MSP Pricing Models & Strategy Considerations

"The price is right" is the name of the game when it comes to running a sustainable (and scalable) MSP. However, there is more to MSP pricing than simply "setting prices."

You'll need to choose a pricing model, work out how much to charge within your chosen model, and learn how to present and explain your prices to potential customers so that they understand the value of your proposition. Finally, it's essential to review and update your prices regularly to remain profitable in the face of inflation, changing costs, and evolving customer demands.

Common MSP Pricing Models

The following pricing models are currently popular in the managed IT services space. All but "break-fix" pricing tend toward a monthly recurring revenue (MRR) model that gives MSPs predictable and consistent income and also helps companies budget for their IT needs more effectively.

The other reason MSP pricing models focus on MRR is that the kinds of services offered by MSPs are things companies need long-term (such as security services, cloud services, and so on). This is one of the defining hallmarks of a managed service provider as opposed to a break-fix IT shop. 

It also reflects the shift away from one-time software purchases in favor of software-as-a-service (SaaS) solutions. Your costs, including collaboration software like Thread, are monthly—so it makes sense to use a monthly revenue model as well.

1. Monitoring-Only Pricing Model

Monitoring-only is the "bare minimum" service offered by a managed IT services provider. It is an attractive option for small and midsize businesses with a limited IT budget. This pricing model covers monitoring and alerting services and does not include maintenance or support.

Monitoring-only generally costs a flat fee (per-device) that is charged every month. The benefit for companies is that it's cost-effective and can easily be scaled according to the company’s needs. Monitoring-only is generally not very profitable for managed service providers because the margins are low and you would need to be doing it on a massive scale for it to be a financially worthwhile strategy. However, it is also a very low-maintenance service offering because troubleshooting and in-person visits are not required.

Best for: Small clients and startups

2. Per-User Pricing Model

The per-user pricing model can be used alone or in combination with other pricing models. The company pays a fixed price per user each month and this price covers all of the user's devices.

The benefit of per-user pricing is that it's simpler for companies because the cost doesn't change when a user adds or subtracts a device. On the flip side, it makes it easier for the MSP to overcharge or undercharge because the actual costs of providing service will change with the number of devices without a corresponding adjustment to the amount paid.

Best for: Companies that require their employees to use a standard number and range of devices

3. Per-Device Pricing Model

The per-device model is similar to the per-user model except that you charge per device rather than per user. MSPs that use this pricing model generally charge different monthly prices for computers, servers, and mobile devices to reflect the fact that these device types have vastly different support needs.

The benefit of this model for MSPs is that revenues more accurately align with costs. Billing can become more complicated, however, because the monthly rate changes every time a device is added or removed.

Best for: Companies in which only some employees use devices for work (such as deskless industries) or companies with a "bring your own device" policy

4. Value-Based or "Cake" Pricing Model

Value-based pricing (AKA "cake" pricing or "fixed-fee subscription" pricing) gives companies "the whole cake." The MSP provides all of their service offerings for a fixed monthly fee based on the value the MSP creates for the company rather than the specific services performed.

This pricing model is potentially the most lucrative for MSPs and the simplest as far as billing (for both parties). However, it requires a heavier investment in marketing and customer education to sell the "value" side of the proposition as opposed to paying for specific services or devices. It can also be difficult to determine the precise value that the MSP brings to each client.

Best for: Companies that want the MSP to take care of their entire IT infrastructure

5. Tiered Pricing Approach

Tiered pricing is currently one of the most popular pricing models for MSPs because it allows the MSP to build in value and profitability while keeping the client's choices relatively simple. MSPs that choose this approach typically offer three service packages at different price points with graduated service inclusions, using labels such as "bronze," "silver," and "gold," or "basic," "pro/advanced," and "premium."

The benefit for both MSPs and companies is that pricing is much simpler than creating a custom package for each client. It also gives clients the flexibility to scale up and down or add optional add-ons to a predefined package. The drawback is that clients may opt for a lower-cost package that doesn't adequately cover their needs.

Best for: Companies of various sizes

6. All-You-Can-Eat Pricing Model

All-you-can-eat (often referred to by its acronym, AYCE) is an "unlimited support" pricing model in which clients receive as much support as they need within specific service inclusions for a fixed monthly rate. This typically includes monitoring, routine maintenance, remote support, on-site support, and consulting. AYCE is commonly offered as an MSP’s “good” or “better” package.

"All-you-can-eat" is the most flexible option for companies because they may require more support in some months than others and the monthly price remains the same. It also provides predictable revenue for MSPs. However, it's important (ironically) to set clear limits on "unlimited support" to ensure this pricing model remains profitable.

Best for: Companies that want to keep their monthly costs consistent

7. A La Carte Pricing Model

If "all-you-can-eat" pricing is like a buffet, "a la carte" pricing is like a menu. Clients pick and choose the managed services they want or need to create a custom monthly package.

The advantage for businesses is that they only pay for the services they need. They may also end up paying less than they would for a predefined package. The downside for MSPs, however, is that clients may only choose low-margin services resulting in little to no profit for the MSP. For that reason, this pricing model is falling out of favor with managed service providers.

Best for: Clients whose IT needs don't fit into a pre-packaged bundle

8. Break-Fix

The break-fix or "incident response" pricing model is the oldest and least profitable in the long term for MSPs. The customer contacts the IT service provider to report a problem, the service provider fixes the problem, and the client pays the service provider a one-time charge.

This "pay-as-you-go" pricing model is the most affordable for businesses with minimal IT needs and the most lucrative per-hour for service providers. However, as the income is both inconsistent and unreliable (and customer retention is lower), it is generally not a profitable pricing strategy long-term.

