First Determine Your Target
Before pricing any service it’s important to determine the needs of your target market. Smaller companies have lower revenues in general and are constrained in their ability to fund expensive services. They look for low priced offerings providing basic levels of support. Nevertheless, all businesses are interested in getting the best value for their investments (read largest ROI) and most will favor higher value, versus a lower price, if the value price fits within their budgetary constraints.
If every client wanted the same outcome you’d expect price ranges for more popular managed services to be fairly narrow, but in reality, they’re not. Consider the prices charged by respondents to the 2014 Kaseya MSP Pricing Survey for desktop support – see chart below. The chart shows the average desktop device support and maintenance charge per month achieved by the survey respondents. The results shown compare responses from MSPs who’s monthly recurring revenue (MRR) had grown at greater than 10% per annum to those who grew their MRRs at less than 10%. As you can see the range of prices is quite wide, reflecting the different value perceived by different customer segments in different locations.
The biggest value of managed services to a small company may be doing things they do not have the skills or resources to do themselves. In this case, your differentiation must focus on how effectively you will provide the service and why you are so much better than your rivals. Do your skill levels provide a more certain outcome? Will you be quicker or just more effective than you competition? Will you pass on knowledge or help train internal personnel? Buying an ongoing service requires a level of trust; customers will pay more for providers they trust to provide good service. Pay attention to competitive price ranges but don’t be fooled into thinking that the lowest price always wins. It doesn’t. Faster growing MSPs will tell you that the best value service usually wins. This is also reflected in the above chart where faster growing MSPs are shown to have been able to achieve higher prices.
In comparison, mid-sized companies will likely pay more for their managed services. However, they also have more complex needs. As companies grow, their risks increase and they develop requirements that small service providers find harder to satisfy. They may need proof of regulatory compliance or training, liability insurance coverage for service provider staff visiting their locations, guaranteed service levels and any number of other items. If mid-sized companies are your target market, understand what these needs are and don’t be phased by low-priced bids from those much smaller (low overhead) companies. In general, there is a significant correlation between the (employee) size of clients and the size of their service providers. Bigger companies just find it easier to trust larger service providers because they see the increased maturity and professionalism that develops with growth and size. Understand the value of your service to your target audience and price accordingly.
Kaseya recommends that you use the pricing charts and information in the Pricing Survey report to make sure your services are priced in the right range. If your services are basic, the lower ranges will be more applicable. If you are offering advanced services with more customer value, then you can justify being in a higher pricing bracket.
Plan for some pricing changes in 2015
The pricing charts in the survey report represent fees charged by Kaseya’s MSP customer in late 2014. The survey also asked about plans for price changes during 2015. The chart below summarizes the pricing intentions of our respondents across the range of different service offerings covered by the survey. As you can see, the most prevalent color is black, indicating that many MSPs intend to keep pricing flat in 2015. The green sections indicate price decreases and suggest that few plan on reducing prices. The blue sections indicate the proportion of MSPs offering each service who intend to increase their prices in 2015.
What’s interesting is that those services expected to see increased demand are the ones most likely to also see upward price pressure, for example, Mobile Device Management, Backup and Recovery (perhaps for cloud services), Cloud Services themselves, and Desktop Security services. At the other end of the spectrum, the more “traditional” services such as Patching and Update, Monitoring Service Levels, Audit and Discovery and Remote Monitoring are probably the most competitive services and are less likely to see increases.
However you view service pricing it’s important to adopt a value-pricing strategy. Both survey results and conversations with successful MSPs suggest that pricing on value and selling outcomes is the way to be successful.
Pricing MSP services for growth and profitability
This topic and much more are discussed in detail in our webinar Pricing MSP Services for Growth and Profitability. The webinar highlights the results of the Kaseya 2014 MSP Pricing Survey which was completed in September 2014.
Author: Ray Wright