How exactly does a managed service provider (MSP) decide how much to bill customers? Where does that number come from? And how can a business that needs managed services decide what pricing model is best for their needs?

Let’s first talk about the different pricing models and their pros and cons.

MSP delivery models

First, before we get to the pricing, any kind of IT support is typically provided under one of these four delivery models.

  • Break/fix: in which you get something fixed when it breaks, and then pay the bill for it. This model has fallen out of favor, though you can still find some providers who do this.
  • À la carte: in which pretty much every possible service is optional, and you pick and choose components of a personally tailored service plan. Not many MSPs offer this anymore, as customers might be overwhelmed with choices, and it can take too long to explain each piece. And since the MSP has to give each service its own specific markup, it turns out to be hard to keep profitable.
  • Bundled (or Tiered): in this model, bundles or chunks of service are paid for in advance. Not all services are in every bundle, but all services in a given bundle are required for that bundle. There is a danger that the difficulty of choosing between bundles might prevent customers from signing up at all, and also that many customers might go straight for the cheapest bundle without understanding that it has less support than the others.
  • All you can eat: this model gives you all the services, and as many hours as you need. AYCE is popular with MSPs that want to simplify things and concentrate on one thing they do well. In a smaller market, where there are fairly few MSPs, whatever ones are there might have to offer some kind of bundled service if there’s demand for it. Bundled service is the go-to for many customers who don’t want to buy AYCE. But AYCE is the most popular delivery model for MSPs who can choose among customers.

MSP pricing models

The distinctions below really only apply to bundled and All You Can Eat (AYCE). Once you’re getting full service with no clear upward limit, an MSP has to charge higher or lower fees based on some other factors. The common pricing models are per-device, per-user, and value-based pricing. This also helps the MSP cover their costs.

Per-device pricing is where you pay a flat rate for each managed device. It is easy to estimate, quote, and illustrate for prospective customers. It’s also better than per-user pricing at scalability because when a business grows, it will add devices more immediately than employees. The number of managed devices in a business is more closely tied to its growth and scaling, and devices can be added or subtracted at will depending on the need.

The per-user model requires the MSP to calculate the “all-in-seat” price, which is the total cost for one user, plus a markup. And that, in turn, requires making estimates about the users, including how computer-literate they are, and how easy they are to work with as clients. An MSP would assign a score for each of these and then use it to estimate the per-user price point. In this model, as your business adds new devices, the MSP has to support more devices, but they don’t get paid any more money until you hire a new employee. So per-device pricing might be less attractive to businesses that need fewer people but more managed devices. If your employees each need multiple devices, you might want to go with per-user.

Value-based pricing is basically when an MSP does the work of an in-house IT department. They figure out the “value” by estimating the cost of an appropriately sized department for each client. Obviously, this means that there is no standard “rate” that they can quote to prospective customers, the way they can quote per-person or per-device rates. The MSP does not disclose to the prospective customer the actual costs of individual services, and instead estimates how much they would hire for a full-service in-house IT department. It is the option for those with money who want a low-stress (everything is taken care of) solution.

Value-based pricing means asking the customer for a significant amount of trust upfront, so an MSP might need to have a fairly good reputation with Managed Services before adopting this model.

As far as costs for a value-based MSP, it depends on how big you are but some MSPs have a floor of $2,000 a month, as anything smaller than that is not providing benefit for the amount of work they are promising. To sell a value-based model, the MSP would have to establish strong rapport and trust, then quantify for you the full cost of your current approach, including lost productivity and opportunity cost, and finally, offer you a full AYCE package with better value than that. Some times this is absolutely worth it and many people move forward with this model.

Not surprisingly, the pricing model that works best for you comes down to what requirements and budget you have. If your business is heavy on personnel and has few devices, you might want a per-device estimate. If you have more devices than employees and anticipate getting more, you might want to find someone who will offer you a per-user rate. If you have a big budget and don’t want to sweat too many details but to just let someone you trust do the worrying for you, then value-based pricing might be the best for you.

Feel free to reach out to us for any further questions on pricing models for your IT Support, and why we have chosen our model and our honest opinion on what might work best for you. Contact us here.