Debate on "All In" vs. "Modular" MSP pricing

Posted by Denes Purnhauser on Nov 9, 2016 7:22:57 AM

In MSP best practices, MSP Business Building

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The Managed Services business was created from the traditional suite of desktop management, backup, network and server support. Most MSPs now are offering various services outside the traditional managed infrastructure scope: application management, additional security or virtual CIO services. This is the evolution of managed services, and the right way, however many MSPs have just reactively added some of these services to stay relevant to their customers and protect the core MSP services. They might call themselves "your IT department." Let's check out why it’s a problem and what to do about it.

The problems

Here’s a quick overview of the pitfall of adding more to our managed services delivery without proportional monetization.

  • Application Management, IT Security, and vCIO services don’t fall into the core MSP value proposition. Mixing them into the Managed Infrastructure Services creates confusion. The current infrastructure expertise was not always so convertible to process, business, or security expertise. Clients may have trouble believing you’re qualified for the others.
  • These additional services create confusion in our messaging as well. What makes us better than our competition if we can’t clearly differentiate ourselves? If you just mesh these services into the MSP package, they and the value perceived get lost as "features of the MSP program" rather than stand-alone products.
  • As you add services, your MSP offering becomes more expensive. Your competition can still claim the same offering, though it isn’t, and at a lower price point. Clients will see no differentiation and not understand what makes you more expensive.
  • If you stack all these services together, you lose flexibility. Clients may not need some of what they’re paying for, so you’ll lose the ability to deliver packages suited to the primary need/lower maturity/small client segment.


This all means if you keep doing the one-size-fits-all "we are your IT department" package, you’ll be lowering your shield to where the competition can hurt you and also dulling your sword in terms of new client acquisition.

What to do

Let's quickly cover some strategies you can apply to make this trend your friend and not your enemy.

  • List out the value propositions you’re offering. Managed Infrastructure, Managed Applications, Managed IT Security or vCIO. You can add to the list if you need, just make sure you define each as a value category that makes sense to the end client.
  • List out all the services you do for your clients and try to place them into the categories. What you’ll see is your complex offering start to make more sense, with an internal consistency that’s both easier to describe and to get the client invested.
  • Treat your listed services as your modular (e.g. LEGO) building blocks. Now you can start building up different service bundles based on those blocks. If you focus on the differentiation between Application Management, IT Security or vCIO, you will see how you can actually have service bundles as stand-alone products rather than just added features.

Because all your services are going to be in bundles your tech people will have no difficulty knowing what each client has. Also because most of the categories are not related to their infrastructure job, we aren’t creating more complexity on the execution side.

  • If you’ve crafted some bundles, you may consider create a basic and a premium offering for each product line. You can end up, for example, with four product lines, two versions each. A basic package will be good for entry level stuff like a small advisory as a vCIO and some starting IT security in the packages.

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  • Now you can deliver a proper service offering for each client and prospect based on their needs. For example, an accounting firm will have Premium IT Security, Managed Service and Basic vCIO and Application management, whereas an engineering firm will need Premium App management, vCIO, MSP and a basic security package.

Benefits and tradeoffs

Let's see some pros and cons for this strategy

Benefits:

  1. Now you’re able to give them a more tailored offering, and they’ll see that it suits them best, because you could give them a choice.
  2. Now you can maximize the monetization and profit for each package, because you don’t have to deal with competitive pricing.
  3. Now you can keep up-selling as their maturity grows, and eventually offer them all premium offerings in years to come.
  4. Now you can differentiate yourself and get into the battle where the prospect has a strong MSP but the IT Security, App management or vCIO is weak.
  5. Now you can communicate online and better convert on your website, as three value propositions are not commodities (only the infrastructure component is).

 

Tradeoffs:

  1. You have to productize the services and define each clearly (we’ve already defined 100+ services)
  2. You have to keep clients in their swimming lanes with proper account management and internal service management (quarterly business review with discussion is enough in most cases)
  3. You need a discipline to sell what you deliver and deliver what you sell. With production it’s not a problem, but still a new item.

Just for fun...remember… in 2008 it was only one iPhone available…. How about today? Why do you think Apple has more options in colour, size and storage today?

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Conclusion

Consider the benefits and tradeoffs of moving to a different pricing model. Your managed service will be evolving in a more rapid pace as client needs evolve. It’s up to you to create a model which will manage these changes reliably. If not, you’ll have a very stiff and rigid model giving away a tremendous amount of value and sacrificing opportunity and service all at once.

Check our video about services and service bundles