Getting the right pricing model can be make or break for a managed service provider or an MSSP. Whether you’re just starting, or you’re eyeing up the next stage of your growth journey – the way you’re pricing your managed services will make a huge difference to your business goals.
Ultimately, the billing method you choose is going to affect how easy it is to attract and scale new customers.
So what method should you choose? What are the pros and cons of the main options? Here, we explain everything you need to know.
Key Considerations for Effective MSP Pricing Models
There are many fantastic reasons to review your MSP pricing model. If you’re just starting out, you’ll want to find an option that lets you attract new customers and quickly grow your business – which can be easier said than done.
But as your MSP business grows, you’ll find your pricing priorities change over time. You may therefore need to review your pricing when you hit a new stage of growth.
But here’s the challenge: While there are many different pricing models, there’s no silver bullet here. No single approach is going to work for every business. A large, established MSP will almost certainly have a different pricing strategy to a small, two-person team.
So how do you find the right one for you? There are a number of competing priorities you’ll have to consider:
1. Profitability
Of course, this is going to be your first and most important priority. If you can’t fundamentally break even with the amount you’re charging, it’s not going to make one jot of difference how you bill.
To get this right, you need to first understand your costs, both billable and unbillable. If a full client roster doesn’t give you a decent profit margin with the pricing you’ve established, there’s a good chance you need another approach.
By far the best thing you can do at this stage is to scout out the pricing models of your chief competitors – particularly those of a similar size. If you’re just starting out, you’ll probably want to try and go for a lower rate to convince customers to sign on.
2. Scalability
The second key consideration here is going to be scalability. Like any business, you’ll want to grow your customer base and revenue. Scaling existing customer accounts is by far one of the easiest and most profitable ways to do this.
The pricing model you choose can make a huge difference here. The best options by far are those that allow customers to gradually (and automatically!) increase usage as they add new devices or users. Conversely, if your pricing model requires you to proactively re-negotiate or upsell – you’ll likely find it more difficult.
When considering scalability, it’s important to bear two things in mind:
- How easy it is for the customer to justify upgrading. Adding a new device is much easier than upgrading to a gold tier.
- How much work it’ll require to convince them – and how much admin this can create for your team when customers choose to upgrade.
3. Simplicity
Customers are far more willing to buy managed services if they can clearly understand what they’re getting – and what they’re not. If you’ve got 40 different offerings, each priced individually – it’s going to be really difficult for the customer to understand where their money is going and whether it’s worth it.
But here’s the challenge: If you price each service individually, you can align the customer’s bill pretty closely with the time and costs you incur delivering them. The simpler you make your pricing, the harder it is to do this.
In practice, you may end up underservicing some clients and overservicing others.
The pricing model you choose therefore needs to carefully balance these competing priorities.
4. Standardization
But it’s not just about making things simple for the customer. The pricing model you choose will also affect your own workload.
If you have completely customized pricing, every client is going to be on a different rate for their own unique package of services. That makes it hard for you to project your own revenue and keep track of who owes what and what clients require which services.
The goal here should be to make your pricing as standardized as possible. The larger your business grows – the more important this is going to be – because more clients and headcount will only increase the confusion.
The Six Most Common MSP Pricing Strategies
Now we’ve discussed the main considerations for your pricing, we can start to look at the different options. While there’s plenty of variation in how MSPs price their services, most use one of six well-known models. We’ve broken these down into three categories; flat, tiered, and bespoke.
There’s also another important factor to remember: It’s not all or nothing. You are the master of your own business, and if you want to combine the best of two or three pricing models – there’s nothing to stop you.
MSPs can and do offer multiple pricing options, and there are plenty of good reasons to do so. However, always remember that the more pricing options you offer, the more complex it’s going to be for the customer and the more difficult it’s going to be for you.
Flat Fee Pricing Models
Flat pricing models are popular among MSPs of all shapes and sizes. Essentially, there are two options here; to charge users based on the number of devices being monitored or users being supported.
Having a flat model of either type is a great way to create transparent yet scalable pricing. It’s generally easier for clients to understand than some of the more bespoke or flexible strategies discussed below – since there’s no need to distinguish between the different types of managed services you may or may not be offering.
It also gives you ample opportunity to increase the profitability of individual accounts – since costs will scale alongside their maintenance and support needs.
This scalability is the chief benefit of both options. As businesses grow, they will generally accumulate more users and devices – meaning their costs will grow as they expand. This means you don’t have to encourage clients to upgrade to the next tier or more premium services in order to grow the account.
1. Per-device pricing
Pay-per-device is traditionally one of the most popular pricing strategies for MSPs. Though it’s now generally less favored than per-user pricing, there are still many that prefer this approach.
