Guest Column | May 21, 2014

How To Bundle And Price Managed Services

Bundle And Price Managed Services

By David Streit, Principal, Stephill Associates, LLC, ASCII Group Member Since 2012

Sometimes a client will ask me, “What computer should I buy?” I can only answer that question with a series of other questions about their unique computing needs and preferences. If I ask another IT service firm how they bundle and price their managed services plans, I hear entirely different options and pricing from my own plans. Each client is unique in terms of their buying patterns, just as each business owner is unique in their pricing structure.

Today, it’s difficult to imagine any viable IT service firm who isn’t doing some type of managed services — the bundling of automated maintenance, monitoring, antivirus, antimalware, and backup — billed monthly. My managed services revenue is only 20 percent of my practice, but it is growing, and it is the focus of my marketing efforts because of the stable, recurring revenue that evens out the non-recurring busy and slow periods of project and break-fix work. There is little consensus and no one approach that has been adopted as THE dominant scheme. When a newbie in my discussion group posts a message for details about managed services plans, I roll my eyes. The question is pointless. What works for me may not work for them. The same is true for clients. I can present a managed services proposal to a prospective client with the knowledge that a competitor will offer something entirely different.

Plans an MSP (managed services provider) offers is dependent upon their staffing, their client base, their skills, and the RMM (remote monitoring and management) tools they use. That makes your MSP plans unique. They are a starting point and will change as you test them with clients and prospects. If they aren’t signing up, then change the plans.  Eventually you’ll settle on what works for you.

As a solo practitioner, I offer two MSP plans, Remote Care and Remote Care Plus. Remote Care includes monitoring of PCs, laptops, and servers, with included antivirus/antimalware protection, scheduled scans and real-time protection, automated tasks (mostly defrags and temp file deletion), and a discounted hourly labor rate. I use per-device pricing because my RMM platform also uses per-device pricing. I can easily match my pricing to my costs. I generally price no less than $15/PC and $100/server, but my target is $20/PC and $150/server. The discounted hourly labor pricing is an inducement to get prospects to sign up. I’ll discount my $125/hour rate to $115/hr. Remote Care excludes labor. ALL of my closed deals to date are Remote Care.

Remote Care Plus includes unlimited remote labor by phone, remote Internet session, or email. I only offer this plan to larger prospects with a minimum of 10 PCs and one server to earn enough revenue to cover the projected labor costs to avoid an unprofitable client monopolizing my time. The prospect must have up to date infrastructure because old software and hardware is a time sink to maintain. A site survey will tell you whether the infrastructure is going to be a problem.  You can also gain additional clues by asking the business owner for an invoice from the former or current IT provider to better gauge how many hours of support the prospect is using each month.  The unlimited labor is for existing infrastructure only. I exclude new work (moves-adds-changes) such as addition of new PCs and servers and office moves. I’ll also offer recurring revenue options at additional cost, or bundle them in and raise the per-device prices. These services include hosted antispam, hosted Microsoft Exchange mailboxes, backup and disaster recovery systems, and online backup.

A larger firm with several techs can more easily offer AYCE (all-you-can-eat) plans than a solo practitioner like me. Clients love these plans because they pay a fixed monthly fee no matter how much support they require. Their IT costs are predicable. They don’t have to worry about open-ended hourly fees. They shift the financial risk from themselves to the MSP. But IF the MSP qualifies the prospect, AYCE agreements can be very lucrative. Your interests are aligned with the client. The fewer the tickets, the happier BOTH of you are! Your profitability is higher, and the client’s costs are lower.

Subscribe to Business Solutions magazineI knew of one firm that only took on only clients with 25 to 40 computers and at least one server.  Their charge was a flat $125/user/month. The owner told me ALL his revenue was recurring and paid on the first of the month. He does no break/fix (hourly) work, and all clients are on agreements. The client had to replace old computers with leased equipment. He included a BDR (backup and disaster recovery) appliance. Every three years, all equipment was turned in and replaced with new equipment. The client was thrilled. They had an easily calculated IT budget.  The MSP could expect a minimal number of tickets because the infrastructure was standardized, well maintained, and reasonably new. The fewer the tickets, the more profitable the MSP, and the happier the client. Their fees include the labor for turning over the equipment, although the software and hardware leases are extra.

So create your own plans. Settle on the approach, from maintenance focused plans like my Remote Care plan to a hybrid of AYCE (Remote Care Plus) to full AYCE (all labor). TEST your plans. Write proposals to prospects and present them and listen carefully to judge whether they see the benefits of your plans and feel they are worth the cost. Then revise them. Along the way, keep an eye out at industry conferences for new, lower-cost MSP tools. Add new services to your plans, especially cloud services. Focus on recurring revenue. That’s where the action is!