The right MSP pricing model can help an MSP maximize value and profitability. The wrong pricing model can put an otherwise healthy business in danger. That’s why many MSPs agonize over finding the right pricing model for their business.
There’s no one-size-fits-all answer. Why? Every MSP is different. Not to mention, the industry is always evolving, the economy fluctuates, and trends come and go. It can be dizzying trying to figure out which pricing strategy and model is best for your business. But fear not, there are some guiding principles and concepts that can help you get it right.
In this article, we’ll break down eight common MSP pricing models, their pros and cons, and tips you can use to find the right strategy for your business.
What are the 8 MSP pricing models?
Before we dive in, keep in mind that many MSPs use a combination of models to create offerings that address different use cases.
For example, MSP pricing may include a per-device cost item for servers and PCs and a per-user cost for subscriptions like Office 365. Similarly, tiered pricing — where services are packaged in tiers like “basic”, “advanced”, and “premium” — often complements other pricing models.
Per-device
The per-device pricing model is based on charging customers for each device that you manage. Of course, a “device” is typically any endpoint you’re responsible for, such as a PC, server, mobile device, or network appliance.
The per-device model is easy for MSPs to implement and straightforward for customers to understand. Prices increase linearly based on device count, potentially with price breaks at specific quantities. The per-device model is sometimes supplemented with a per-site fee that helps cover the complexity of supporting different physical locations.
The biggest downside of the per-device MSP pricing model is that it doesn’t account for the varying costs associated with supporting different devices. For example, a single VMware server may be more time-consuming to support than multiple Windows 10 endpoints. Some MSPs address this challenge by breaking down per-device costs into categories such as per server, per-mobile device, and per workstation.
Typically, per-device pricing is based on the cost of supporting an average device plus a multiplier.
- Pros: Easy to implement and understand
- Cons: Device complexity can vary significantly across different device types
Per-user
Per-user MSP pricing is another popular pricing model. It charges customers a rate based on the number of users supported. Like per-device pricing, it might have price breaks at specific quantities.
Per-user pricing can remove some of the challenges associated with per-device MSP pricing. You simply count the number of users you support, regardless of the devices they use.
However, because the support costs associated with individual users are inconsistent, per-user pricing can lead to its own challenges. For example, a client that needs support for 100 users with 100 on-prem desktops at a single site has significantly different needs than a client with 100 users, 100 laptops, and 100 smartphones.
- Pros: Simple, abstracts away device-specific complexity
- Cons: Per-user costs can vary widely
Value-based (fixed-rate subscription)
Value-based MSP pricing charges customers a rate based on a bundle of services your MSP offers without being locked into a specific per-user or per-device rate. This can be a great way to help maximize profits. However, it does come with an increased level of complexity which means your pricing may vary a bit from customer to customer.
MSPs that regularly negotiate contracts and are comfortable with setting different prices for different customers. For a deep dive into this topic, I strongly recommend reading chapter 4 of Andy Cormier’s book, So You Want To Be An MSP. The gist of the strategy is that you can maximize profits by focusing on what clients value most and their specific pain points.
- Pros: Can lead to higher profits, focuses on value rather than cost
- Cons: Difficult to calculate prices, often requires client education, requires strong salespeople
Monitoring-only
This MSP pricing model is intended for monitoring-only contracts. The MSP charges clients a fee for monitoring assets. Typically, rates will be based on assets monitored but they could be based on user or location as well.
Monitoring-only MSP pricing models are a good low-cost pricing option that can lead to capturing other businesses. For example, if you’re consistently notifying in-house IT of infrastructure issues, you may eventually be positioned to take over solving them. Monitoring-only services can also lead to break-fix contracts or billable on-site services.
- Pros: Cheap, can open the door to other business
- Cons: Only applies to monitoring contracts
Tiered/bundled
Tiered, or bundled, pricing models are a very common approach to service pricing. With a tiered model, MSPs create packages that bundle different solutions into tiers such as “silver,” “gold,” and “platinum,” or “basic,” “advanced,” and “premium.”
These tiers may complement other models such as per-device or per-user MSP pricing. The idea is simple: clients choose a tier that meets their needs and pay that rate. If a client starts at a lower tier, MSPs may be able to upsell them over time as the relationship evolves.
Note that displaying tiered pricing publicly can drive clients to the low-cost option. To avoid the bias for the lowest cost, many MSPs prefer to maintain tiers internally without advertising them to clients directly.
- Pros: Flexibility and opportunity to upsell
- Cons: Clients may swarm to lower-value tiers
A la carte
In the a la carte model, clients choose specific services to build a custom offering. From a client perspective, this is great, at least on the surface. Clients can pay for only what they need and nothing more.
However, in practice, a la carte can be unnecessarily complex as clients try to be overly precise and select services misaligned with their needs. And MSPs waste time creating and explaining custom bundles to each client.
- Pros: Flexibility for clients
- Cons: Complexity for the MSP; can limit profits
All-you-can-eat
All-you-can-eat MSP MSP pricing models use a simple flat fee to cover all the services an MSP provides. From a client perspective, this is a great way to ensure predictable billing every month. From the MSP side, all-you-can-eat pricing simplifies sales, billing, and administrative processes. For example, with the all-you-can-eat model a client would simply pay a flat monthly rate to receive services such as monitoring, managed antivirus (MAV), and break/fix support.
- Pros: Simple and predictable pricing
- Cons: Limited flexibility; risk of clients overusing services
Break-fix
Break-fix MSP pricing focuses on the charges required for a technician to resolve an issue. Clients are billed per incident. This model can be a valuable supplement to monitoring-only contracts and help bring in additional revenue. However, it does not provide MSPs with a recurring revenue stream, and clients will miss out on the benefits of regular support coverage.
