Understanding the MSP pricing models is just half the battle. The true challenge is in choosing a model that is appropriate for your business. You must take context and your goals into consideration when choosing a model, just like you would with any other fundamental choice for your MSP and rmm tools business. Here are six steps that will help you get it correctly.
Define your target market
Understanding and creating your ideal customer personas (ICPs) is a crucial first step in determining the appropriate pricing models. We discussed how ChatGPT can assist you in obtaining MSP ICPs in a previous piece, but obtaining those initial ICPs is only the beginning. From there, you must consider their purchase decisions, pain issues, and business context in relation to your MSP offerings.
The start of a ChatGPT conversation with an MSP customer.
Were your ICPs pursuing the least expensive option? Do they belong to a niche where a premium can be charged? Which pricing models best suit their business requirements? Providing answers to these queries will position you for success as you create your MSP pricing model.
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Assess your costs
The other side of the equation that will determine your profitability is your costs. A lot of pricing models directly employ “cost plus” pricing, in which the expenses incurred in providing a service are utilized as the foundation for determining a price. The seller deducts expenses and applies a markup to determine the price for their customers.
To operate an effective and profitable business, you must assess and comprehend your expenses even if you don’t use a “cost plus” model directly. Make sure you consider both the direct costs, which include labour, licensing fees, and infrastructure expenditures, as well as the indirect costs, which include training, salaries, administrative overhead, and marketing.
Determine your minimum viable contract
Regardless of the pricing model you select, be sure you comprehend the “floor” that indicates the price point at which you may profitably operate your business. Think of your minimum viable contract as that floor.
Determine whether a given price point is viable by comparing the monthly recurring revenue (MMR) for a given set of services with the cost of goods sold (COGS) and other expenses like sales commissions. The contract isn’t enforceable if it isn’t. Check out our blog post on 27 Critical MSP KPIs (and How to Calculate Them) if you need assistance deriving the various metrics needed to determine contract viability.
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Consider scalability
A contract that maximizes your income from a particular client while being precisely tailored to their needs is fantastic. However, global sub-optimization for your entire business may result from local optimization for particular clients. This is due to the fact that a disorganized system of custom contracts can rapidly turn into a nightmare for technical, administrative, and sales support staff. This isn’t a one-size-fits-all solution. Custom pricing for every single one of your clients could be ideal if you wish to concentrate only on a select group of large enough clients to enable the desired business outcomes. However, more structured pricing strategies might make sense if you wish to grow and serve dozens or even hundreds of clients. Making sure your MSP pricing model takes into account your operational efficiency and scalability is crucial.
Research competitors
It’s unlikely that you are the first MSP in your area and specialty. Competitive analysis has several advantages. You will first get a sense of what alternatives your potential customers may have. Additionally, you’ll get to see ideas that are now being tested in the market. Look for feedback in reviews and online discussion boards to learn how customers react to these various models.
Keeping that knowledge in mind, you may strategically set your prices to address current problems. Additionally, you can avoid committing the mistakes that your rivals had to discover the hard way.
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Look at technology trends
An important factor in MSP price decisions is technology. For instance, changes to Official 365 licensing would directly affect many MSPs. Like how Chromebooks and ChromeOS have replaced Windows computers in many schools, alternative technologies have the potential to open up new business opportunities and alter the inputs that go into your pricing model.
Keep yourself informed on recent technological advancements and trends so you can seize opportunities when they present themselves.
Best practices for managed service agrееmеnts
Your agreements and contracts specify how you conduct business with clients. Make sure they are configured to complement your MSP pricing strategy and shield you from problems that could negatively affect your bottom line. Here are the top four practices to assist you in achieving that.
Set boundaries
An essential component of managing a sustainable MSP is providing good customer service. Nonetheless, it’s critical to establish a distinction between offering excellent customer service and delivering services for free. Certain clients could look for methods to receive services that they were not charged for. This issue may be especially prevalent when dealing with clients that favor the least expensive alternative available. Make sure that contracts, business procedures, and communications adopt a tough yet equitable stance towards clients who attempt to obtain more than what they have paid for.
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Include an escalation clause
Gains can be quickly eaten up by inflation. An escalation clause in your service agreements might protect you from the possibility of inflation. The fundamental idea is that, provided certain requirements are met, an escalation clause allows an MSP to raise prices by up to X%. Use an inflation protection fund if you’re investing for a year or more to mitigate the danger of inflation.
Shield your business from liability.
Claims and lawsuits brought against your company may cause serious financial harm. Make sure your contracts and insurance policies help protect your business from liability. Examples of actions you can do to reduce risk are as follows:
denying liability for any hardware or softwaree failures by third parties
requiring clients to keep local copies of important data
securing cyber insurance and mandating clients to follow suit
Don’t be afraid to fire clients
We have previously discussed the significance of identifying your ideal clients (ICPs) to concentrate on them. Recognizing when a client has grown more of a liability than their contract is worth is also crucial.
In other words, you must be aware of when to fire a client and possess the courage to call it quits when the time is right. If you don’t, you can find yourself with customers abusing your services, taxing your support personnel, and losing money.
Author Bio Fazal Hussain is a digital marketer working in the field since 2015. He has worked in different niches of digital marketing, be it SEO, social media marketing, email marketing, PPC, or content marketing. He loves writing about industry trends in technology and entrepreneurship, evaluating them from the different perspectives of industry leaders in the niches. In his leisure time, he loves to hang out with friends, watch movies, and explore new places.
