The persistent question plaguing decision-makers is, ‘How much should you charge for your services?’ On the surface, it feels like a straightforward math problem—just calculate your costs and add a margin. In reality, pricing for MSPs is far more complex. Between competitive pressures, client expectations, and the need to prove value at every turn, finding the right balance can make or break profitability.
Underpricing your IT delivery services will quietly erode profit, so it’s key that you understand the different strategies available to ensure you price services in a way that sustains growth.
Why MSPs underprice their services
Many MSPs fall into the underpricing trap for reasons that seem logical at the time, but cause major issues in the long term. When too concerned about landing the sale, spur-of-the-moment pricing decisions can be more detrimental than profitable. The most common reasons MSPs underprice their services are:
1. Fear of losing clients
When potential clients mention they're evaluating other MSPs or are very cost-sensitive, the immediate instinct is to find ways to come in under the competition. This reactive pricing approach treats services like commodities rather than specialized expertise. It results in a competitive race to the bottom, with contracts that barely cover costs.
2. Inaccurate scoping
Projects may seem straightforward, but many have hidden complexities, dependencies, or integrations that can make them challenging to scope. Clients may have custom requirements that add a level of variability to an otherwise routine project. Additionally, your engineers might start implementation work only to discover that the infrastructure needs an overhaul just to make the system compatible with the scoped work.
If you quote for the best-case scenario, don’t budget labor hours for unknowns, and overlook documenting key requirements during scoping, then edge cases, variability, and client-specific situations will result in scope creep and a drain on resources.
3. Lack of market research
Lacking comprehensive market intelligence about what competitors actually charge (beyond just the headline numbers in proposals) can lead to a poor pricing strategy. Without this baseline understanding, pricing becomes a matter of guesswork disguised as strategy, as MSPs may mimic competitors who are themselves underpricing.
4. Poor value communication
Many MSPs struggle to clearly articulate why their service commands a premium. When MSPs can't effectively communicate the depth of their expertise, the proactive monitoring they provide, the client-side ROI, or the disasters they prevent, clients default to price as a primary differentiator. This commoditization forces providers to compete solely on cost rather than outcome and even offer deep discounts in the moment that undercut profitability.
The first step toward fixing underpricing is recognizing these drivers. Once you know the “why,” you can address them head-on.
The hidden costs of underpricing
The most obvious result of underpricing is its slimming effect on your profit margins. However, it causes a ripple effect and results in more damaging issues than just one, which makes recovery harder:
1. Profit erosion
When an MSP prices services below cost, they’re sacrificing long-term profitability for the short-term win of the contract. In the moment, it might feel like the revenue coming in is a good thing—but when the loss compounds over time, it becomes more apparent that undercutting has hurt the overall cash flow.
For example, imagine an MSP wins a 100-seat managed services contract by pricing aggressively at $95 per endpoint per month. However, their actual cost of delivery—including monitoring tools, security stack, help desk support, and account management—runs $115 per endpoint. This $20 monthly loss per endpoint equals $24,000 in annual losses on a single contract.
2. Strain on resources
Thin margins mean you need more clients to hit revenue goals, which spreads your team thin. Especially if you cannot hire more IT professionals to balance out the bigger workload. Technicians and engineers find themselves juggling more tickets and constantly battling scope creep because the original pricing left no buffer for unexpected complexity. Overworked staff leads to burnout, high turnover, and a decline in service quality. This can impact your industry reputation and client relationships.
3. Client expectations
Low pricing creates a price anchor that distorts client expectations permanently. When an MSP undercharges to win business, clients internalize the below-market cost as the "fair" price for enterprise-grade security. Future attempts to raise prices or even match market rates trigger accusations of price gouging, making clients feel like they’re now overpaying for the same services.
4. Brand devaluation
Once your MSP is seen as the “cheap” option, it’s hard to pivot. High-value prospects may not consider you, assuming your service is lower quality due to the lower price. The word-of-mouth referrals you receive from current clients paying below-market rates are likely not reaching the ears of the clients you ideally want.
