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MSP’s Pricing Strategy and Value Proposition

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23

Oct, 2015

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MSP’s Pricing Strategy and Value Proposition

Managed Services isn’t a product that you can scale the way a factory item that can be produced in bulk as a commodity. Managed Services is a day to day executions basis business, the winner will be one who will execute the best way. It is the gauge of whose is the top quartile and who can express the value with proper pricing and get the customers who looking for value at the Right Price.

MSP market is growing globally in a fast pace at 18% annually and the customers demand for these services also increasing, most of the customers trust in the infrastructure of the service. The customers want a simple solution the MSP can take away the complexity of IT management and provide strong level of support for them.

Most of the customers are asking the MSPs about the value around the remote IT infrastructure, support and resource. Here the value is perceived as that MSPs plan your IT on the rolling forward basis, and that these value driven strategy for the top performance MSPs. There is significant increase in cloud adaptation and the number of cloud partners is participating in the MSP markets. It is becoming bigger, more diverse and challenging to differentiate self from the cable companies, Telco’s and system integrators and also the impact of cloud in MSP

Industry growth trends

There is no doubt in saying that the MSP is a growing business but all that mater is the size of the players and their growth rate. The bigger size MSPs growth is slower when compared to the smaller players because most of the players in this size range are never the same earlier so due to the operational hurdles the growth is slower with experience break through and record higher growth rate.

The target customers selection also impact the growth rate of the players, the larger MSPs are more selective about their customers so their growth is slower, the small players who are recording the higher growth are small in size and have the customers which have the smaller subscription base.

Bundling of services

Customers (Enterprises) are interested in bundle of service offered by MSP rather than going for several things from several vendors. By offering the bundle of services to the customers improves the stickiness and also helps in creating the much more value to the customer.

Pricing strategy

As per one of the recent surveys, MSP pricing preferences are based on the Market based pricing, Cost based pricing, and Value based pricing. The highest operational pricing methodology that helps in the faster growth of the MSP is the Value based Pricing. In value based pricing MSPs charge higher for their services. The higher you charge the faster you grow, the more value you add to the customer and the customers are sticky and happy with the MSPs. Ironically higher price means real good money to the MSPs, render good services and can grow faster.

For example: The cost-of-living is down for 1year during recession but rest of the time it is raised by 2%-3% every year, so if MSPs dint increase the price or even further reduce it indirectly giving the discount to customer additionally which is pretty much impossible to sustain.

Service Standardization

The Managed service providers who try to sell plan with lower value and try to up sell the plan doesn’t have much conversions so, the MSPs have to standardize their offering and sell only one offering which is the most inclusive package (top plan). The price should not go down when the customer base increases by MSPs targeting the SMBs. To record high growth rate and command more the MSPs has to charge more, do a better job, grow faster, and make money because of the quality you deliver to the customer. Ironically those who discount tend to provide less good service, less referral, less happy sales persons and decline in the growth.

Service offerings

As the market evolves the competition among the players increases so to differentiate one from the others the MSPs are expanding their service offerings to their customers and by constantly adding new services to their product catalog like cloud services, hosting, cloud applications, managed mail boxes, cloud communications, guaranteed client IT services and  identity & access management. The service providers have to let the client know that what makes the job done and don’t let them to decompose it by removing the tools from your kit, ultimately the client is not happy with the offering which leads to less productivity.

Conclusion

In the Managed Service world one has to pick one customer size range and do it over and over again. It is impossible to deliver quality profitable managed service to customers of different sizes, so pick one say

  • The enterprise market is great place to sell
  • The Mid Market is great place to sell
  • SMBs market is great place to sell

So on; just pick one you grow lot faster. If MSPs try and span all find differences in delivery model & sales model may be the reason to grow slow and not fast. If we see the high operational maturity level MSP increases their prices by 3%-5% once with best growth and best profitability but do not fail. Due to the increase of price (post quality service delivery), MSPs may lose few customers, but that could be an indication of moving up in the value chain and profitability.

By : Satish Garikipati

Satish Garikipati is a consultant with SURE! (a Magnaquest product). SURE! is an internationally acclaimed player in comprehensive end-to-end Subscription Business Solutions for PayTV, Broadband and Cloud Computing businesses – through deployment of Metered Billing, CRM, Service Fulfillment, Value-Added Services, and Managed Services.