“ Try not to focus on your competition and what they ’ re charging ; focus on the value you bring to the table with your team and your security tool set .” – Charles Henson , Owner , Nashville Computer
Creating A Pricing Model Based On Value
To properly set your prices , first determine your costs . Simpson tells MSPs to start by adding the cost of third-party services and solutions to the hourly cost of service delivery from your technicians — this is calculated using your technician ’ s salary and your overhead costs . From there , the key is having your technicians document every minute of their workday — from time spent closing tickets to on-site . Then , “ you know what it ’ s costing you ,” Simpson says . “ From there , you can evaluate whether you ’ re maintaining your profit margin with the rate you quoted the client , or if you need to adjust it .”
Pica has devised an entire methodology on the subject , called Picanomics . The system hinges on all of an MSP ’ s employees working in a defined role or function , and then tying that function to a unit cost , such as a seat . ( For small businesses whose employees work multiple functions , use time-tracking like Simpson recommends , then calculate how much time they ’ re spending in each role .) This way , MSPs can calculate what they should be charging based on seat cost , plus their target margin . This lens allows MSPs to quickly see if they ’ re pricing their services correctly , and where they can add value for their clients to justify charging 70 % margins ( which is what you should be charging , according to Pica !).
Why You Don ’ t Want To Compete On Price
Attempting to compete on price alone is one of the worst ways to differentiate yourself from competitors . Simpson says , “ It ’ s a race to the bottom .” MSPs who compete on price alone are targeting the worst kind of customers — those that focus on cost alone — instead of growth-oriented , highly profitable clients .
Additionally , customers who aren ’ t highly knowledgeable about IT will always choose between providers based on price if that is all you give them . A prospect “ can ’ t distinguish the value from a bunch of line items . The only way to do it is to paint in big , broad strokes about what your delivery areas are , and why they will address [ the prospect ’ s ] pain , issue , or security ,” says Pica .
Charles Henson , owner of Nashville , Tennessee-based MSP Nashville Computer , advocates for MSPs to stop worrying so much about what their competition is doing . “ Try not to focus on your competition and what they ’ re charging ; focus on the value you bring to the table with your team and your security tool set ,” he says . “ Understand what your beliefs are when it comes to technology , and why you chose the tool sets you ’ ve chosen . It ’ s probably not just because it ’ s the cheapest . Make sure you understand the value that
these tools bring to your clients ’ networks from a protection standpoint .” That way , you can convey that value to them .
Raise Your Value , Raise Your Prices
Of Pica ’ s over 700 peer group members , almost all the MSPs charging the highest seat prices are the ones selling the most new recurring revenue . “ They have the highest prices , and they sell the most ,” Pica says . “ That ’ s how you know it ’ s a value proposition that ’ s driving success .”
As far as how to do that in practical terms , Henson advises , “ Instead of selling them on managed services , talk to them about efficiencies . Talk to them about their ROI . Talk to them about how you ’ re going to create uptime for their network .”
MSPs that establish a consultative relationship with prospective clients , rather than a transactional one , will win business , Simpson says . “ When you sell consultatively , you ’ re delivering business outcomes , not technology outcomes . Then you can charge more because you ’ re more strategically valuable to that business owner . When you can map your services to be a profit center for the client , rather than a cost center , that is tremendously more valuable .”
Protect Your Clients And Weaponize Your Rates
If you need yet another reason to justify raising your prices , low rates mean leaving your customers open to risk . “ If you ’ re not making enough profit margin , you can ’ t say you ’ re securing your customers ,” Pica says . “ It costs money to secure those customers .”
In fact , Pica argues that MSPs who focus on selling value can weaponize their competitors ’ low prices . Higher rates mean a massive difference in an MSP ’ s ability to take care of their clients . Pointing this out to prospects can mean winning the sale .
Pica says , “ I have a saying that I used to tell prospects who wanted a discount : ‘ We care too much about our customers to charge them less .’”
Sarah Jordan is a staff writer at MSP Success . When she ’ s not reporting on trends and issues pertinent to the MSP community , you can usually find her working on her novel ’ s manuscript .
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