5. Reduced growth runway
Undervaluing services limits your ability to reinvest in your business. Without healthy margins, you lack funds for:
- New hires or specialized talent
- Advanced monitoring/security tools
- Marketing and sales initiatives
- Employee training and certifications
Underpricing doesn’t just impact today’s profit—it restricts tomorrow’s growth.
Strategies to avoid underpricing and protect profit
Though transition periods have the potential to cause some stickiness, underpricing isn’t permanent. MSPs can recalibrate pricing strategies with the right tools, mindset, and client communication. Employ the following strategic approaches to ensure profitability:
1. Accurate scoping
Accurate scoping is the foundation of profitable pricing. Every hour, resource, and dependency should be accounted for upfront for correct resource allocation. Manual spreadsheets and guesswork inevitably miss costs. Forgetting an important dependency during scoping or incorrectly capturing the client’s goals can lead to scope creep.
Tools like ScopeStack automate this process, ensuring that nothing is left off the estimate. That means fewer surprises mid-project, less “free work” to keep the client happy, and healthier margins.
2. Express the value of outcomes
Successful MSPs price based on the business outcomes they deliver. You can charge a premium for services when you can accurately explain to a client the benefit to their bottom line. When clients understand that your service means fewer outages, tighter security, or productivity gains, price becomes a reflection of ROI, not just time logged.
Practical ways to frame value include:
- Comparing the cost of downtime vs. your managed services fee
- Highlighting reduced security risks compared to the cost of a breach
- Showing time saved for internal IT staff, freeing them for strategic projects
3. Research and benchmark regularly
Pricing is not set-and-forget. Competitive landscapes change quickly. Regularly analyze competitor offerings and industry averages. Benchmarking ensures you’re not undercutting yourself while staying competitive in your market. Effective market research involves analyzing actual contract values, service scope differences, and client satisfaction levels across your competitive set.
4. Service specialization and differentiation
MSPs that develop specialized expertise in specific industries or technologies can command premium rates by solving problems that generalist providers struggle with. A manufacturing MSP that understands OT/IT convergence can charge significantly more than a general business IT provider because its expertise directly impacts operational efficiency. Instead of casting a wide net and competing against all other MSPs, you can focus on a niche audience and delve deeper within your specialization.
5. Offer tiered pricing
Tiered service levels enable you to cater to clients at various budget levels without compromising profitability. The key is avoiding the trap of creating "loss leader" tiers that attract price-sensitive clients but generate no profit. Each tier should address specific client problems while generating profit margins that support business growth and service quality. The tiered pricing model is also a predictable source of income, resulting in stable, recurring revenue.
The role of ScopeStack in preventing underpricing
While an MSP may recognize that underpricing and incorrect scoping often go hand-in-hand, executing a solution to address the issue can be more challenging. Rather than relying on manual estimates that invariably miss edge cases, sophisticated scoping tools can analyze client environments and generate comprehensive service requirements.
ScopeStack’s CPQ provides automation and accuracy, so you can check this to-do off the list and focus on other MSP pricing initiatives.
ScopeStack becomes a differentiator with:
- Automated scoping: Capture every resource, hour, and dependency in a structured format to avoid missed costs and scope creep.
- Profitability tracking: Monitor real-time project costs against estimates, flagging scope creep before it eats into margins.
- Pricing optimization: Build flexible models tailored to client needs and project complexity, ensuring sustainable profit on every deal.
- Client transparency: Generate detailed breakdowns that show clients exactly what they’re paying for, making it easier to justify premium pricing.
ScopeStack saves you time while protecting margins and giving your engineers ready-to-use deliverables, so they can focus their attention on the value-adding services that you want your business to be known for.
Pricing your services is one of the strategic decisions an MSP makes. Underpricing may win deals in the short term, but it erodes long-term profitability, stretches resources, and damages market positioning. By combining accurate scoping, value-based pricing, market benchmarking, and transparent communication, you can protect your margins and set the stage for sustainable growth.
If you’re interested to learn more about how ScopeStack’s CPQ can make your MSP more profitable, get in touch today.
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