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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In today's technology-driven business environment, managed IT service providers (MSPs) face the ongoing challenge of creating pricing models that deliver value to clients while ensuring sustainable profitability. Research shows that 63% of MSPs struggle with pricing their services effectively, often undervaluing their offerings or creating complex structures that confuse potential clients.
Developing a solid recurring pricing strategy is fundamental to MSP success. A well-designed pricing model not only supports your operational needs but also provides clients with predictable IT expenses and reliable service delivery. Let's explore how to build a recurring pricing strategy for your managed IT services that benefits both your business and your clients.
Understanding the Fundamentals of MSP Pricing Models
Before diving into strategy development, it's important to understand the common pricing models in the managed IT services industry:
Per-device pricing: Charging a flat fee for each device managed (workstations, servers, network devices)
Per-user pricing: Setting a fixed monthly fee for each user, regardless of how many devices they use
Tiered pricing: Offering different service levels (e.g., basic, standard, premium) at increasing price points
All-inclusive pricing: Providing comprehensive IT support for a fixed monthly fee
Value-based pricing: Setting prices based on the business value delivered rather than costs incurred
According to a 2023 ConnectWise survey, 58% of successful MSPs have moved toward some form of value-based recurring service pricing, moving away from exclusively per-device or per-user models.
Evaluating Your Current Service Delivery Costs
Building an effective recurring pricing strategy begins with a thorough understanding of your service delivery costs. This includes:
Direct Costs
- Labor costs for technical staff (consider utilization rates)
- Software licensing and tools
- Hardware costs (if applicable)
- Third-party vendor services
Indirect Costs
- Administrative overhead
- Marketing and sales expenses
- Training and professional development
- Office space and utilities
Accurately tracking these costs provides the foundation for setting profitable pricing. Industry data from Service Leadership Inc. suggests that top-performing MSPs maintain a 65-70% gross margin on their recurring service offerings.
Creating Your Tiered IT Support Retainer Model
Many successful MSPs implement a tiered approach to their recurring service pricing. This model allows clients to select the service level that matches their needs and budget while providing clear upsell paths.
Basic Tier
- Remote monitoring and management
- Patch management
- Basic helpdesk support during business hours
- Antivirus/anti-malware protection
Standard Tier
- All Basic tier services
- Proactive maintenance
- Extended helpdesk hours
- Basic security services
- Quarterly business reviews
Premium Tier
- All Standard tier services
- Priority response times
- 24/7 support options
- Advanced security services
- Strategic IT planning
- Dedicated account management
When establishing your tiers, avoid the common pitfall of diluting your premium offerings to make lower tiers attractive. Each tier should represent genuine value at its price point.
Setting the Right Price Points
After establishing your service tiers, determining appropriate price points requires balancing market positioning, competitive analysis, and profitability targets.
Market Research
Conduct thorough research on competitors' pricing in your region. While you shouldn't base your pricing solely on competition, understanding the market landscape is essential. The MSP 501 report indicates pricing variations of 15-25% across different geographic markets for similar service packages.
Value-Based Considerations
Beyond covering costs, your MSP pricing strategy should reflect the value you provide. Consider factors such as:
- Specialized expertise in certain industries
- Advanced security capabilities
- Compliance knowledge (HIPAA, GDPR, etc.)
- Response time guarantees
- Proven track record
Pricing Structure Options
When implementing your recurring service pricing, you have several structure options:
Flat-rate per user/device: Simplest approach, charging the same amount per user or device within each tier
Base fee plus per user/device: Establishing a minimum monthly fee plus incremental charges
Customized packages: Tailoring specific service bundles to client needs while maintaining standardized delivery
According to TruMethods data, MSPs with clear, standardized packages typically achieve 18-22% higher profit margins compared to those offering primarily customized solutions.
Communicating Value to Drive Adoption
Even the most brilliant MSP pricing strategy fails if you can't effectively communicate its value to prospects and clients.
Value Articulation
Create clear documentation that explains what's included in each service tier. Focus on business outcomes rather than technical specifications. For example, instead of "24/7 monitoring," emphasize "continuous protection against threats with immediate response."
ROI Calculations
Develop ROI calculators that demonstrate the financial benefits of your managed services, including:
- Reduced downtime costs
- Improved productivity
- Decreased security incidents
- Lower total cost of IT ownership
Comparison Tools
Create side-by-side comparisons of your service tiers to help clients understand the additional value at each level. Highlight the most important differentiators without overwhelming with technical details.
Implementing Your Pricing Strategy Successfully
Once you've developed your recurring pricing strategy, implementation requires careful planning:
For New Clients
Roll out your new pricing structure immediately for all new prospects. Train your sales team thoroughly on communicating value and addressing common objections.
For Existing Clients
Plan a phased migration approach:
- Communicate changes well in advance (3-6 months)
- Demonstrate the additional value they'll receive
- Consider grandfathering loyal clients or offering transition discounts
- Use contract renewal points as natural transition opportunities
Monitoring and Optimizing Your Pricing Strategy
Your MSP pricing strategy should never be static. Establish processes for regular review and optimization:
Key Metrics to Monitor
- Profit margins by service tier
- Client acquisition costs
- Client retention rates
- Service delivery efficiency
- Competitive positioning
Adjustment Triggers
- Significant changes in service delivery costs
- New service capabilities
- Competitive market shifts
- Client feedback patterns
Top-performing MSPs review their pricing strategies quarterly and make significant adjustments annually, according to Service Leadership Inc.
Conclusion: Building a Sustainable MSP Business Model
Creating an effective recurring pricing strategy for managed IT services requires balancing multiple factors: your costs, market positioning, target clients, and value delivery capabilities. By developing a structured approach with clear service tiers and value-based pricing, you establish the foundation for long-term profitability and growth.
Remember that your pricing strategy is a reflection of your overall business strategy. It signals to clients what you value, where you excel, and how you define your place in the market. Take the time to develop a thoughtful approach that supports your vision for your MSP business.
The most successful managed service providers continually refine their pricing strategies based on market feedback, operational metrics, and evolving service capabilities. Start with the framework outlined here, then adapt it to your specific business context to create a recurring revenue engine that powers your growth for years to come.