Managed Service Providers (MSPs) are becoming increasingly popular as businesses seek to outsource their IT needs to focus on their core competencies. However, MSPs face the challenge of selecting the best pricing model that suits their business model and aligns with their client’s needs. This article will discuss the advantages and disadvantages of different pricing models for MSPs.
Types of Pricing Models
MSPs can use several pricing models, including Per Device Pricing, Per User Pricing, Tiered Pricing, and All-You-Can-Eat Pricing. Each model has unique advantages and challenges, allowing MSPs to select the approach that best aligns with their business operations and client needs.
Per Device Pricing
Per-device pricing is the most common pricing model used by MSPs. This model charges clients based on the number of devices the MSP manages, such as desktops, laptops, servers, and mobile devices. MSPs charge a fixed amount per device per month, which makes budgeting and planning more manageable for clients.
Advantages
• Predictable revenue stream: MSPs can forecast revenue accurately based on the number of devices managed, which helps them plan resources and invest in infrastructure.
• Easy to understand: Clients find it easy to understand and calculate their monthly costs, as they know the number of devices the MSP manages.
• Scalable: Per-device pricing is scalable, as MSPs can add or remove devices without affecting their revenue stream.
Disadvantages
• Price discrepancies: The pricing model doesn’t account for the different levels of complexity and support required by different devices.
• Limited value proposition: The pricing model may not incentivize MSPs to provide additional services or proactive support to clients beyond device management.
Per User Pricing
Per User Pricing charges clients based on the number of users supported by the MSP, regardless of the number of devices each user has. This model attracts businesses with many remote workers or those using multiple devices.
Advantages
• Simplicity: The pricing model is easy to understand, as clients pay a fixed amount per user per month.
• Predictable revenue: MSPs can forecast revenue accurately based on the number of users supported, which helps them plan resources and invest in infrastructure.
• Scalable: Per-user pricing is scalable, as MSPs can add or remove users without affecting their revenue stream.
Disadvantages
• Inefficiencies: The pricing model doesn’t account for the number of devices each user has, which may lead to inefficiencies in billing and resource allocation.
• Price discrepancies: The pricing model doesn’t account for the different levels of complexity and support required by different users.
Tiered Pricing
Tiered Pricing charges clients based on the level of service required, which is usually divided into three or more tiers. Each tier offers a different level of service, and clients can choose the one that suits their needs and budget.
Advantages
• Flexibility: Clients can choose the level of service that meets their needs and budget.
• Incentivizes MSPs: The pricing model incentivizes managed service to provide better service and support to clients, as clients can easily switch to a higher tier if they are not satisfied with the current level of service.
• Better value proposition: Clients can receive services beyond device management, such as cybersecurity, disaster recovery, and cloud services.
Disadvantages
• Complexity: The pricing model can be complex, as clients need to understand each tier’s different tiers and services.
• Uncertainty: Clients may be uncertain about the level of service they require, which may lead to dissatisfaction or overpaying.
All-You-Can-Eat Pricing
All-You-Can-Eat Pricing charges clients a fixed monthly amount for unlimited support and managed IT services, regardless of the number of devices or users managed.
Advantages
• Simplicity: The pricing model is easy to understand, as clients pay a fixed monthly amount.
• Budget Predictability: Clients can easily budget for IT expenses without worrying about fluctuating costs due to varying service usage.
• Comprehensive Service: Clients receive a full range of IT services, ensuring all their needs are covered without worrying about additional charges.
Disadvantages
• Risk of Overuse: Clients may overutilize services since they are not billed per usage, leading to higher operational costs for MSPs.
• Difficult to Set Fair Pricing: Determining a fixed price that covers different clients’ varying needs and service demands can be challenging. If the price is too low, it may not cover the costs; if it is too high, it may deter potential clients.
• Potential for Reduced Quality: To manage costs, MSPs might limit the quality or scope of services, which could lead to client dissatisfaction.
A suitable pricing model is crucial for MSPs to align their services with client needs while ensuring a sustainable revenue stream. The per-device, per-user, Tier, and All-You-Can-Eat models offer unique advantages and pose specific challenges. By understanding these dynamics, MSPs can tailor their offerings to maximize value for their clients and themselves.
At Circle MSP, we understand the complexities of choosing the best pricing strategy. Our team is dedicated to helping you find the optimal balance that suits your business model and meets your client’s expectations. Contact us today if you want to refine your pricing approach and elevate your managed services.