Essentially, the MSP will charge a fixed monthly fee for each endpoint being monitored, which would generally include laptops, printers, mobile devices, or servers. It might also include cloud services, instances, and other virtualized endpoints – though these can become a bit of a gray area with this strategy.
Managed service providers who choose the per-device pricing model will generally have varying rates for laptops, mobile devices, virtual machines, or other devices. Supporting a phone or tablet, for instance, is much more straightforward than a laptop – meaning it will generally command a lower rate.
This hits upon the main benefit of the pay-per-device model: Granularity. It allows MSPs to more closely tailor their pricing to the specific usage requirements of their clients. Organizations with more complex IT environments will generally pay more under this model.
The main downside of this is complexity. Adding different prices for different devices will reduce simplicity – the more you have, the less clear your pricing becomes. It can also be difficult to account for the ever-growing array of cloud instances and virtual machines that a modern client may rely on.
Pros:
- Simplicity – This model is generally simpler and more transparent than with bespoke or tier-based payment models.
- Standardization – Clients all pay the same rates.
- Scalability – Clients’ costs will scale alongside their usage requirements.
Cons:
- Complexity – While the model has the potential to be simple, extra complexity can be created when different devices are charged at different rates.
- Modern endpoints – Pricing of virtualized devices like cloud instances can create confusion and gray areas which can reduce transparency and create conflict.
2. Per-user pricing
Similar to the pay-per-device model, this involves a single set price for each individual user being supported. Generally, this will correlate pretty closely with the number of employees an organization has (plus any relevant third-party accounts). This makes it another great way to scale the account alongside your clients’ growth.
The main benefit of the per-user pricing model is simplicity. It charges a single rate per user, regardless of the services being offered or the devices being supported. T
his avoids some of the confusion and ambiguity that charging per-device can create – which is why it’s becoming increasingly popular among MSPs and clients today.
Of all the models on the list, this perhaps combines the best of both simplicity and scalability. But as always, there are also downsides.
You will likely find, for instance, that the number of users in an organization doesn’t correlate exactly with their maintenance and usage needs – meaning some clients may pay more than others for a similar level of service. You may also find it difficult to scale accounts if the customer isn’t currently adding headcount.
Pros:
- Simplicity – This is one of the most simple models for clients to understand.
- Standardization – Clients all pay the same rates, regardless of services used or devices monitored.
- Scalability – This is one of the easiest models to scale since prices will rise seamlessly as organizations add new users.
Cons:
- Headcount – For you to increase account value, clients need to be adding headcount. This can make it difficult to scale accounts in turbulent times, or if your client doesn’t require significant headcount to grow.
- Maintenance needs – Organizations with limited headcount can still have disproportionately high requirements for their monitoring and alerting services.
Bespoke Pricing Models
In these examples, MSPs will create different customized pricing for each of their services. Again, there are two main options here, pricing per service (a-la-carte) and pricing by time (pay-as-you-go or break-fix).
The main benefit here is flexibility: It allows customers to choose their own bespoke package of services, and potentially to scale costs up and down based on their needs. This is attractive to clients and hits on the key benefit of the approach: It offers a much lower barrier to entry for new clients.
Despite this, both options are among the least popular for MSPs, since they can be difficult to scale, standardize, and optimize. If you want to increase a client’s account, you’ll have to negotiate a new package of services.
At the same time, offering bespoke services to each client can create confusion and extra work for your team. Perhaps most importantly, some clients will only ever opt-in to the barest minimum service coverage, making it difficult to make any meaningful profit from these accounts.
So why do MSPs still use this model? Increasingly, organizations prefer the tiered or flat rate models – but there is still a place for this approach. Newer or smaller MSPs may find the lack of standardization less of an issue and appreciate the lower barrier of entry this option creates for new clients.
More established providers may also choose to offer limited bespoke options alongside tiered or flat-rate pricing. The key goal here is to attract smaller clients that can be encouraged toward the standard pricing model over time.
1. A-la-carte
As the name would suggest, this offers clients the opportunity to pick and choose their own unique package of services. Each option is generally priced individually. You might, for instance, have one rate for patch management, another for device backups, another for support and monitoring, etc.
The model makes it easier to attract clients who don’t want to be locked into a package or flat-rate service. Ideally, these clients can be encouraged to expand their usage over time – but this won’t always be successful.
A la carte can be very dangerous… because customers like to cherry-pick. They’ll say “I don’t want this, I do want this…” and you as an MSP are going to run into some serious problems when you don’t have a budget to go take care of the issues the customer is having. Get them on some kind of recurring contract.
Harrison Baron, Former MSP Owner and Content Creator
Pros:
- Flexibility – Clients can construct a bespoke package of services, based on their specific needs.
