During the last year, you’ve probably heard channel pundits and business strategists urge MSPs to adopt a value-based pricing model, as opposed to a cost-based or market price-match approach. If you haven’t done so, maybe it’s time.
We’re usually not ones to follow, but sometimes you can’t ignore the wisdom of the crowd. Almost 70 percent of high-growth MSPs use value-based pricing, while 59 percent of MSPs adopted the model last year, more than double the 26 percent that made the jump in 2013, according to Kaseya’s MSP Global Pricing Survey.
For most businesses, value-based pricing – setting the price of products and services based on the perceived value to the client –increases revenue, profits and customer loyalty. For MSPs, the model allows them to compete on the basis of their skills and unique value propositions, as Kaseya’s Ray Wright states in this blog.
That means MSPs must constantly promote the value of their own services to clients and prospects. They also have to take the time to find out exactly what services and solutions clients need to improve their businesses, and then optimize those offerings accordingly. Fortunately, the small- and medium-size businesses that make up the core customer base of most MSPs say they need exactly the type of holistic services and support MSPs offer. That helps make the value-based pricing pitch for premium services a bit easier.
Based on CompTIA’s Enabling SMBs With Technology survey, SMBs say their top strategic priorities include reducing cost and overhead, improving operational efficiency and improving staff productivity. The areas of technology SMBs say they need the most help with, according to the report, are also among those closely aligned with the core competencies of most MSPs. They include IT security; effectively managing and using data; modernizing aging equipment and software; managing and understanding increasingly complex technologies; increasing ROI; and integrating applications, data, and devices.
Since value-based services are driven by the benefits of the complete solution – not each product – MSPs want customer invoices to reflect the value, not the price, of those types offerings. Here a few strategies to keep in mind when selling premium services through a value-based pricing model.
1. Spend time talking/consulting with clients to find out what they’re willing to pay. Base prices on what the market can bear, opposed to a multiplier on top of cost.
2. Maximize the benefit of every service by tightly aligning them with customer goals.
3. Offer a limited amount of tiered service bundles that increase in price based on the functions, features and SLAs of the offering.
4. Many MSPs using value-based pricing quote flat-fee custom pricing, which can cover non-tangibles such as regular client meetings, consulting hours and desired margin, Wright notes.
5. Regularly review the profitability of each individual client/contract. Constantly monitor competitors’ pricing.
6. Regularly inform clients and prospects of new high-growth services and educate them about the holistic integration approach needed to optimize their performance and value. Clients want to hear about them and will pay a premium for the right ones.
Looking to dive deeper into the nuances and strategies behind value-based pricing? Download our free guide, MSP Matters: A Roadmap to Enduring Business Success.
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