When I first started my MSP, I was all about delivering top-notch service, keeping clients happy, and building long-term relationships. What wasn’t I all about? Raising prices. I figured, “Hey, if it ain’t broke, why fix it?” Little did I know that by not baking annual price increases into my contracts, I was setting myself up for some serious financial heartburn.
So, let’s talk about why it’s bad not to include a price increase in your MSP contracts, the benefits of doing so, and three types of price increases that can save your bacon. Trust me, I learned this lesson the hard way!
Why Not Including a Price Increase in Your Contract is a Bad Idea
1. Inflation Will Eat Your Profits Alive
Remember when gas was cheap, and a coffee didn’t cost $7? Yeah, me neither. Post-COVID, inflation has been on a tear, and if you’re not adjusting your prices accordingly, your profit margins are shrinking faster than a cheap wool sweater in a hot dryer. When costs go up and your prices don’t, guess who foots the bill? That’s right—you do.
2. You’re Leaving Money on the Table
Let’s face it: clients expect prices to go up over time. When they don’t, you’re essentially giving them a discount year after year. And while discounts are great for Black Friday, they’re terrible for your bottom line. By not including a price increase, you’re leaving money on the table—money that could be reinvested into your business, your team, or even just keeping the lights on.
3. It’s Harder to Catch Up Later
When you don’t raise prices consistently, you eventually hit a point where you realize, “Uh-oh, I need to catch up.” At that point, a significant price hike might be necessary to get back on track, but clients won’t appreciate that surprise. Trust me—sudden jumps in fees can lead to some very uncomfortable conversations.
The Benefits of Including a Price Increase
1. Keeps Your Business Healthy
Including an annual price increase helps keep your business financially healthy. It allows you to cover rising costs, invest in new tools and technology, and continue delivering top-tier service without eating into your profits.
2. Sets Clear Expectations
By clearly stating in your contract that prices will increase annually, you set the expectation with your clients from the get-go. No surprises, no awkward conversations—just a smooth, predictable adjustment that everyone can plan for.
3. Helps You Stay Competitive
With annual price increases, you can afford to keep up with the latest industry standards and invest in the tools that keep you ahead of the competition. After all, you can’t stay competitive if you’re cutting corners to save a buck.
3 Types of Price Increases to Consider
1. Fixed Percentage Increase
This is the classic approach: each year, your prices go up by a fixed percentage, say 3-5%. It’s simple, predictable, and easy to explain to clients. If you’re new to the price increase game, this is a solid way to start.
2. Inflation-Based Increase
Given the wild ride of inflation post-COVID, this method has become more popular. You tie your price increase to the annual US Consumer Price Index (CPI) inflation rate, with a clause that says “not less than the annual CPI inflation number for the previous year.” This way, you’re protected from the rising costs that inflation brings without having to guess what percentage to choose.
3. Tiered Increase Based on Service Usage
If you have clients with varying levels of service usage, consider a tiered price increase. Low-usage clients might see a smaller increase, while high-usage clients see a larger one. This approach can help you adjust prices fairly based on the value you’re delivering to each client.
Don’t Make My Mistake
In my MSP days, I thought I was doing clients a favor by keeping prices flat. Instead, I was slowly squeezing my own business. Learn from my mistakes: bake an annual price increase into your contracts, and your future self will thank you. Whether it’s a fixed percentage, an inflation-based bump, or a tiered approach, just make sure you’re not stuck playing catch-up later. After all, keeping your business healthy means you can keep delivering the great service your clients rely on—without breaking the bank.
