IT and Business Insights for SMB Solution Providers

Surefire Pricing Techniques to Maximize Service Margins

Follow these tips to price your services at rates low enough to be competitive, yet high enough to boost profits. By Erick Simpson

NO MATTER HOW WELL you design and deliver your services, they won’t make you money—and might even cost you some—if you don’t price them properly.

Several factors can affect your pricing methodology, including:

  • Your predominant business model
  • The services included in your offerings
  • Your costs to deliver these services
  • Your sales sophistication
  • Your efficiencies in delivering the services

Note: The less efficient you are at delivering services, the higher your price points must be to maintain your desired net profitability.

Determining your predominant business model. Your predominant business model may influence not only your deliverables and how successful you are at marketing and selling them, but also your target markets, customers, vendors, and ultimately, profitability. If your predominant business model is product-centric, you may be challenged when attempting to sell and deliver services. That’s because achieving success in a service-centric model requires unique skill sets around effective consultative sales, long-term relationship-building, and customer satisfaction techniques.

Developing a service offering. In order to develop your service offering, you must first identify your target market and the pain or challenges your service will solve. This will help you choose the right vendors and fulfillment partners to align with, according to their capabilities, along with the right service-level agreements and price points. Each of your services will have its own unique requirements and appeal from provider, end customer, pricing, complexity, implementation, and maintenance perspectives, and include a unique set of solutions. Evaluate each potential solution carefully to determine which ones, and in what priority, you will incorporate into your offering.

Establishing true costs of service delivery. Once you have determined your service offering, the first step in establishing profitable price points is to identify your hourly cost of service delivery. To do so, you must understand your hourly labor burden, your hourly overhead burden, the number of hours it will take to support a new customer, and any ancillary and/or subscription costs for all third-party services you may be reselling.

About the Author

Erick Simpson's picture

A Technology Businesses and Channel Growth and Transformation Consultant | Business Process Improvement, M&A and Integration Expert

Co-Founder of one of the first "Pure Play" MSPs in the industry, and creator of the MSP Mastered™ Methodology for Managed Services business performance improvement and the Vendor Channel Maturity Level Index™ that identifies IT channel program maturation for strategic growth, Erick Simpson is a strategic technology business growth and transformation specialist. He is experienced in improving top and bottom-line business performance by increasing operational efficiencies, boosting marketing and lead generation outcomes, accelerating sales velocity, shortening sales cycles and maximizing service efficiencies.

With over 30 years of experience in the IT industry as an Enterprise CIO, MSP, Strategic Coach and Consultant, Erick is a Business Process Improvement Expert with hundreds of successful IT Solution Provider, MSP, Cloud and Security practice business improvement consulting engagement outcomes.

One of the most prolific, recognized and sought-after  business improvement and transformation experts, authors and speakers in the industry, Erick has contributed to numerous industry publications and spoken at hundreds of events.

His published works include "The Guide to a Successful Managed Services Practice"; the definitive book on Managed Services, “The Best I.T. Sales & Marketing BOOK EVER!”, “The Best I.T. Service Delivery BOOK EVER!” and “The Best NOC and Service Desk Operations BOOK EVER!”, along with 50 Best Practice Guides.

Consulting Services for MSPs and Channel Vendors: http://www.ericksimpson.com

LinkedIn: https://www.linkedin.com/in/ericksimpson
Facebook: https://www.facebook.com/erickdsimpson
Twitter: https://twitter.com/ericksimpson

 

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