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January 27, 2023 | Joseph Landes

5 Azure Pricing Mistakes MSPS Make

To capitalize on the growing adoption of Azure and AVD, MSPs must offer the pricing structure that will best enable their growth and healthy margins.

Microsoft Azure is quickly becoming the go-to cloud environment for virtual desktops. Why? Azure and Azure Virtual Desktop (AVD) offer a number of benefits that map closely to what organizations of all sizes need as they continue to expand and optimize their use of the cloud.

Going into a new year, there are variables that will come into play, such as staffing and budget changes, strategic hires, or new product introductions. With Azure, organizations and their managed service providers can easily account for variables, and budget and predict exactly what anticipated IT spend will be on a recurring basis. If requirements and usage change, Azure can accurately predict monthly spend. The platform also enables partners to scale with pay-as-you-go (PAYG) that doesn’t break the bank and offers flexibility in more precisely paying for the type of desktops clients need. It’s no longer one-size-fits-all.

All these attributes are driving adoption of Azure and AVD. MSPs looking to capitalize on this rapidly growing trend must be prepared with the pricing structure that will best enable their growth and healthy margins. They need to drive costs down and margins up by fine-tuning their quotes to customers.

If an MSP is not meeting margin goals when it comes to Azure and AVD, some or all of these five common pricing mistakes are likely to blame:

1. Not Over Spec’ing

Customers do not want changes in their pricing agreement due to an MSP not quoting correctly. It is incumbent on the MSP to ask the right qualifying questions to correctly spec the quote, thoroughly address the customer needs, and protect margin. Over spec’ing gives the MSP some insurance that they can satisfy new compute demands, with some room to scale. And remember, this is a moving target: Application, desktop, and cloud usage vary over time.

Spend some time improving billing and change management. If, for example, new requirements call for an increase or reduction in VM size, an engineer should notify the MSP account lead so the new costs can be aligned with margin goals. For new accounts, MSPs need to do their homework and ask questions that will affect pricing, including: Is the customer is already running Office 365, and what version? Are they using Azure Active Directory (AD)? How many servers do they have? How many remote users and locations are there? What are their main applications?

2. Incorrect Identity Management

Identity management has a huge impact on pricing, especially for SMB customers. Two different identity options can equal two different costs, but the same customer experience. For example, a five-desktop pricing quote can vary from $31 to $56 per user per month for the same service stack; the exception being the identity component used (Azure AD DS or Active Directory Domain Services vs Azure AD) which impacts both the monthly recurring costs and upfront costs for a server running AD DS. Quoting the wrong option—with no change in the stack—can hurt margin.

3. Incorrect Instance Sizes  

Incorrectly identifying the instance size for the workload can lead to costly underquoting or not winning the deal because it’s vastly over quoted. Also be aware that VMs are released in Azure all the time; some are 30% faster and are generally the same price, so it is financially smart to phase out older machines as they will start costing more.

4. Fear of Reserved Instances

MSPs worry about lock-in and early termination fees in using Reserved Instances (RIs), now known as Azure Reservations. However, these offer benefits in cost and flexibility. By committing to a term agreement to pay for Azure compute capacity in a specific Azure region, MSPs and the clients they serve can realize a significant discount. Azure RIs offer the flexibility of using the reservation to offset some cost of VMs while also allowing for early termination or exchanges.

Other RI-related mistakes are:

  1. Assuming someone locked in a cost-saving reservation, but not verifying it.
  2. Not putting in for the exchange of a RI once a VM size change is made.
  3. Forgetting to renew RI and Azure Hybrid benefits at the end of every term.

5. Incorrect License Selection

MSPs who have not thoroughly researched customer needs will make costly mistakes in licensing Azure. Over spec’ing, and answering questions on number of seats and expected workloads, are important steps in better planning for provisioning and licensing.

More Opportunities Ahead

With  2023 just underway, many companies face budgetary concerns in an uncertain economy. MSPs can add margin and deliver value by carefully costing out expanded or new customer services leveraging modern technologies available via Azure. Azure will only continue to grow in popularity. It presents a ripe opportunity for those MSPs who take the time to do a thorough price analysis and go the extra mile to provide superior, accurate Azure-related services.

JOSEPH LANDES is co-founder and chief revenue officer at Nerdio, which empowers MSPs and enterprise IT professionals to deploy, manage, and optimize virtual desktops in Microsoft Azure.

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