Best for: Startups, friends, and family

Choosing a Pricing Model

The best pricing model for your MSP may be one of the above or a combination. For example, you could offer tiered bundles with set-cost add-ons, or make your top tier an "all-you-can-eat" package that includes unlimited support.

Working out which pricing model will work best for your MSP depends on what you offer, your target market, and how your competition charges. It also depends on the size of your MSP and how "elastic" your team is to meet fluctuating revenue and customer demands.

The bottom line is that your pricing model must be profitable and efficient for both you and your clients. As long as your pricing strategy achieves both goals, you're on to a good thing!

What Is Included?

So, what do MSPs actually charge for? MSP revenues can be divided into products and services:

Products

• Software license resales
• Hardware resales

Services

Service offerings may include (but are not limited to):

• Cybersecurity
  • Email security (especially to combat phishing), including security awareness training, phishing testing, and spam filters
  • Data leak prevention (DLP)
  • Digital rights management (DRM)
  • Security operations center (SOC) services
• Cloud management
• Backup services
• Archiving services
• Infrastructure monitoring and management (including server support), typically using RMM tools
• Desktop support and maintenance
• Mobile device support and maintenance
• Server support and maintenance
• Network and connectivity support
• VoIP
• Business continuity and disaster recovery
• Compliance management
• Application management
• Remote support
• On-site support
• After-hours support
• Training
• Consulting

This service list is by no means exhaustive. You will learn over time from sales patterns and industry trends which services are considered "must-haves" by clients and which are considered "nice-to-haves." This information will help you craft your packages strategically.

How Much to Charge

Working out how much to charge per device, user, bundle, and so on is the next step after choosing a pricing strategy. Charging too little will make your MSP unprofitable and could lead to a negative perception of quality. Charging too much will drive prospective customers to your competition. You need to find the "sweet spot" in which your MSP profit margins are healthy and your clients feel like they are getting an excellent deal.

Calculate Your Costs

Your revenue must cover your costs with a generous margin on top. You must calculate your costs before you can work out your prices. Potential costs include:

• Training
• Certifications
• Compliance regulation requirements (such as GDPR and HIPAA)
• Insurance
• Software tools (RMM, PSA, antivirus, firewall, email security, chat integrations, accounting software, others)
• Wholesale hardware and software costs
• Service technician salaries
• Marketing
• Sales
• Administration
• Rent and utilities
• Furniture and on-site hardware
• Office supplies
• Transportation
• Others

When calculating labor costs, allow for one hour of attention per end-user each month. You also need to factor in additional margin to reinvest in your business if you want to add new service offerings or scale your MSP.

At this point, calculate projected MSP pricing metrics, including the projected cost of goods sold (COGS), monthly recurring revenue (MRR), and your MSP’s gross and net profit margins. This information will tell you what your minimum profitable contract is and whether you need to increase your prices or reduce your costs, such as by using AI tools to minimize the amount of time your technicians spend on administrative tasks.

Consider the Additional Value Your MSP Brings

Your costs represent what it costs you at any given point in time to deliver service to clients. However, your team offers additional value in the form of training, qualifications, experience, expertise, location, and proven results. An MSP with a wealth of experience, specialized services, and thousands of glowing five-star reviews will be able to (and should) charge more than a brand-new MSP with very basic offerings and limited experience.

Analyze the Competition

Your competitors' prices are an important point of reference when deciding how much to charge. You don't want to undercut your competitors and offer subpar service. On the flip side, you will lose potential clients if your prices seem exorbitant.

To analyze your competition's prices:

1. Identify your target market. Competitors serving the same market segment should be your reference point for price comparisons.
2. Look at your competitors' pricing models, what they offer for the price, and any gaps in service or areas in which you can differentiate your offerings or add value. These data should be used as a reference point only. Don't try to imitate or copy another MSP. While imitation may be the highest form of flattery, potential clients will find you more convincing if you focus on your differentiators rather than what you share with the other 39,999+ MSPs in the United States.

Pricing Strategy Considerations and Tips

The following tips from seasoned industry professionals will help you hone your pricing strategy and hopefully avoid unnecessary headaches:

• NEVER reveal your own costs to clients. This only invites haggling.
• Consider the pros and cons of displaying your prices on your website:
  • Pros of displaying pricing: Greater perceived transparency and potential customers will already be informed when they contact you.
  • Cons of displaying pricing: Competitors can see your prices, you have less flexibility to tailor your prices to each client's specific needs, and potential clients may choose a bundle they can afford but that doesn't cover their real needs.
• Set clear limits on "unlimited support" if using an all-you-can-eat pricing model.
• When using tiered pricing, use the budget bundle to attract customers but advise them to go with the most popular option (generally the mid-priced bundle) as the budget bundle "really isn't sufficient."
• Include an inflation clause in your SLAs to avoid having to renegotiate contracts when your costs increase.
• Confidently explain the value of your proposition vis-a-vis the client's current IT spend, e.g. "You currently spend $250 per month on XYZ software. That software license is included in our price."
• Sweeten the deal by offering a discounted "extra" for a limited time. It's harder for clients to stop using a tool once they have accepted it and integrated it into their workflow.
• Stay up to date with new technologies and industry trends by attending MSP conferences. Solutions and pricing trends change at a fairly rapid pace in the IT industry and staying in the loop will help your MSP remain competitive.
• Monitor the profitability of your MSP's pricing model and update it as needed. It is advisable to review your pricing every six months.

Price Your Managed Services Strategically for Success

Pricing your products and services is both a science and an art. Consider which pricing models would best fit your business model, run some calculations, and consider your competitors' pricing strategy as a reference point (only).

Once you have established your minimum profitable contract, present your key value propositions confidently and show prospective clients how partnering with your MSP will save them time and money. Implementing cost-saving technologies and reviewing your pricing regularly will then help you stay profitable and improve your MSP's margins over time.