How to price managed service provider (MSP) offerings

To price a managed service provider (MSP) offering, you must weigh how much your client pays to manage apps in-house versus how much they may pay to have you manage them.

 

Paul Myerson, Enterprise Strategy Group (ESG)
 

In speaking with some VARs who do not provide managed services, their belief is that they are not leaving much on the table when they see four-figure deals per month, and would rather wait it out and see how the managed service provider (MSP) opportunity shakes out. Where I can understand not losing sleep over a few thousand dollars for a couple of months, I am challenged by the thought of not investigating a multiyear agreement to provide these services and more importantly, keeping a potential competitor out of the account. If you don't think your small and medium-sized businesses (SMBs) and small and medium enterprise (SME) customers are investigating MSPs, think again.

In SMB and SME accounts, if they aren't already trying to reduce the number of people they buy from as they continue to grow, they certainly will be. I would not want to be the one left off that short list. Everyone from Seagate to Staples has entered this market with an MSP offering as of late, and it is an indicative of changing buying desires of that segment -- people often want to buy services and not products -- so either give them what they want or they will go elsewhere.

Pricing MSP offerings is truly an art form. It is not the traditional cost-plus model; it actually requires the understanding of your clients' costs associated with managing the application internally, and the perceived value of what they would pay to have an MSP manage the solution. Here is where working with a seasoned MSP vendor comes in. The MSP vendor should be able to educate you on what average client costs are, based upon certain criteria that you can roll into a business operational and financial impact study for your prospect. The vendor should be able to provide you a rate of return spreadsheet that you can utilize with your customers, in order to rationalize the business case. The process not only gives you justifiable reasoning, but enables you to show customers the value in going with an MSP solution.

If the MSP vendor is unable to provide you these ROI tools, you should challenge them as to how they price offerings and validate the customer investment (other than saying it is in line with competitive pricing). You have the opportunity to be a leader with a new offering you are bringing to your customer; make sure your vendor can back you up in this campaign.


Becoming a managed service provider

 Home: Introduction
 1: Is your company a good match for the MSP model?
 2: What are the benefits of providing managed services?
 3: What questions should you ask a potential MSP vendor?
 4: How should you price MSP offerings?
 5: How can you avoid failed MSP partnerships?

 

About the author::   
 

Paul Myerson
Paul Myerson is a senior channel analyst for the Enterprise Strategy Group. Paul has core competency in direct and indirect sales model efficiency, channel program management and business strategy required for successful vendor/partner success. Myerson comes to ESG from EMC where he played a key role in developing the company's channel business. Prior to joining EMC's channel business, Myerson ran EMC's southeast region direct sales operations. Highlights of his 12-year career with EMC include signing and managing EMC's first resellers as well as the company's largest worldwide partners. In particular, he was recognized for his unique approach to channel management -- strength he now applies to the industry at large. Myerson's charter at ESG is to run the channel practice and to aid ESG clients with their channel initiatives.

Paul is also a featured speaker at the Storage Channel Reseller Seminar, just for VARs, resellers, systems integrators and consultants. This free one-day seminar is taking place in Chicago, Toronto, New York City and San Francisco. Take a minute today to apply for this free seminar admission by calling Delegate Recruitment representative John Smith at 508-621-5535 or applying online.

Copyright 2007 TechTarget

This was first published in April 2007

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