Is it best to price your managed services offerings per device, per user — or using a different model? At Channel Transitions VAR/MSP Executive Conference, powered by Business Solutions, members of the managed services provider (MSP) panel Greg Zolkos, CEO of Atlas Professional Services, Jason Etheridge, president and CEO of Logic Speak, and Tom Clancy, co-founder of Valiant Technology, told which pricing models their companies use and why.
Clancy explained why Valiant Technology charges per user: “We were a widget-oriented biller, and we saw two things that changed our focus. One was BYOD and two was the cloud revolution.” Clancy said companies with bring-your-own-device policies could assume because an MSP didn’t provide devices that there wouldn’t be any associated tech support. An employee-owned device, however, could be infected with a virus and introduce it into the network requiring the MSP to remove the virus and make necessary repairs — to the network and to the employee’s device. Also, when clients begin using cloud services they may assume an MSP is not necessary to keep those applications securely and efficiently running. Charging per user eliminates confusion over what the MSP will monitor and maintain.
Conversely, Etheridge said Logic Speak has chosen to charge per device. “Every time I’ve tried to come up with a per user model, I find that there’s difficulty between one person who has a desktop in the office and another person that has five laptops, two tablets, a smartphone, and three desktops. Then you have to have some sort of kicker to adjust the rate. As more employees come on and the mix changes and the number of devices per user changes, we have to change our per-user rate.”
Clancy commented that the type of clients you have can make a difference in how you choose to bill for managed services. For example, users working for your manufacturing clients may only use devices provided on the floor. In this case Clancy suggests billing on a per device basis or have a different product designed for manufacturing. Another example is a client in video production operating render farms. “I can’t charge them on a per server basis, because they do not have traditional servers, and I can’t bill on my normal per-user model, because they have a lot more infrastructure going on,” he explained.
Zolkos said Atlas Professional Services has chosen a user-centric pricing model — one that takes devices into account, but simplifies billing for the clients by providing a price per user. “We spent a tremendous amount of time building out a cost calculator,” Zolkos said. “We did analytics on our accounting side, looking at how many touches we give to a printer or a desktop and all the different environments across all of our clients.” To arrive at the price, Atlas considers how many users there are, how many devices each uses, and how many servers and significant network components there are. “We came up with numbers we were comfortable with,” he said. “It gives us an acceptable range of where we can sell services, a high and a low.”
He stressed that MSPs must also account for their time to make sure they are profitable. “Do analytics on a regular basis, if not monthly,” Zolkos advised. “If you’re getting $5000 per contract but you’re putting 100 hours in, you may need to reevaluate.”
Zolkos said because the user-centric model ties in with ConnectWise professional services automation (PSA), record keeping and auditing can be automated. Before automating the process, Zolkos said Atlas spent a lot of time auditing each client’s users and devices, but now, adjustments, such as an employee leaving the company or a user adding a new device, can be entered, and the PSA automatically updates the bill. “All that time and energy we were spending, which was easily ten hours a month at a very high level rate, is gone,” he said.
Clancy pointed out that simplifying billing is important: It removes friction which can shorten the sales process. “It’s very simple to say, if you have 25 employees, we’re going to charge you 25 times X. But on the back end, you have to really understand your costs, and to understand your costs, you have to understand the devices.”
He added that some MSPs could find it a challenge for their employees to accurately determine what it covered under the client’s contract. Etheridge said Logic Speak solved this problem with Autotask IT management and MAXfocus remote monitoring and management (RMM). The users’ devices are logged in the system, and the technician can see the service level agreement (SLA) based on the device.
As the panelists described their pricing models and how they overcame challenges, Etheridge stressed that the appropriate pricing model for one MSP may not be the right model for another. “All of our companies — the companies represented on this stage and all of your companies — are not the same. Your people make different rates, different salaries than my people. Your cost for your office space is different than for my office space. The verticals and the types of companies that you support may be different,” he said. “Every time I go to a conference, everybody always wants to know, ‘What is your pricing model?’ as if somehow that solves the problem for them and if they use my model they’ll be fine. But if you do that, then you’re not doing the hard work to figure out how much it costs to deliver service, what you want your profit to be, and what you need to charge. That’s what we’ve all done to get to the rates that we use.”
Clancy agreed: “It’s the same thing as comparing tools to solve a problem versus finding a process. You have to go through the process, build the process, and then you have a pricing model that works.”
Channel Transitions was held November 5 at the DoubleTree Orlando Airport. For more information on the Channel Transitions VAR/MSP Executive Conference, visit www.ChannelTransitions.com or email Events@BSMinfo.com. For additional coverage of Channel Transitions conferences, visit http://www.bsminfo.com/solution/inside-channel-transitions.
Channel Transitions is sponsored by platinum sponsors MAXfocus, and Worldpay, gold sponsors Harbortouch and Mercury, and networking sponsors Moneris and RapidFire Tools, along with industry association partners CompTIA, The ASCII Group, and the Retail Solutions Providers Association (RSPA).