I recently heard an attorney (whom I trust) say that lawyers determine their pricing based on a calculus of skill and geography (meaning how many attorneys are in the area and how capable they are of doing the work). One thing I do remember from law school was the total absence of instruction on how to price one's billable hours. In hind sight, this makes perfect sense since they expected all of us to be able to determine on our own what our worth was. I feel the same way about MSPs.
I was recently asked by a few MSPs whether their pricing was on par with other MSPs. I responded essentially by asking them if they were worth the rates they were charging. They naturally said they were. Most MSPs will say this. I have always had a difficult time with this notion that MSPs should treat their managed services pricing schemes just like a SKU when they were a VAR. It just doesn't work that way anymore. This is why we have MSPs around the world who charge vastly different prices for managing the same objects in much the same manner.
When a MSP is pricing their services they have to understand a few things. So, I've developed a few guidelines that might be helpful to all of you as you determine your own managed services price points.
If any of you would like to share your pricing tips feel free to do so.
I was recently asked by a few MSPs whether their pricing was on par with other MSPs. I responded essentially by asking them if they were worth the rates they were charging. They naturally said they were. Most MSPs will say this. I have always had a difficult time with this notion that MSPs should treat their managed services pricing schemes just like a SKU when they were a VAR. It just doesn't work that way anymore. This is why we have MSPs around the world who charge vastly different prices for managing the same objects in much the same manner.
When a MSP is pricing their services they have to understand a few things. So, I've developed a few guidelines that might be helpful to all of you as you determine your own managed services price points.
- Cost of delivering the service: how much overhead do you have? This will be very different depending on your geography
- Scarcity of the service in their market relative to the demand. If you are one of hundreds of MSPs in your market delivering the same services you may not be able to charge a premium. It might be time for you to specialize in another managed services offering or vertical
- Severity of the managed object. For example, regulated markets tend to produce clients who will pay more for managed services since they cannot accept a data breach or downtime
- Special circumstances that might cause the rate to increase (like access to special talent, tools, or infrastructure).
If any of you would like to share your pricing tips feel free to do so.
1 comments:
Excellent points.
Basically what you have described is what’s referred to as Market Based Pricing in marketing (refer to a book of similar name by Roger Best).
For managed service, in my opinion, it’s the only way to go.
Your alternatives are:
- Internal focus: the old traditional, cost based pricing. You understand what something costs you, you add some margin and that’s it. Very bad as it limit’s you profitability in instances where your competition is not at the same price level.
- External focus: you react to your competitors every move to much eg. every campaign they do you match etc. Not good again as you continuously de-value your product & service.
So in agreement with you – go with market based pricing but be aware that you must posses superior level of intelligence on both your internal costs & product strengths as well as competitor’s business & behaviour.
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