Instead of trying to compete by lowering your prices and minimizing your profit margins, base your prices on the value your solutions and services bring to customers.
A common MSP challenge is how to win business in such a competitive marketplace. With technologies converging and more service providers expanding their portfolios to offer additional solutions, the field of providers targeting your potential market is growing even more crowded.
It’s a common knee-jerk reaction to respond to competition by lowering your prices. Lowering prices to get more contracts, however, can make it hard — if not impossible — to achieve the margins you need to operate a viable business.
The 2017 Kaseya MSP Global Pricing Survey includes some interesting statistics that shed light on the answer to this dilemma. According to the report, half of MSPs with revenue growth of 10 percent or more in 2016 increased their prices. Of the more than 900 MSPs surveyed, 64 percent say their pricing is based on the value they offer customers.
Adopt Value-Based Pricing
In a value-based pricing model, an MSP aligns its pricing to the value customers perceive that the products and services will deliver. Value-based pricing is commonly used in retail segments such as jewelry stores and even in gourmet coffee shops. Customers aren’t buying raw materials; they’re paying for the value they see in the product or service, including the experience delivered before, during, and after the sale.
Your customers most likely don’t care that they own a virtual server, business application software, a WAN and a security solution. They do care, however, about how those solutions support their business outcomes and help them be productive and profitable. That value is what you should be selling — not the individual solutions.
Set a Price on the Value of Working with Your Company
When your company provides a solution, the customer also benefits from the value you add to it with services, the processes you have in place to implement and support the solution, and your staff’s expertise. You should take this into account when you set prices.
MSP coach Gary Pica of TruMethods refers to this as “selling your company way,” the unique approach you take to serving your clients that differentiates you from the competition. The one-of-a-kind advantages of doing business with your company characterized by qualities such as your industry expertise, reliability, efficiency and timeliness all have value. Simply put, no other MSP can charge less for what you can deliver — your business is the only one that delivers it.
There are factors, though, that limit pricing based on value. You have to consider the range of prices that would be considered reasonable for your market, and, yes, you also have to consider what competitors are charging. With value-based pricing, however, you may want your prices set at the top of the range — not 20 percent below it.
Don’t Be Afraid to Sell the Value You Deliver
Once you define the value your company adds to the solutions you provide, you shouldn’t hesitate to sell it. There is nothing to be lost by seizing an opportunity and talking about how your company can help solve a problem or provide a unique solution that fills a gap in functionality. If your company has particular expertise in an area, say so. Use testimonials and references to show how you have helped other businesses, and, if possible, set up a demo or trial to show the prospect first-hand how much value you can bring their organization.
Keep Up with the Competition
Another lesson you can infer from the Kaseya study is that a large percentage of other MSPs are following a value-based pricing model. Again, half of the MSPs with 2016 revenue growth raised their prices.
It’s possible that to succeed in your market, you will have to alter the way you define “competitive pricing.” Successful MSPs are finding the race to the rock-bottom price isn’t one that ends in profitability. Instead, providing effective solutions and services and charging for the value they bring to your clients puts you in the race to the top.
Neal Bradbury is Senior Director of Business Development for Intronis MSP Solutions by Barracuda, a provider of security and data protection solutions for managed services providers, where he is responsible for generating greater business value for the company’s MSP partner community and alliance partners.
Guest blogs such as this one are published monthly and are part of MSPmentor's annual platinum sponsorship.