’s a factor that affects how they price and package their service offering. Sales can be a duplicitous aspect of running a managed IT services practice: many business owners are natural salesman, who know how to market their services easily and focus on closing deals day and night. Always be closing, right? However, other MSPs aren’t as comfortable, or just do not have the time to get out and attract new business. Sales and marketing is important, and it’s important to align strategically with the right partners that can help with sales education and enablement materials, as well as seek out peer groups that can help your business’ growth and development.
Other Factors That MSPs Reported as Affecting Pricing Include:
- Nature of Engagement/Customer Relationship
- Ease of Payment for Customers
- Ease of Billing
- Partnerships Needed to Support Services
- Length of Sales Cycle
MSPs face several factors that can influence their bottom line, but what separates the average profit from a large profit margin are the strategic investments that they make when selecting the infrastructure they build their business upon.
Is your business model solid?
By Gretchen Hoffman
By Meaghan Moraes