Surefire Strategies For Managed Services Pricing

By The Business Solutions Network

Four MSP (managed services provider) experts offer insights on some of the best ways to overcome managed services objections, establish competitive pricing, and more.

One of the biggest challenges VARs face in the initial stages of becoming MSPs is setting the price for their new offerings. On the one hand, they have the challenge of convincing customers to pay for IT services on a monthly basis. If the MSP aims too low, it won’t be profitable. If it sets the price too high, the customer may shop around for a lower price. At the opening panel discussion of Business Solutions’ 2016 Channel Transitions conference in Boston, four MSP veterans discussed this issue and shared tips and best practices for how to overcome sales objections, establish pricing, sell bundled solutions, and more. The featured panelists were: Scott Haselkorn, president, Haselkorn, Inc.; Tim Lasonde, president, NSK Inc.; Neil Holme, owner, Impact Business Technology; and Roger Michelson, VP, COO, and co-owner, BNMC.

Tips For Overcoming The Initial Managed Services Sales Objection
For break-fix VARs, the primary decision-maker is often an IT person or office manager. “When you break into managed services, however, you really have to talk to the business owner or another executive,” says Haselkorn. “And you have to really understand and address the pain they’re dealing with and how that’s affecting their business.”

In many cases, this will lead to a longer sales cycle, says Holme. “The customer education process is often the biggest hurdle,” he says. “If customers don’t realize the value of managed services, it’s a big hill to climb to get them to understand that. Some of them will understand it from a financial perspective. If you can look at the last 12 months of bills from their current break-fix spend and compare it to what they would pay on a managed services contract, it can make the sale much easier.”

Michelson concurs and adds, “Focusing the conversation on their business instead of a specific technology is very important. Technology topics naturally come up, but they should always align back to the business challenges they help solve.”

Michelson says his salespeople talk with clients about what’s competitive for them in their marketplaces, and they ask questions such as, “How well are you meeting your goals? How’s your revenue stream? What kinds of challenges are you facing?” Customers aren’t the only ones who require a managed services education, says Lasonde. “Employees have to be educated about the new way of managing customers, too,” he says. “Instead of going on-site every time there is a problem, many problems can be resolved remotely with the right managed services tools.”

The $1 Million Question: How Much Should You Charge?
NSK’s managed services pricing has gone through several iterations over the years, says Lasonde. “We always look at what it is going to cost us to deliver the service, and then we come up with a specific target of how much we want to make per customer. Our pricing used to be per-device, which required counting servers, email addresses, computers, switches, and routers. It was a lot of counting, which posed another challenge from an administrative perspective and eventually forced us to change our pricing model.”

Today, NSK uses what Lasonde calls a “chocolate cake” sales approach, which entails selling comprehensive services instead of a breakdown of all the “ingredients.”

Haselkorn says he used to use only the per-device sales model but has since evolved to accommodate two kinds of clients. “For less technically mature or smaller businesses, we still use a hybrid, per-user and per-device model,” he says. “For more mature, larger accounts we use a per-user pricing model.”

With the explosion of mobile devices in the workplace and the IT move to the cloud, Michelson says, he, too, has changed from a per-device sales model to a per-user model. “If there are 10 employees in the company, that’s 10 seats, and everything’s included, no matter how many devices, no matter whether they’re running an Exchange Server in house or Office 365 in the cloud.”

So, how much do MSPs charge per seat, per month? That number varies based on several factors, such as geography and the level of sophistication of the IT environment, but a general range is between $135 and $200 per seat per month. “As you scale up to 20 users, 50 users, 100 users, and beyond, that per-seat price scales down,” says Michelson.

Impact Business Technology is in the minority among the four MSPs — it still uses a per-device pricing model. “We wrote software to automate the device counting process, which has made things much simpler,” says Holme. “We like the granularity this pricing model gives us, plus it makes it easier when we conduct quarterly business reviews with clients to show them when it makes sense to move to the cloud.”

Moving an Exchange Server to the cloud doesn’t mean the MSP loses revenue. “We simply create a new revenue stream to manage the server in the cloud,” says Holme. “We show customers how much more affordable it is for us to manage their cloud services than to hire an employee to manage it.”

Tips For Changing Your Price
The only thing more stressful than talking to a customer about the pricing of a new managed services offering is discussing a price increase. “We’re going through a managed services repricing right now,” says Haselkorn. “It’s really about presenting why you’re doing it. You need to have an open discussion with the client and explain, ‘We’re adding A, B, and C to protect our clients better, plus we’re going to extend our help desk hours, so you’re not billed outside of that window.’”

Holme’s advice to MSPs is not to be afraid of price increases. “It’s okay, and the vast majority of your customers will accept it,” he says. “We’ve had customers who have been with us for 15 years, and we’ve increased our prices three times over that period. Not once have we received any pushback from them. Yes, there are always customers who will fight back. It’s natural. But in the end, they all come around.”

Lasonde agrees and adds, “I would say that’s one of the biggest mistakes that we made; for five years we didn’t touch our pricing. After hiring a part-time CFO and realizing we were long overdue for an increase, we sent out a letter to all our customers and announced our prices were going up. We didn’t get pushback from one single company. The increase was a big deal for our company, but the incremental increase felt by each customer was insignificant to them.”

Impact Business Technology takes it a step further by building price increases into its contracts. “You just have to have the conversation up front with customers to make them aware that this is going to happen,” says Holme. “Everybody raises their prices. Lawyers raise their prices, accountants raise their prices, and you should be able to raise your prices, too.”