MSP pricing: How to build an effective plan

Pricing managed services? Don't become preoccupied with per-user or per-device pricing decisions and make sure to aim for a profit margin rather than markup, David Streit writes.

Managed services providers face a multitude of business challenges.

MSP owners and managers need to consider staffing and IT automation, as well as business development and marketing. Among the various considerations, MSP pricing remains one of the trickiest propositions of running a managed services business. In this Ask the Expert, David Streit, principal at Stephill Associates LLC, a managed services and IT support company in Monroe Township, N.J., provides four tips on how to build a solid pricing plan. Streit has been an ASCII Group member since 2012.

No MSP has the same pricing model as another MSP. Effective MSP pricing plans are those that clients sign up for and are profitable. The plans your firm offers depends on your size and resources, ranging from simple monitoring and automated maintenance without labor, to AYCE (all-you-can-eat) comprehensive plans that provide the client with unlimited onsite and remote labor for a fixed monthly fee. Most MSPs fall somewhere in-between.

Consider these guidelines when building your MSP pricing plans:

1.        Don't get hung up on per-user or per-device pricing decisions.

Decide what products and services you're offering, use a spreadsheet to list your per-device and per-user costs, then add an appropriate margin and device or user count buffer on the total costs to get to a desired monthly fixed fee. Clients love fixed fees because they are predictable.

Effective MSP pricing plans are those that clients sign up for and are profitable.

2.        Decide how much, if any, labor to include.

I offer unlimited phone, remote and email support with a negotiable number of included hours of onsite support. Unlike most MSPs, I allow those hours to be used for existing infrastructure, projects, and moves, adds and changes. Unused hours roll over within the current quarter. Clients love this approach because they can accumulate hours to cover projects and outages. I benefit because the included hours are paid for in advance and the client builds a billable support buffer. The idea is to reduce the objections a prospect has for signing on and to distinguish my plans significantly from the competition.

3.        Aim for a profit margin (not markup) of 35% to 50% on total cost.

The formula for margin is Total Cost / (1-.desired%) = Fee. You'll find margin is higher than a simple markup.

4.        Build a spreadsheet to price your plans depending on the services needed for a prospect: one sheet for each plan, with other sheets for each product or service, and formulas in the plan sheets that draw from the product and service sheets. As my services change, I add and delete vendor sheets. Sometimes for complex cloud services, I'll use the pricing tools on the cloud vendors' websites, then manually enter the final cost number into my plan sheet.

Next Steps

Read about MSPs' push toward value-based pricing

Learn more about MSP pricing approaches

Find out how to balance your IT services portfolio

Dig Deeper on MSP pricing models