IT and Business Insights for SMB Solution Providers

Flexible MSP Pricing Models Drive Sales, Customer Value

Should MSPs charge by user, device, hourly, block of time—or by the outcome? By James E. Gaskin

MONEY MAKES THE WORLD GO ’ROUND, but it also makes for complicated pricing decisions. Should MSPs charge per user or by device? All-inclusive coverage or basic monitoring with hourly rates for service? Different charges for providing remote service compared with on-site support? Where do cloud services fall in the price list? Opinions on such questions may be varied and strongly held by the MSP. 

“Discussions about per-user versus per-device pricing can become a religious war,” observes Dennis O’Connell, director of business development for Taylor Business Group, a strategic consultancy for MSPs headquartered in St. Charles, Ill. Moreover, he adds, it’s not uncommon for channel pros to switch sides. 

“Nobody charges the right amount at the start,” O’Connell states. “They all use AFAB pricing—Anything For A Buck—because they’re searching for revenue. As they mature, they have to start figuring out the right price.” 

Recognize Client Preferences 

Clients, meanwhile, have preferences of their own. 

“Look at car buyers,” says Bryan Gilliom, founder of consultancy Grow My MSP and president and CTO of marketing agency Message Point Media Inc., both located in Birmingham, Ala. “Some will lease cars with maintenance included and be happy to pay every month to take away their risk. They’re great MSP customers. Others beat the car dealer for every dollar when buying a vehicle and drive it until the wheels fall off. They’re willing to take the risk to keep more of their money.”

That said, Gilliom believes some pricing models are more likely to raise objections than others. “MSPs charge by user, by the device, by the hour, or by blocks of hours,” Gilliom notes. “When you include remote services in the contract but charge for on-site work, the customer gets mad and argues with you about what should be covered. That destroys trust, the most important part of your relationship.” 

Gilliom advises MSPs to be flexible when it comes to pricing. “If I charge per PC, how do I handle a company with workers on three shifts, meaning 11 PCs with a total of 33 users?” he asks. “If I charge per user, what do I do when a customer automates and replaces 10 workers with two machines? That means more work for me for less revenue.” 

Gilliom believes MSPs should also consider alternative pricing schemes. “Could I charge per square foot of their building? A percentage of revenue?” he asks. “If you come to the table and say, ‘I’ll reduce your costs and want a percentage,’ most business owners would go for it.” 

Consider Value Pricing 

O’Connell, meanwhile, encourages MSPs to consider value pricing, a model that emphasizes the financial impact of solving a customer’s business problem rather than delivering specific products and applications. Unfortunately, he concedes, few SMBs are persuaded by that approach. “Only about 25 percent of small businesses understand value pricing,” O’Connell says. 

As always, the cloud is a disruptor in the pricing equation. If you charge by the device and your customer consolidates 20 file servers onto virtual cloud hosts, do you lose revenue and get stuck supporting the same number of users, transactions, and data? 

Questions like those are creating turmoil among channel pros. “Some have figured out how and where to generate revenue, but a majority of MSPs are still working it out,” O’Connell notes. 

Don’t let that process distract you from what’s truly important, Gilliom counsels. “At the end of the day, your pricing strategy doesn’t matter. What does matter is the value you’re providing the customer for the price you’re asking them to pay.”

About the Author

James E. Gaskin's picture

JAMES E. GASKIN is a ChannelPro contributing editor and former reseller based in Dallas.

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