- Pros: Simple, brings in additional revenue
- Cons: Not recurring revenue; clients may use break-fix instead of a more robust service contract
How to choose an MSP pricing model
Knowing what the MSP pricing models are is only half the battle. The real challenge is selecting a model that works for your business. As with any other foundational decision for your MSP business, you must consider context and your goals as you decide on a model. The six steps below can help you get it right.
Define your target market
Clearly developing and understanding your ideal customer personas (ICPs) is a vital step to finding the right pricing models. In a previous post, we’ve reviewed how ChatGPT can help you get started with MSP ICPs, but getting those initial ICPs is just the beginning. From there, you need to consider their pain points, how they make purchasing decisions, and how their business context aligns with your MSP offerings.
Are your ICPs chasing the lowest-cost option? Are they in a niche where you can charge a premium? What pricing models best align with their business needs? Answering these questions will help set you up for success as you develop your MSP pricing model.
Assess your costs
Your costs are the other side of the equation that will determine your profitability. Many pricing models directly use some form of “cost plus” pricing, where the costs of delivering a service are used as a baseline for creating a price. The seller takes the costs and adds a markup to define the price to their clients.
Even if you don’t use a “cost plus” model directly, you must assess and understand your costs to operate an efficient and profitable business. Make sure you consider both the direct costs, such as labor, license fees, and infrastructure costs, as well as expenses, such as training, sales and administrative overhead, and marketing.
Determine your minimum viable contract
Regardless of the pricing model you choose, make sure you understand the “floor” that defines where you can comfortably operate a profitable business. Consider that floor your minimum viable contract.
Compare the monthly recurring revenue (MMR) for a given set of services with the cost of goods sold (COGS) and other expenses like sales commissions and determine if a given price point is viable. If it isn’t, the contract isn’t viable. If you need help deriving the different metrics required to determine contract viability, check out our blog on 27 Critical MSP KPIs (and How to Calculate Them).
Consider scalability
A contract that is perfectly tailored to a specific client’s needs and maximizes your profits from that client is great. But, local optimization for specific clients can lead to global sub-optimization for your overall business. That’s because a patchwork of custom contracts can quickly become a nightmare to support from a technical, administrative, and sales perspective.
There’s no one-size-fits-all answer here. If you want to focus solely on a few clients that are big enough to enable the business outcomes you want, custom pricing for each one might be just fine. However, if you want to expand and serve dozens or hundreds of clients, more structured pricing strategies might make sense. The key is to ensure your MSP pricing model considers your scale and operational efficiency.
Research competitors
You’re likely not the first MSP in your region and niche. A competitive analysis provides several benefits. First, you’ll get a feel for what other options your potential clients have. You’ll also get to review ideas actively being tested in the market. See if you can find feedback in reviews and online forums to understand how clients respond to those different models.
With that information in mind, you can strategically set your prices to solve existing pain points. You can also avoid making mistakes your competitors had to learn about the hard way.
Look at technology trends
Technology drives a lot of MSP pricing decisions. For example, Office 365 licensing changes would directly impact many MSPs. Similarly, alternative technologies, like the rise of Chromebooks and ChromeOS replacing Windows machines in many schools, can open up new business opportunities and change the inputs to your pricing model.
Stay up-to-date on recent technology changes and trends so you can take advantage of opportunities when they arise.
Best practices for managed service agreements
Your contracts and agreements define how you do business with clients. Make sure that they’re set up in a way that supports your MSP pricing strategy and protects you from issues that can impact profitability. Here are four best practices to help you do just that.
Set boundaries
Good customer service is an essential part of running a sustainable MSP. However, it’s important to draw a line between providing good customer service and giving away services for free. Some clients may seek ways to receive services they simply didn’t pay for. This problem can be particularly prevalent with clients that prefer the lowest-cost option available. Ensure your contracts, business processes, and communications take a firm but fair stance with clients who try to get more than they paid for.
Include an escalation clause
Inflation can chew up profits fast. An escalation clause in your service agreements can help you hedge against inflation risk. The fundamental idea is that an escalation clause enables an MSP to raise prices by up to X% given some condition is met. If you’re entering into agreements of a year or longer, use an escalation close to hedge against inflation risk.
Shield your business from liability
Lawsuits and claims against your business can do significant financial damage. Ensure that your insurance policies and contracts help shield your business from liability. Examples of steps you can take to limit risk include:
- Disclaiming responsibility for 3rd party hardware or software failures
- Requiring clients to maintain local backups of critical data
- Obtaining cyber insurance and requiring clients to do the same
Don’t be afraid to fire clients
We’ve already talked about how important it is to identify your ICPs so you can focus on your ideal clients. It’s also important to acknowledge when a client has become more of a liability than their contract is worth.
Simply put, you need to know when to fire a client and have the courage to end the relationship if that time comes. If you don’t, you may wind up with clients overusing services, burdening support staff, and costing you money.
Improve your margins with Syncro
Syncro, an integrated MSP software platform, is built to help MSPs operate a profitable, sustainable, and scalable business. And, the pricing model drives that point home. Syncro’s per-user pricing doesn’t penalize MSPs for adding assets under management.
Additionally, by combining RMM and PSA capabilities in a single platform, Syncro reduces tool sprawl, increases opportunities for automation, and enables back-office efficiencies.
If you’d like to see how Syncro can help you operate a more profitable business, sign up for a free trial today!