Originally seen on Ingram CloudTalk
When it comes to selling subscription-based IT and professional services, there are multiple approaches used by service providers. Here’s a quick summary of three popular approaches, followed by some thoughts from a successful MSP that helps put these options into perspective and offers a smart way to keep managed services clients from reverting back to their former break-fix statuses.
1. The “Per Device” Pricing Model
The upside of this managed services model is that it’s easy to set up and understand. There’s typically a specific price category associated with laptops and PCs (e.g. $50/month), servers (e.g. $300 per month), network printers (e.g. $30 per month) and/or mobile devices (e.g. $10 per month). The downside with this model is that it can sometimes focus too much on price instead of value.
2. The “Tiered” Managed Services Model
This model presents four options — typically designated Bronze, Silver, Gold, and Platinum with each level up comprising more services and faster response times. For example, a Bronze plan may include basic remote monitoring of a client’s servers along with limited help desk support whereas a Platinum plan may include remote monitoring and management of all servers, computers, and networking appliances plus patch management, backup and disaster recovery, and 24/7 support.
3. Á La Carte Managed Services
Unlike the previous option, this one entails giving clients a large menu of individually priced services and letting them choose what they want. This plan is preferred for service providers with “the customer is always right” mindsets, but its ineffective for prospects that aren’t IT savvy and may not understand all the services they really need. It can also slow down the sale by putting the burden on the prospective customer to evaluate each item and make the right selection.
One of the big flaws I see with the three options listed above is that they put too much emphasis on price and the burden is primarily on the customer to figure out what it needs. A better approach is more consultative plan that’s more value based. A case in point that illustrates what I mean is seen in MSP BlueWave Computing’s approach, which entails being transparent with customers and embracing the fact that a customer’s IT needs are going to change dramatically within the first six months of signing a managed services contract.
“After our initial assessment of the customer’s IT environment [e.g. computers, servers, firewalls], we present them with a recommended monthly budget they should be spending to achieve their IT goals,” says Sean Vojtasko, executive VP at BlueWave.
“What we usually see is that they go over budget the first three months, they hit the budget the next three months after that, and from the sixth month on they start going under budget.” During quarterly business review meetings with clients, BlueWave account managers tell customers who are consistently running under budget about additional services they could allocate to their surplus budget. BlueWave allows budget surpluses to accumulate for up to three months, similar to how a telco may allow unused minutes to roll over to the next month. “Some customers choose to apply their unused budget toward special projects such as a server replacement, a new phone system, or cloud services,” says Vojtasko. “If a customer is consistently under budget, we have a frank discussion and tell them we need to either figure out an extra service we can provide them, or we’re going to need to cut back their monthly payment.”
How successful is this MSP’s value-based service model? BlueWave boasts a 98% customer retention rate, and it consistently has 35%+ year-over-year revenue growth with 40%+ profit margins on its managed services sales.