So, you’re an MSP, and a client asks you to manage something new—let’s say an Azure database tenant. Exciting, right? But then reality sets in: how do you price a managed service you’ve never offered before? You want to be competitive, but you also don’t want to work for free (or worse, at a loss).
Fear not! Here are three options to help you nail down your pricing, sprinkled with some cautionary tales from the trenches of MSP life.
A quick warning however: If you don’t know how to manage the technology, e.g., this customer uses Azure Cosmo DB and would expect you to fully manage and tune the NoSQL databases, then you should not offer the management service, no matter how enticing the potential deal.
Option 1: The “Time Is Money” Method
Estimate the hours you’ll need, multiply by your hourly rate, and voilà—there’s your price. But let’s be real, when has anything ever taken exactly the amount of time you thought it would? For this reason, always add a 50% buffer for those “what the heck just happened?” moments. If you think it’ll take 10 hours a month, price it like it’ll take 15. This gives you some breathing room for the unexpected, like when that “simple” weekly update turns into a full-blown SQL meltdown.
Anecdote Alert: A fellow MSP once priced a similar service at a flat rate based on what they thought it would take. Turns out, the database was more finicky than a toddler with a new toy, and they ended up spending twice the estimated time each month. They were basically paying their client to let them manage it.
Why It Works: This method is straightforward, gives you a baseline, and ensures you’re not accidentally offering charity work under the guise of managed services.
Option 2: The “Floor It” Approach
Set a minimum price, a floor, below which you simply won’t do the work. This ensures that no matter what, it’s worth your while. Think of it like this: If you’re not covering your costs and making a profit, why even bother? For new services, this can be a lifesaver. Look at your overhead, factor in a reasonable profit, and draw that line in the sand.
What Not to Do: Don’t be tempted to set your floor based on what you hope it will cost to manage the service. I knew an MSP who set their floor too low because they didn’t want to scare off the client. Spoiler alert: they spent more time putting out fires than they did making money, and that floor turned into a financial basement.
Why It Works: This method ensures you’re not just busy but profitable. Plus, it gives you room to handle surprises without eating into your margin.
Option 3: The “Three Bears” Strategy
Remember Goldilocks? She had to try three options before finding the one that was just right. Do the same: come up with three pricing tiers—Bare Bones, Comfort Zone, and Goldilocks.
- Bare Bones is your minimum effort plan. Just enough to keep things running but not enough to keep you up at night.
- Comfort Zone is what most of your clients will choose. It’s priced to cover your time, with a nice cushion for when things go sideways.
- Goldilocks is your premium tier—everything plus the kitchen sink. Even if the client doesn’t choose it, it makes the Comfort Zone look like a steal.
Cautionary Tale: An MSP once only offered a single, middle-of-the-road price. The client chose it, but the MSP quickly realized they were offering way more than the price justified. A tiered approach would’ve saved them from being locked into an underpriced service that demanded way too much.
Why It Works: Giving clients options makes them feel in control while ensuring you’re covered no matter what. Plus, it subtly nudges them toward the plan that’s best for both of you.
Final Thoughts
As a Managed Service Provider, you know that every new service is a learning experience. Pricing it right the first time ensures it’s a positive one. Use these methods to guide your pricing strategy, and you’ll avoid the pitfalls of underestimating your time or overextending your resources. And remember—always build in that 50% buffer. You’ll thank yourself when the Azure gods decide to throw you a curveball.
