How to price managed service provider (MSP) offerings

• Published: 04 Apr 2007

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?