Managed Services Pricing: Cake or Icing?

Our last month’s BIZ DEV webinar series topic featured managed service pricing.  In fact, it seems to be one of the hottest issues in the channel today. Many MSPs are seeing prices and profitability erode because of what The 2112 Group has coined, artificial commoditization. In other words, they’re competing on price not value. 

Recently, our friend Joe Panettieri at MSPmentor wrote in Am I Just Plain Wrong about the differences between per-user and per-device pricing. He’s been advocate of the approach that the TruMethods’ consulting firm aptly calls “the cake pricing model,” in which the services are billed for their combined value, rather than discrete offerings.  

What got Panettieri rethinking about this model is recent chatter about per-device pricing, in which MSPs charge based on the number of servers, endpoints and, increasingly, mobile devices under management. The model has some advantages, since it’s based on a simple calculation of device volume and not discrete services, but it leaves little room for capturing the service experience outside of device management. 

Panettieri generally favors per-user pricing and believes this will eventually be subsumed by per-location pricing, in which MSPs charge a subscription or flat fee. But the debate over which pricing model is best does raise interesting issues.  In fact, one line from the comments in Panettieri’s blog really stood out for me: HTG Peer Groups’ CEO Arlin Sorensen said “the battleground for managed services is in the end-user experience.”  

What Sorensen is talking about is perceived value, or the benefit the end user gets from the managed service expertise, quality and results that are delivered. Too often, MSPs want to sell services based on what the technology does and how it works. However, often lost in the equation is “why” use a technology and what benefit is derived from a technology’s use in that business, with employees, suppliers, even that business’ customers. 

Business users are becoming far savvier about technology and are increasingly looking for technology to do more than just digitize information and automate a process. They’re looking for true business benefit, services that will enable them to grow their business or focus more on their core value propositions.  

We believe where managed services brings significant value is relieving businesses of the IT burden in addition to introducing a strong business case for that IT use. If MSPs can show business owners, executives and IT directors how a managed services solution can increase the value they bring to their customers, and perhaps how it can create a strategic difference for their company. Now, that’s value. 

Without wading too much into the pricing-model debate. I agree the cake-pricing model is the most advantageous. With that said, if MSPs focus on value delivery and demonstrate the business benefit that comes from their services, the pricing model is essentially irrelevant. The customer will choose to buy, and remain a long-term customer, if the value meets the relationship, the brand promise and the overall experience that is created from start of the engagement.  Having long-term, committed and profitable customers is the icing on the cake.  And, we all know that’s the best part. 

We joined with N-able Technologies to sponsor a market report on the topic of MSP Pricing. Click on the link and receive your free copy.

Jennifer Anaya
VP, Corporate Marketing