MSP pricing is a topic we frequently get questions about. What pricing models should be considered? How much should Managed Service Providers (MSPs) be charging per user? In this post, we'll answer those questions by digging into how MSPs can make their own calculations using various tools, such as an MSP pricing calculator and sample MSP services template, to ensure their managed services agreements stay profitable over time.
6 MSP pricing model examples
1) Per-device or per-user
Per-device and per-user are grouped together in this section because they are very similar pricing models. Per-device is a pricing model that charges a flat fee for each type of device that is supported by an MSP. Many MSPs choose this model because it’s simple and effective. Per-user is also a flat fee, but instead of per each device, it’s per user. Each user is a flat fee, and all the devices that a user has are supported by the MSP.
For this pricing model, MSPs only offer monitoring and alerting services for a part of their client’s IT environment. Businesses who opt for this pricing model from MSPs often want the bare minimum, and with this model, MSPs usually charge additional fees for any other service other than monitoring and alerting.
With a value-based MSP pricing model, an MSP will provide all their IT services for a flat fee. Clients that want an MSP to act as a part of their IT team and manage their entire IT infrastructure often choose this option.
Known as one of the most popular pricing models, the tiered MSP pricing model has groups of services that they offer to clients. For instance, an MSP could have “basic,” “advanced,” or “premium” levels, and each of these tiers/groups offers various services at a flat price to clients, with “basic” being the least expensive and “premium” being the most expensive. This allows clients to upgrade or downgrade services and prices as needed.
An all-you-can-eat pricing model is the most flexible pricing option, and it offers remote support, on-site support, and lab or bench time for a flat fee each month. With this option, clients can expect a flat fee each month for the services they need and avoid billing changes.
6) À la carte
With this pricing model, clients can pick and choose the services they need to create a tailored plan. À la carte is the least favorite pricing model for MSPs since it hinders profitability; in fact, the majority of MSPs actively avoid using this model.
What pricing model should an MSP use?
Even with all the right MSP pricing strategies, choosing the right pricing model for your MSP can be challenging, especially since no model is “better” than all the rest. However, it’s true that some methods are less efficient, such as tiered pricing or per device, but even these methods work for certain MSPs and their business structures.
The main points to keep in mind when pricing MSP services are profitability and efficiency. The method you choose should be profitable for your MSP and efficient, meaning that it works well without creating too much additional work for you or your clients.
For quite a while, it was common for MSPs to provide clients with different tiers of service offerings. Usually, it was presented as a “bronze, silver, gold” type of choice. The logic was every buyer appreciates having a choice, but the problem with this approach was many clients would simply choose the cheapest option and forego options or services that they actually needed.
In my MSP, I had tiers of service packages I would apply to different types of clients. I would refer to them internally, but I never presented them as options that my clients, themselves, could choose. The way I thought about it was that my clients were bringing me in to be the expert — I shouldn't be letting them decide what they need.
Offering prospective clients tiered options can seem like a positive, but ultimately providing them with one clear option can be a lot easier and simplify things for both parties. Prospects will appreciate that there's one less decision they have to make, and your technicians will appreciate not having to keep up with which client is on which tier.
Bonus: Getting rid of a lower tier can also help you avoid taking on “problem clients” who refuse to pay for what they legitimately need.
All that said, can there sometimes be benefits to offering tiered services? Certainly, but if you’re not realizing those benefits by closing more deals or upselling more clients, then there may be no point clinging to the method.
Mistake #2: Not identifying your minimum profitable contract
Every MSP has a responsibility to themselves: Make sure each client is profitable.
In many cases, however, getting to that point is a prolonged learning experience with a lot of curveballs.
My recommendation: Use our MSP Pricing Calculator to track and plan expenses — especially labor costs — so that your contracts don’t come back to bite you. For many of today's MSPs, a deal south of $2,000 - $2,500 MRR isn't going to be worth it. If the MRR on a deal looks questionable, consider selling block time as an alternative to all-you-can-eat service.
Remember that with the cost calculator, you can use your existing clients as a template. If you have a profitable client who is similar to a prospect, your existing cost calculations can help you plan your agreement and exceed that minimum profitability threshold.
Mistake #3: Not choosing a profitable pricing model
In locking in profitability, many successful MSPs seem to go in the direction of per-user pricing as opposed to per-device pricing. Gone are the days of one device per user. With users having multiple computers, phones, and tablets trying to keep track of devices can be cumbersome. By having a flat rate per user per month it aids in having a mutual understanding with clients of how the contract will increase in price and gives your business the ability to easily track and make billing adjustments.
Does that mean that per-device can't work for you? Of course not. As long as you're ensuring you have a healthy gross profit margin (goal: 70%), you should stick with whatever works for you.
Whichever pricing model you choose, just keep in mind you don't have to specify to your clients that's what you're basing your pricing on. On one hand, it can help make your pricing easier for them to understand, but on the other hand, it opens you up to more potential negotiation and nitpicking. Instead, you can always just provide your flat rate number and have one less thing to pick at.
Mistake #4: Not including an escalation clause in your MSA
Your managed services agreement should include an Escalation Clause that protects you from inflation. This helps keep your MSP profitable year after year and saves you from uncomfortable renegotiations when vendor prices increase.
Sometimes a new contract won’t be profitable for several months, because you may need to be very proactive at the beginning to get the network running smoothly. In many cases, that can be acceptable knowing that, in later months, there will be very little maintenance to be done.
Using the MSP Pricing Calculator can also help you strategize this type of agreement in such a way that you can be sure it’s worth your time investment. By regularly going to the 2nd tab of the calculator, you can compare your profit margins and determine if your labor costs are indeed decreasing over time. If not, or if they're actually increasing, you can troubleshoot and try to find a solution to course correct.
Mistake #6: Not protecting yourself from cyber liability
There are two great ways to protect yourself from this sort of danger. First, ensure that your company and each of your clients has cyber insurance — in fact, it’s a good idea to include a requirement with specific coverage needs in the contract (for more on cyber insurance, see our MSP Live Chat with techrug founder Justin Reinmuth).
Additionally, you want to make sure you’re providing the level of security the client actually needs, not just what they’re willing to pay for. The dangers of doing this are quickly beginning to outweigh the reward of haggling your way into a new client.
Mistake #7: Not handling "unlimited" support effectively
Offering unlimited service or troubleshooting is a great way to earn business. In fact, it can be hard to stay competitive in some markets if you don’t offer this.
The trick to making these kinds of deals without losing your shirt on labor costs is to clearly define the boundaries of your offer in each contract.
Yes, that essentially means putting limits on your “unlimited” service, but you’ll find yourself regretting it if you don’t.
In closing: Stay laser-focused on profitability
Profitability is not so much a destination as it's a moving target. Overhead changes, market demands change, and customers change. While there’s no single methodology for pricing that’s guaranteed to work for every MSP, there’s one truth that applies to everyone: you have to continuously optimize your pricing model and your agreements if you want to stay competitive.
Our pricing calculator can help you do that by taking much of the guesswork out of the process. Just like how NinjaOne can help your business thrive by taking the guesswork out of client management, time tracking, and support ticketing. Learn more and start a free trial today.
Building an efficient and effective IT team requires a centralized solution that acts as your core service deliver tool. NinjaOne enables IT teams to monitor, manage, secure, and support all their devices, wherever they are, without the need for complex on-premises infrastructure.