How I Priced My Managed Service Offerings

Pricing Models
Many people ask me how I priced my managed services offering. Architetto -- Cassa d'epoca by Anonymous - Retro cash register by Francesco 'Architetto' Rollandin.There are about as many ways to price your offering as there are MSP’s. I will try to give you some ideas here to help you come up with your own pricing based on the way you run your business. Read as much as you can though from other sources as well because there are many different pricing models to consider.

  •  Per Device Model
  •  Per User Model
  •  Flat Fee Per Site Model

Each of these models has benefits as well as short-falls so it comes down to which one meets your business plan best and of course how easily you can sell it.

Cost vs. Value
In retail most margins are based on cost. That is why they call it markup, because it is marked UP from the cost. This is what I did in the beginning and it worked, but it probably wasn’t optimal. I basically took my cost and multiplied it by 3 to get my price to the customer. I made money just not as much as I probably could have. If I had priced my offerings based on value I would have looked at it from the opposite end of the equation. For example, on a break/fix/maintenance basis it would probably take 30 minutes of technician time to check for free space, make sure the AV product is up to date, update Microsoft and third party patches, run a temp file cleanup and start a defrag. In the interest of round numbers, if you charge $100 per hour that’s $50 worth of billable time. So $50 is what doing those things is worth. Now if I automated those processes so that I could do them 4 times a month we are up to $200 of delivered value per month. Obviously that would be difficult if not impossible sell but it demonstrates the top end of the value spectrum. Somewhere in between 3 times cost and value delivered is going to be perceived value. This is a much harder number to find.

Perceived value is what the customer thinks the service is worth and the reason I show the value delivered is two-fold. First the math is easy to follow and does not appear to be “magic with numbers” selling. It is based on what they would actually pay if you did that list of services that often. Many MSP pricing models try and show the costly expense of downtime in terms of lost productivity and employee expenses. This is much harder to quantify and is more what-if’s rather than actual cost. Secondly, the value based price pulls the customer’s perceived value higher making it easier to settle on an actual price higher than 3 times cost.

What About Labor?
So that is how I came about how to price those services that had a fixed cost. What about fixed price fees for labor? Well you have some options to consider…

  • Unlimited labor vs. capped labor or block hours
  • What is included and what is not
  • How many hours to calculate
  • Anytime or only during office hours

That is a lot of options to think about and there are probably more. Whatever works for you is what will probably work best. If you are comfortable with the pricing plan then you will most likely have an easier time selling it so make it your own. In my case I settled on these options…

Silver Plan
– Remote monitoring
– Automated patch management
– Automated tasks for temp file clean up and defrag
– Managed anti-virus protection
– ALL TECH LABOR WAS ADDITIONAL BILLABLE TIME! (including manually resolving failed patches)

Gold Plan
– Everything in the Silver plan plus…
– Unlimited 9-5 remote support

Platinum Plan
– Everything in the Gold plan plus…
– Unlimited 9-5 on-site support

Exceptions
– Outside of 9-5 hours was premium billable time
– Hardware that was past end-of-life could not be included in Gold or Platinum plans
– Software that did not have active support contracts were not included in Gold or Platinum plans
– Project work such as new hardware (not replacement) and new software deployments (not upgrades) were not included in Gold and Platinum plans
– Gold and Platinum plans could not be started until the entire network was up to an acceptable level of stability

I am sure you noticed I did not assign actual dollar amounts to the plans above. I did that intentionally. The actual pricing will vary based on your fixed cost items and how many hours per month x your hourly rate you think it will take to manage the devices on average. These factors will vary widely due to geographical factors and your personal assumptions. Also, do not be tied to these plans. I had many customers who were on Silver plans plus a block hour contract.

Remember that there is no one-size-fits-all pricing and at the end of the day you need to make a good profit to maintain proper service levels for your existing customers while providing capital for growth as you add new ones.

If you have any questions please comment below and I will try to address them as quickly as possible.