- Consistent margins – With each service being priced independently, you can closely tie the funds you receive to the cost and effort required from your team. This avoids the need to raise the margins on some services to cover the costs of others.
- Low point-of-entry – Individual services can be an easier sell than a whole package or flat rate. This low point of entry can be a competitive advantage to some MSPs.
Cons:
- Inconsistent revenue – Unlike other options, a-la-carte does not offer recurring and predictable revenue for MSPs. From a business perspective, this can be a real liability.
- Standardization – The a-la-carte model creates extra work and complexity for internal teams – and makes it difficult to offer a consistent level of service for each client.
- Complex pricing – Bespoke pricing can make it difficult to understand which clients require what levels of service. This can create confusion and conflict.
- Scalability – While it may be easier to attract smaller clients with this model – there’s no guarantee they will expand their usage over time. Medium and larger MSPs will generally find these small, non-scaling clients to be more trouble than they’re worth.
2. Break-fix
The break-fix model is another form of service-based pricing. In fact, it’s one of the oldest pricing models in the MSP industry – and is similar in many ways to the a-la-carte model. It allows customers to choose and pay for services as and when they need them – rather than paying a recurring subscription for always-on services.
As the name would suggest, however, this model tends to be reserved for resolving reactive issues such as downtime, system breakdown, or hardware failure. MSPs will generally price this model in terms of hours, rather than having a bespoke rate for each service.
In practice though, there’s limited difference between the two – in both cases, clients can pick a service and pay a one-time fee. The pros and cons are therefore fairly consistent across both.
Despite its long heritage, few MSPs favor the break-fix model nowadays, since it reduces scalability and standardization – while still not guaranteeing any recurring revenue for the MSP.
Pros:
- Flexibility – Customers only need to purchase services when they need them. This makes it easier to attract those who don’t need full coverage.
- Higher margins – MSPs will generally charge higher rates for reactive, non-recurring services. Customers who have an immediate issue to resolve will generally be happy to pay these.
- Works with other pricing models – Offering a few reactive maintenance services can be a good way to attract and prove yourself to new customers, without the need for excessive pitching or negotiation.
Cons:
- Inconsistent revenue – The break-fix model is not an effective way to create recurring revenue. MSPs therefore prefer to encourage customers towards a tiered or flat rate model – even if used alongside a limited break-fix offering.
- Reactive – Resolving reactive maintenance requests can be a hugely inefficient use of time. Many MSPs will find it difficult to justify for what could be a small, one-off client.
- Scalability – This pricing model can be effective if clients eventually decide to move towards more profitable alternatives. However, there’s no guarantee this will be the case and no way to distinguish between accounts that will scale and those that won’t.
Tiered Pricing
Offering payment bands or tiers is another popular option for MSPs. Generally, this will involve the MSP offering several pre-packaged options for customers to choose from, such as Silver, Gold, and Platinum. Offering three tiers is generally the most common choice here, though four is sometimes used as well.
Sometimes, MSPs choose to offer a single-tiered service, known as ‘all-you-can-eat’. This essentially creates a standardized service that has the same coverage and price for each customer.
1. Multiple tiers
The tiered MSP pricing model splits the difference between the pros and cons of flat rate services and entirely bespoke pricing. As a result, it generally offers MSPs the best mix of flexibility and simplicity.
In this approach, MSPs will generally offer three or four pre-defined options for customers to choose from. This makes it easier to offer a consistent level of service for each client – and also maximizes the potential recurring revenue you can receive. It’s also one of the simpler options to pitch and explain, allowing you to reduce overall sales cycles and avoid unnecessary negotiations.
Personally, I am a bundler, because it allows the MSP to just execute as they see fit with just about anything. It allows you to say, “Hey, we want to eg. set up five new computers, it’s going to be completely covered in your contract – all you have to do is pay for the hardware.
Everything’s going to be set up the way they want, it’s going to be dropped off, installed, everything to the nines – which is not only making for a better customer experience but making your job as a business owner and MSP owner a million times easier. Perfect. Customers love that.
Harrison Baron, Former MSP Owner and Content Creator
But this ‘take it or leave it’ approach also has drawbacks. Crucially, there’s no manoeuvrability on the services you’re offering – which means if a client doesn’t find one that fits, it’s probably a deal breaker. If a client needs 90% of the services in a tier, it should be a fairly easy sell. If they only need 60%, it’s going to be harder for them to justify.
Working out what services to put in each tier, and how much to price, can therefore become a knotty exercise in educated guesswork. If you get it wrong, you’re likely to put off potential customers.
