Time To Switch Pricing Models?

Time To Switch Pricing Models?

Switching pricing models isn’t easy. Among MSPs, there are differing opinions about pricing, which makes the decision to jump ship even harder. 

However, after you analyse how your current pricing model impacts your bottom line and take a look at the shift in pricing trends, you may well decide it’s time to make a change.

How to review your pricing model’s impact on your overall business

Begin by reviewing your SLAs to examine the services you’ve been providing your customers. Then, calculate your effective rate per hour. To do this, divide the amount your charging a customer per month by the hours you spend with that customer. For example, let’s say you’re charging a customer $500 a month for your services. If you’re spending 10 hours a month with this customer (add everything up — meetings, onsite support, tech support, those “quick fix” calls), what’s your effective rate per hour? In total, you’re pocketing $50 an hour. That’s not sustainable. The math doesn’t add up.

But wait! There’s more!

After determining your effective rate per hour, you’ll need to calculate what’s known as the “real costs of servicing” (more often than not, this is overlooked). Begin by computing your billable utilisation rate. Divide time spent on billable tasks by total amount of time available to work. If your rate isn’t at least 80%, you’ve got a major problem — especially if salaries within your organization are increasing rapidly.

You should also include overhead costs when examining the real costs of servicing. Honestly, these numbers don’t have to be exact, but you should still try your best to figure out the portion of your operating and administrative costs associated with servicing customers.

Fine! It’s time for me to make a change

MSPs have always been divided on pricing models. Some MSPs believe charging customers hourly is what’s best. Other MSPs consider themselves to be all-you-can-eat providers. A good chunk of MSPs still bill clients by seats or devices. Ultimately, the pricing model you end up choosing has to be what’s best for your overall business.

It’s now time for you to make a decision: “Should I switch pricing models?” If your answer is yes, then there’s some serious thinking to do on your part. There are plenty of options for you to consider. Instead of considering the pricing models of the past, how about entertaining the pricing models of the future? Do your best to stay on top of what’s hot and what’s not.

Throw out one-size-fits-all pricing strategies

MSPs are moving away from one-size-fits-all pricing strategies. This is the result of our industry adapting to changing customer behaviour. What customers today want from MSPs doesn’t always fit into yesterday’s pricing models. Many customers don’t see the value in fixed-price services. They’d rather pick and choose their plans accordingly. Today’s customers are also increasingly more diverse, so applying a one-size-fits-all pricing strategy is likely to not sit so well will every one of your current and potential clients.

What’s next? Meet the hybrid pricing model

So, with one-size-fits-all strategies going by the wayside, MSPs are testing a mix-and-match approach or hybrid pricing model to adapt to more diverse customer needs.

While the hybrid pricing model isn’t anything new, it’s a strategy that’s gaining traction, as MSPs pick and choose the best features from a range of pricing options. Of course, these hybrid pricing models will vary from MSP to MSP, but these new pricing models will include some fixed-fee price services and value-added pricing (for instance, a low per user per device fee coupled with a capped amount of labor every month).

Figuring out you need to switch pricing models is the first step to turning around your business. Next, find out what your customers want, take a look at the way the industry is heading and decide whether there’s opportunity in you following suit.

After switching pricing models, if you’re still struggling to improve your margins, Benchmark 365’s custom, scalable platform customer support platform could be your best bet. Outsourcing various parts of your business cuts costs and frees up time. As part of the Benchmark 365 community you also get to participate in our weekly forums where you can talk to your peers about their experiences with everything from pricing to sales and marketing – or else anything concerning MSP growth.

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