When it comes to selling managed services, most managed services providers (MSPs) understand the benefits to the customers — less downtime, more scalability, and predictable monthly IT costs, all for a fair price. Where many MSPs struggle is predicting how much time they’re going to invest in monitoring and troubleshooting customers’ IT assets and then establishing a monthly price based on that estimate. If the MSP miscalculates expenses or undervalues its services, the deal can quickly fall apart and dramatically impact revenue, profits, and service level agreements. Following are some best practices and common managed services business models to consider before selecting your managed services sales strategy and pricing plan.
First and foremost, if you want to roll your cloud BDR (backup and disaster recovery) service into your monthly fixed-price plan and your cloud service provider charges per gigabyte, you will need to do some prep work. To accurately predict storage needs, you will want to gather a year’s worth (minimal) of historical data on your customer’s storage habits, determine which additional applications, files, and images should be backed up to the cloud, and try to predict how the customer’s data needs will grow over the next 12 months. You also may want to take into consideration what happens if the customer exceeds a data threshold that leads to a price adjustment. One way to avoid this preliminary process is to partner with a cloud service provider that charges a flat rate for cloud storage — regardless of the number of employees or devices that are being supported.
Choose Your Managed Services Model Wisely
Each managed services model has advantages and disadvantages with regard to setting your price and minimizing other unpredictable expenses. Here is a summary of the most common plans and why you should consider adopting/avoiding them:
1. The Per-Device Pricing Model
Because there can be a wide variation in the number of devices used by each user, many MSPs prefer the straightforward per-device model, which is both easy to set up and easy for the end user to understand. There’s typically a specific price category associated with laptops and PCs (e.g., $50/month), servers (e.g., $300 per month), network printers (e.g., $30 per month) and/or mobile devices (e.g., $10 per month).
2. The Per-User Pricing Model
Often contrasted with the per-device model, this model attempts to overcome the nickel and diming some end users may feel when new mobile device or application introduced into their work environment results in a higher monthly fee. With the per-user model the only time a price hike occurs is when the end user hires more employees. The upsides of this model over the per-device model are that it promotes bundled solution selling, and it leads to simpler invoices (e.g., “x employees multiplied by a fixed cost per user per month”). The downside, however, is that MSPs have more pressure determining upfront how much it’s going to cost to manage each user, and that number can vary drastically per customer.
3. The Tiered Managed Services Model
This model presents multiple options — typically Bronze, Silver, Gold, and Platinum with each level comprising more services and faster response times than the level beneath it. For example, a Bronze plan may include basic remote monitoring of a client’s servers along with limited help desk support and a 24-hour service call response time, whereas a Platinum plan may include remote monitoring and management of all servers, computers, and networking appliances plus patch management, backup and disaster recovery, 24/7 support, and a two-hour service call response time. This business model offers a good way for an MSP to get its foot in the door with reluctant prospects and build up to more profitable packages over time. The downside is that this model can place too much decision-making responsibility on the prospect, which may not be IT savvy enough to really know which level it needs and could make its decision based on price rather than value.
4. The Á La Carte Managed Services Model
Unlike the previous option, this one entails giving clients a large menu of individually priced services and letting them choose what they want. This plan also places too much emphasis on price rather than value, plus it can lead to a longer sales process as the end user tries to figure out each line item, cost, and the potential benefits before making its final decision.
5. Prepaid Block Time
Although prepaid block time is usually added to one of the standalone models mentioned earlier, it’s an important part of an MSP’s overall business and pricing strategy that’s worth mentioning. The way this model works is that the MSP makes a recommendation regarding how many labor hours the customer will need each month and that becomes the starting point for how many hours are included. Some MSPs take a wireless carrier approach that allows customers to roll over unused labor hours to the following month or pay an “overage” fee if they need more labor hours than they signed up for. This approach is most effective when it’s combined with a quarterly business review (QBR) that allows the MSP and customer to discuss upcoming projects and fine-tune the customer’s monthly block-time allotment.
In addition to taking into consideration the pitfalls associated with the above managed services business models, it’s important that MSPs avoid the trap of allowing the discussion to focus solely on price instead of value (this is especially challenging with the per-device, tiered, and à la carte models). The best plan should also emphasize the MSP’s recommended bundle instead of putting the onus on the customer to pick and choose from a menu. Only when an MSP drives the sale by offering a holistic, value-based IT service and minimizing unpredictable costs from the equation can it create a sustainable offering that’s a win for the MSP and its customers.
Rob Merklinger is vice president of sales at Intronis, Boston-based provider of world-class backup and data protection solutions for the IT channel, and is an experienced software sales leader with a proven track record for driving success and developing sales talent.