What Should You Consider When Pricing Your Managed IT Services Offerings?
Stuart R. Crawford / Stuart Crawford
Since my early days running IT Matters (Calgary’s Top IT Services Company) one thing I always struggled with was the pricing of Managed IT Services Programs.
I consulted my team and asked them, “How much should charge per device? How about servers? What do we charge for line-of-business applications? What about cell phones?” There were many factors that affected the pricing of our managed-services offerings.
The reality was that we couldn’t come up with a standard price for managed services. Charging by the hour was easy, but to come up with a total pricing plan for managed services was a challenge.
Windows SQL Servers required more attention that the average file-and-print solution. Oracle Servers running either Windows or Linux demanded more from our resources. Geologists running Accumap needed more service versus the company’s president who just checked email and reviewed the company stock portfolio.
So, how did we end up pricing our Managed IT Services? Using four key criteria:
The Technical Complexity of the Network
We abandoned all “price-per-device” and adopted a user-based pricing model. All servers, devices, printers and other network peripherals were rolled up into a price-per-user model. A key factor to always consider was the technical complexity of a network. Our technical sales professionals would score this on a scale of one to ten. A score of “one” equated to minimal complexity and a “ten” meant a network was very complex.
The Computer Literacy of Users
The next factor we considered was the “Computer Literacy Factor.” This ranked the average computer literacy of the users on a scale of one to four. We considered each user’s competency and if they were likely to become a drain on our technical resources and help desk. Smart computer users would be scored one. Those who were not as technically smart would be a four. The overall score determined the price we would charge for Managed IT Services.
The Age of the Technology
The third factor was the age of the technology. We always wanted our clients to be “up to date” with the latest tools and technology. However, this is not always financially possible. Once again a score from one to four was determined based on the overall age of the IT system. Clients with aging technology scored lower versus those who had newer technologies. Lower-scoring clients paid more per month because their IT systems simply required more attention.
The Ease of Doing Business With a Client
The fourth and most important factor was the “ease-of-doing-business” factor. This was important in determining our monthly price for service. Customers who were difficult to work with scored lower, versus clients who were receptive to our recommendations and who wanted the best services and the latest technologies, they scored lower. Also, if the business owner or contact was difficult to deal with, they scored higher. We ranked these clients on a scale of one to four and priced them accordingly.
Where do you start?
You must have a firm understanding of your “all-in-seat price.” How much does it cost for you to deliver services? Let’s assume that your cost of doing business or your “burden” is $50.00 per user on average. This includes everything in your service. (Need help figuring this out? Call me to book a coaching session: 716.799.1999 ext 102)
Your “burden” becomes your baseline price.
Once you know your “burden” or cost of doing business this becomes your baseline price. Also factor in how much money you want to make. Don’t be shy, “reach for the stars!” Normally, as a start, we would double our costs. Define your bottom line. How low are you willing to go?
Now, take your average score from your assessment and multiply this by your baseline price. This becomes your monthly price-per-user.
Here’s our example: A financial services business network with ten users, one small business server using two complex lines of business applications, and three Cloud services that require an always-on Internet connection. I’m not going to split hairs on what solution is best. Let’s say it is pretty complex.
My price is $75 per user, baseline price. Baseline starting point is $750.00
- Technical Complexity = 3
- User Literacy = 1
- Up-To-Date Technology = 2
- Ease of Doing Business = 2
- Average Score = 2
- Calculation $75 x 2 = $150.00 per user
The result: my ten-user, one small business server, complex financial services company would pay $1,500 per month for all-inclusive managed services. Technically, you can have two businesses with 10 users running SBS on totally different prices and be highly profitable.
This is the job to do your MSP work properly without cutting corners. This includes doing your vCIO, quarterly business review, onsite work and anything you need to do to keep your client a raving fan.
Still struggling to figure out your managed services pricing model? Book a time with Ulistic’s MSP Coaching Services and learn how to price and grow your service revenue with ease.
Call: 716.799.1999 ext 102