At almost every event where I present for the IT service provider industry, I hear someone asking the question, “How should I be pricing, and how do I keep from changing my offerings up too frequently?” And I always say, “You price on value and you change as often as needed!” The responses I receive are typically, “But Manny, how do you price on value?” or, “I can’t change up what I offer that frequently, it’s time consuming.”
Let’s tackle this one thing at a time. When I say pricing on value, I don’t mean the esoteric “I take care of everything you need” and put a fat price sticker on it. I mean create services and offerings that the majority of your clients need and which have value. How do we know what has value? If the client will pay for it, it has value! Now you ask, “Okay, but what about the services they need but don’t know they need, and therefore don’t find value in, such as A/V or Anti-malware?” This where you draw the line of who is and is not your ideal customer.
If they do not get that they are IT dependent and that the value of having these basics is significant, start looking for other customers. It’s also fair to say, it’s your job to explain the cost benefits and the repercussions of not having these things. In today’s world, that’s never been easier. Just ask your customers what their Liability or Cybersecurity insurance reps have to say about these basics. I will also add that you do have to set up the basic bundle of Managed Services that are the foundation of all things you offer and do. It’s not the total care package, but it is the starter bundle that we stack everything on top of.
Now, to cover pricing. STOP selling all-in seat pricing or any other scheme that seeks only to optimize your revenue and profit. It’s not what is in the best interest of the client, and if the client is not better off for having purchased it, it’s not of value and should not be sold to them. Important note: The client decides if they are better off, not you. And if you don’t, when the next economic downturn comes along, you’ll be at the front of the line as far as going out of business. There are better reasons than simply the client value. You can get the revenue you’re after, and likely at the same levels from the same clients, but without the all-in B.S. pricing.
This is where I bring up the paradigm shift coming in how managed services will be sold in the small and medium IT service space. It’s already how the “big boys” do it, and it’s coming to a MSP near you SOON!. It’s called a Service Catalog. In the service catalog, you have offerings for each service and a slider to determine how important that service is for that user, machine, device, etc. The client determines where the slider should be set to get optimal performance for a given asset that meets their operational budget. By pricing like this (rather than simply a cafeteria plan), the client directly determines what they will receive in value.
If you think about it, does Amazon or Microsoft come stuffing a fatter and fatter package to you every new month or new year? No, they don’t (although Microsoft tries). They have a robust catalog of products and services that are easy to upgrade and replace. They give you all the training and access to documentation you’ll need, and yes, they do try to upsell or offer you new add-ons at every turn. They are always attracting a larger and larger client base as they make it as easy as possible to sign up.
If you have questions about any of this, I’d love to chat with you about it. It’s one of my favorite subjects. I also wrote about this in my book Getting To The Next Level.