7 Different MSP Pricing Models
By Tobias Geisler Mesevage
The managed IT services market is expected to be worth roughly $258 billion by 2022, which is nearly double what it was worth in 2017: $152 billion.
As the role of the managed service provider (MSP) continues to grow, more businesses are recognizing the value of hiring an MSP rather than creating an in-house IT department. As the landscape changes, more MSPs will also begin taking on the role of strategic advisors for their clients.
Datto recently released its latest State of the MSP Report, which found that IT service providers are adjusting their business model to include even more managed services and are looking to bump up hiring in response to demand.
Offering an increasing variety of services means it may be time to take a look at your pricing model, ensuring you’re in line with current market practices and standards, and to ensure you’re generating the most recurring revenue possible.
In this article, we examine seven different pricing models to explore as an MSP and also look at how to reduce turnover and make your service stickier.
What Is a Managed Service Provider?
IT as a service, also known as managed IT services, is a model in which businesses hire a third party to oversee and manage all of their IT needs.
An MSP typically provides the technical expertise needed but at a much lower cost to a business that may be considering having IT professionals on staff. Contracted IT service providers deliver the same services as in-house IT; they can recommend, install, and manage all of a business’ IT needs.
Hiring an MSP to deliver IT needs frees up a business to focus on innovation and growing daily operations.
Choosing the Right Pricing Model
There are several different pricing models when it comes to the MSP industry, and one of the most critical steps is ensuring you are charging enough for your services.
Whether you are just starting as an MSP, shifting away from a break-fix model, or simply re-examining your business model and pricing strategy, there are a few things to consider when determining your rate:
- Increased Services: You may have started out offering basic IT management services, but now you’re offering an expanded menu of services that include network security, strategic planning, and Disaster Recovery Planning.
- Cost Increase: If your business is growing, it’s likely so are your expenses in doing business. You should always have a clear understanding of your costs of doing business and delivering services to clients.
- Target Clients: Your services for a HIPAA-compliant health care organization will require more specialized knowledge and care, thereby increasing costs. Your client’s industry will help determine the scope and depth of services.
- Competition: Keep one eye on your competition to ensure you remain competitive in services offered and pricing. Consider adding services to outperform your closest competition.
7 Different MSP Pricing Models
There are seven models for pricing managed IT services, and each depends on the services you offer clients:
- Value-Based Pricing: Provides IT services for all components of a business. The most comprehensive model, value-based pricing, essentially establishes an MSP as an outsourced IT department. It is typically a flat-fee model.
- Per-Device Pricing: Provides monitoring services for specific devices, including desktop systems and mobile devices. Customers are billed a flat fee for each device added to the plan. While the model offers flexibility and predictability, it does not give customers a full picture of network health.
- Tiered Pricing: Often, the most popular among MSPs, tiered pricing offers different bundles of services with increasing prices, as more services are added to the package. This places the onus on MSPs to pre-determine tier structure.
- Per-User Pricing: Similar to the per-device pricing model, but the pricing covers individuals rather than devices. This model would cover all IT needs for each employee and all the devices they use. This model works well for businesses, especially for employees with multiple devices.
- Monitoring-Only Pricing: Provides network monitoring and alerting services by an MSP and usually only involves alerting customers of issues, but not mitigation of issues that may arise. These usually work with companies that have in-house IT departments that don’t have the tools needed to monitor the network.
- All-You-Can-Eat Pricing: Provides the most comprehensive service model and includes remote support, on-site support, as well as lab or bench time – all for a flat fee per month. This model is usually the most profitable for MSPs and also helps a business in budgeting annual IT services.
- A La Carte Pricing: Often considered the least popular model for MSPs, as it often has the lowest ROI. This model allows the client to pick and choose the IT services they would like to include in a contract. An MSP could offer Disaster Recovery Planning, managed backup services, or patch management.
Offering a wider variety of pricing models could mean the difference between a potential customer walking away and closing the deal.
Want to know more? Watch this quick Business Made MSPeasy video on profit-driven strategies:
Recurring Revenue For MSPs
“To keep revenue flowing, MSPs should consider expanding their portfolio with services they might not typically think to offer as a recurring service,” says John Tippett, VP Product, Networking at Datto, Inc.
Tippett is quoted in the 2019 State of the MSP Report which found that MSPs saw a positive impact from expanding their portfolio of services to include:
- Cloud Storage Management
- Productivity Software
- Business Continuity & Disaster Recovery
- Professional Services Automation
One of the most important things to keep in mind when it comes to developing a recurring revenue model is to focus on customer satisfaction, which is directly tied to retention and renewal of service agreements. Retaining existing customers is far more lucrative than chasing new customers.