Guest Column | August 9, 2013

A Roadmap For Increasing Prices Without Losing Customers

By Justin Crotty, senior vice president and GM of NetEnrich

One of the most frequently asked questions by VARs and MSPs is “How can I increase pricing without losing customers?” The answer is that VARs and MSPs must clearly communicate the value proposition of their services; otherwise they may never be able to justify the increase. This, however, is easier said than done, with many VARs and MSPs still competing on price, rather than value. So, how do you make more money?

  • Price On Value, Not Cost. VARs and MSPs should never set pricing based on how much it costs to deliver their services. Pricing should always take into consideration the benefits received by the end user. For example, VARs and MSPs must articulate that by increasing the cost of the service, the customer will benefit from a quantifiable savings in time or money that offsets the price increase over the long term.
  • Provide Customized Solutions. To further demonstrate value that will, in turn, validate price increases, VARs and MSPs should bundle products and services that are designed to streamline customers’ IT operations and deliver a long-term savings in time or cost. Doing so will position the VAR or MSP as a strategic advisor — one who understands the needs of its customers and can provide solutions that are customized to meet the unique challenges they face. And, when customers realize that they are getting more “bang for their buck,” and not simply paying more for the same service, it will be easier to overcome price objections.
  • Don’t Give Away the Store. VARs and MSPs should never, ever, give their services away for free. Period. It’s a bad business practice that will never pay off.
  • Offer Multiple Levels of Service. Some customers will insist on paying less, and this is okay. VARs and MSPs can get around this by offering multiple levels of services. However, customers who are paying less must understand that a lower price point will equal less value, service, and time commitment. Clearly set expectations during the sales cycle so that customers understand what they are—and are not—entitled to , based on the price they are paying for the services delivered.
  • Avoid Monthly Contracts. VARs and MSPs should never offer monthly contracts. Your costs and investments in any service engagement are mostly front-end loaded and entail onboarding an environment, cleaning it up, and making it stable. Don’t allow a client to exit that contract before you can make money, or in the worst cases, break even on the contract.  If you must offer month-to-month, do so only after the client has completed a full year of service, and make those contracts auto-renewing. It is the only way to reap the benefits of recurring revenue streams over the long haul. 
  • Discount Long-Term Contracts. Offer multi-year discounts for customers who desire added value, but still want to pay less. This ensures that the VAR or MSP is getting a fair price for the value delivered. And, as an added bonus, they will reap the benefits of those long-term recurring revenue streams.

The road to value-based pricing may not always be a smooth one, but by basing price increases on the value and service delivered, VARs and MSPs will radically improve their profit margins and earn greater customer loyalty. One final thought on pricing … don’t drop your price for fear of losing the sale. It’s okay to say no and stick to your value. If the customer or prospect is already nickel and diming you and doesn’t see the strategic business value in IT and your service, run, don’t walk.

Justin Crotty serves as senior vice president and general manager for NetEnrich Inc. He’s responsible for driving growth and scale for NetEnrich and its partners and customers. Prior to joining NetEnrich, Crotty conceived and launched the services division at Ingram Micro, where his team built and grew the first and most innovative managed and cloud services business in IT distribution. Widely recognized as an IT channel champion, Crotty has held management positions in IT sales and marketing, and began his career as an IT network engineer with IBM.