The method is therefore more suited to MSPs with a distinct target market that they understand well. Of course, you can always offer bespoke deals, extra services, and additional tiers if clients are reluctant – but all this will ultimately reduce the simplicity and consistency of your overall service offering.
Pros:
- Some flexibility – This model offers customers more flexibility than a flat rate or all-you-can-eat pricing. It can be a good way to offer customers options without the confusion and complexity of the bespoke pricing models.
- Simplicity – Having pre-defined service packages reduces complexity, confusion, and potential conflict with the customer. It’s not quite as simple as the flat rate models, but it’s much easier to understand than the bespoke options.
- Standardized – This is one of the best ways to standardize your service offering. This creates a more efficient, transparent, and professional approach to pricing.
- Consistent revenue – This model offers MSPs some of the most consistent and predictable revenue available.
Cons:
- Scalability – Accounts can be more difficult to scale under this model since you’ll need to move clients to the next tier if you want to increase revenue. This can be a bigger psychological barrier for them to overcome than, for instance, adding a single new device or user.
- Not 100% bespoke – Packages will inevitably include some services that customers don’t need. This can create frustration on their part as they feel some of their money is being wasted.
- Requires strong customer intel – For these tiers to work, they need to be closely tailored to the needs of your target audience. It can be difficult to move to this model without a clear sense of what services potential clients need and how much they’re willing to pay for them.
2. All-you-can-eat
This option offers the maximum amount of standardization and simplicity of any approach on this list. It’s effectively a tiered system with only one tier. This means all your customers have access to a single package of comprehensive services, with a single price point for everybody.
The benefits are clear: There’s no need to negotiate your services and there’s no confusion about who requires what. At the same time, revenue is recurring and standardized – by far the best option for providing predictable income.
All-you-can-eat was always my personal goal – to get to one single service that you sell – effectively just the gold or platinum package.
The benefit here is when your company just sells one main service, everything else becomes clearer. There are no awkward telephone calls from clients where your engineers don’t really know what service they’re on. You don’t have any of that, so having a single primary offering is a huge benefit to you as an MSP.
Pete Matheson, Former MSP Owner and MSP Content Creator
For these reasons, all-you-can-eat is the easiest model by far for MSPs. It’s also simple for customers to understand, avoiding any confusion or conflict about scope and service quality.
Despite the simplicity, it can be hard to justify this model to customers, since it raises the barrier of entry as high as it can go. In effect, you are pitching an all-or-nothing service offering. For this to work, you need to be really sure that this ‘all’ option is worth the price of admission
This is why a 100% all-you-can-eat approach is, in practice, quite rare. Those that operate on this model will generally offer additional services on a break-fix or pay-per-service basis – with all the complexity and drawbacks they create.
Either way, this option is better suited to larger, more established MSPs whose target customers essentially require a whole outsourced IT team. This is not an option to choose if you don’t know your target market.
You have to be aware that going with one primary offering from day one, many people will see much slower growth – because it can be quite hard to sell what can be a premium price service as a one or two-man band. It could mean you’re stuck in that one or two-man phase for a much longer period.
Pete Matheson, Former MSP Owner and MSP Content Creator
Pros:
- Consistency – The consistency of services, coverage, and revenue makes this hugely attractive to MSPs.
- Simplicity – This option reduces the need to negotiate with potential clients. It also eliminates any conflict about scope and reduces any confusion about what services are included.
Cons:
- All-or-nothing – The high barrier to entry can make it difficult to attract new clients.
- Scalability – Having a single universal price point means there’s no way to scale existing clients. Attracting new customers, therefore, becomes the only way to grow your business.
- May require additional pricing models – The challenge of pitching an all-or-nothing service means most MSPs will also offer additional bespoke pricing options. This can reduce the consistency and simplicity the model is designed to create.
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FAQs
1. What are the main MSP pricing strategies?
There are six common MSP pricing models that MSPs use to bill their customers: pay-per-device, pay-per-user, bespoke pricing, break-fix, tiered pricing, and all-you-can-eat. MSPs will choose different pricing strategies, or combinations, depending on the size of their business as well as the customer base they’re targeting.
2. What are the main priorities for effective MSP pricing?
An effective pricing model should be: 1. Simple so customers can understand it, 2. Scalable so you can easily grow your business, and 3. Standardized, so you can easily provide an efficient and effective level of service. No single pricing model can deliver on all these three priorities equally, so MSPs generally have to choose what’s most important to them.
3. What’s the best MSP pricing model?
There’s no silver bullet when it comes to MSP pricing. Organizations will choose different pricing models based on their own unique customer base and priorities. However, the MSP industry as a whole is generally moving away from customized and bespoke pricing, and towards flat rates that charge clients per user or device being maintained.