IT and Business Insights for SMB Solution Providers

Surefire Pricing Techniques to Maximize Service Margins: Page 2 of 2

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

To calculate the labor burden for billable staff, divide all their labor costs, including those above and beyond gross compensation, by 2,080 work hours per year. To calculate overhead burden, total the yearly amount of all company overhead costs (including nonbillable admin staff) and divide that value by 2,080 work hours per year as well. The sum of these two values will give you a quick and dirty estimate of your hourly cost of service delivery.

Once you determine this, you can forecast the number of hours it will take to support a new service customer. Multiply that number by your hourly cost of service delivery. The final step is to add your costs for any third-party services to the equation, along with any marketing and sales costs expended to acquire your customer.

Setting retail pricing. Once you have established your total cost of service delivery for your new service offering, it’s a simple matter to determine the gross profit margin you would like to realize for each of your solutions and set your price points appropriately.

Pricing your services at rates low enough to be competitive yet high enough to maximize profits is no easy feat. With the help of these guidelines, however, any channel pro can arrive at the right figure for every service he or she offers.

Learn more at www.ericksimpson.com.

Image: iStock

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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