Comparing Managed Services Pricing Models: Which One is Right for Your Business?

As technology evolves and markets become more competitive, it's increasingly essential for Managed Service Providers (MSPs) to understand and implement effective pricing models. A suitable MSP pricing model can maximize value and profitability, while the wrong one can endanger an unhealthy business. However, there's no one-size-fits-all answer since every MSP is different. 

In this guide, we'll discuss the different pricing models, how to apply them, and what to look out for in the future. Let's understand the best practices to ensure your pricing covers costs and improves profitability. 

Common MSP Pricing Models 

Various pricing models exist for managed IT support services, each with pros and cons. In this section, we break down six standard MSP pricing models. 

Per-Device Pricing 

The per-device pricing model charges customers for each device managed, such as PCs, servers, mobile devices, or network appliances. This model is easy to implement and straightforward for customers to understand. 

Pros: 

• Simplifies the billing process for MSPs and clients. Clients can easily see how costs are calculated based on the number of devices. 
• Allows for predictable scaling of costs as more devices are added. This helps clients budget more effectively as they add or remove devices. 

Cons: 

• Might complicate estimating costs due to varying levels of support for different devices. For example, managing a high-end server may be more complex and costly than managing a standard desktop. 
• Might lead to underpricing or overpricing of certain services. Some devices may require more frequent updates and monitoring than others. 

To address these challenges, managed IT services for small businesses may break down per-device costs into categories: per server, mobile device, and workstation. 

Per-User Pricing 

Per-user pricing charges customers based on the number of users supported, regardless of the devices they use. 

Pros: 

• Focuses on the user experience and support rather than the specific devices, so it's easier for clients to understand and for MSPs to manage. 
• Simplifies the management of support contracts. Clients are billed based on the number of users, making it easier to scale services as the client grows. 

Cons: 

• Different users may have significantly different support needs and device usage patterns. For example, a power user may require more support than a casual user. 
• Changes in user roles or job functions may complicate contract management and pricing and necessitate changes in support levels and costs. 

Value-Based (Fixed-Rate Subscription) 

Value-based pricing charges customers based on a bundle of services without being locked into a specific per-user or per-device rate. 

Pros: 

• Aligns pricing with the perceived value of services, potentially increasing revenue. This model allows MSPs to price based on the benefits delivered rather than the costs incurred. 
• Tailors services to meet client expectations better. Clients receive a package of services that directly addresses their unique challenges. 

Cons: 

• Requires a deep understanding of client needs and the value delivered. MSPs must carefully assess how their services impact the client's business. 
• Clients need to understand the value proposition clearly. Effective communication and sales techniques are essential to justify the pricing. 

Monitoring-Only Pricing 

This model charges clients a fee for monitoring their assets, typically based on the number of assets, users, or locations monitored. 

Pros: 

• Provides a foot-in-the-door for upselling more comprehensive services. Clients may start with monitoring and later expand to more extensive support. 
• Builds trust and a deeper relationship with clients. MSPs can demonstrate their expertise and reliability by consistently providing valuable insights and alerts. 

Cons: 

• Doesn't cover remediation or more extensive support services. Clients may need to contract separately for issue resolution. 
• Relies on the potential for upselling. Monitoring alone may not generate sufficient revenue to sustain the business. 

Tiered/Bundled Pricing 

Tiered or bundled pricing models create packages that bundle different solutions into tiers such as "basic," "advanced," and "premium." 

Pros: 

• Enables clients to start with a lower tier and upgrade as their needs grow. This model encourages long-term relationships and gradual increases in service levels. 
• Makes it easier for clients to understand what they're getting at each tier. Clients can compare tiers and choose the best fit for their needs and budget. 

Cons: 

• Might potentially reduce overall profitability. Clients may decide on the cheapest option to minimize costs. 
• Might need careful marketing to avoid this issue. MSPs should highlight the value and benefits of higher tiers to encourage upgrades. 

A La Carte Pricing 

Clients choose specific services to build a custom offering in the a la carte model. 

Pros: 

• Allows clients to select only the services they need, which is appreciated by clients who appreciate the ability to tailor services to their specific requirements. 
• Offers a high degree of customization. MSPs can address unique client challenges with targeted solutions. 

Cons: 

• Each client may have a unique set of services, complicating support and billing. Customization requires careful tracking and management. 
• Customization can be time-consuming and resource-intensive. MSPs need to balance the benefits of customization with the costs. 

Comparing the Different Managed IT Service Pricing Models 

To help you better understand and compare these pricing models, we have created a table outlining each model's ideal use cases, cost predictability, service flexibility, and scalability. 

Which Option Should You Choose? 

Selecting a pricing model for managed IT services for small businesses is not a one-time decision. Many MSPs frequently reassess and adjust their pricing strategies, offering multiple options to clients based on various business, market, or other significant factors. 

There's no "correct" way to price-managed services for your target clients. What works well for one MSP might not be suitable for another. A good practice is to evaluate how your competitors price their services and determine which model offers the best advantage for you and your clients. 

Simply mimicking the pricing strategies of local MSPs can lead to price wars and a race to the bottom, where clients exploit the competition to get the lowest price. Instead, find a pricing model that retains some flexibility and uniqueness. 

Monthly costs are always crucial. To keep clients happy and your business profitable, stay ahead of expenses and choose a pricing model that aligns with your clients' needs. Whether it's a per-device model or flexible service bundles, there are various options to keep your business and clients satisfied and profitable. 

Conclusion 

Picking the right pricing model for managed services is key as it affects profit and customer happiness. Knowing the different models - per device, per user, value-based, monitoring only, tiered/bundled, à la carte - is important. Each has its pros and cons, and a combination of models tailored to the client is usually best. 

To build a pricing strategy, you need to define your target market, cost, minimum viable contract, scalability, competitors, and technology trends. By following these steps, MSPs can develop a robust pricing strategy that covers costs, maximizes profitability, and enhances customer satisfaction. 

At Svitla Systems, we understand the complexities of selecting the right managed services pricing model. Our team of experts is dedicated to helping you navigate these challenges and find the optimal pricing strategy for your business. Contact us to learn how we can assist you in maximizing your value and profitability through effective managed services. 

FAQ 

What is managed services? 

IT-managed support services refer to outsourcing the responsibility for maintaining and anticipating the need for various processes and functions to improve operations and reduce expenses. MSPs offer IT infrastructure management, network monitoring, cybersecurity, and more. This allows businesses to focus on their core operations while the MSP handles the technical aspects. 

What is included in managed IT services? 

Managed IT services can include many things, but at the end of the day, it's all about monitoring and managing the network to ensure it's working and reliable. And backing up and disaster recovery so you don't lose data and can recover quickly if something goes wrong. 

What is the best pricing model for my MSP? 

There isn't a one-size-fits-all answer to this question. It depends on business needs, target market, and service offerings. It is important to know the various models, from per device and per user to the value-based one and monitoring-only, as well as tiered/bundled and à la carte, to align the model with your clients' needs and business goals. 

What are the common challenges in pricing managed services? 

The common challenges lie in the proper estimation of costs, the possibility of meeting client expectations, and the ability to be competitive without underpricing your services. Not all clients have similar needs, so it is hard to standardize the prices when considering all the factors. Regularly reviewing and realigning your pricing model will help curb such a challenge.