Competition among MSPs is stiff, technology demands are complex, and clients expect rock-solid service for budget-friendly prices. While your offerings can differentiate you, your pricing model often seals the deal or causes prospective clients to walk away.
A strategic, well-thought-out pricing structure can foster long-term profitability, inspire client confidence, and solidify relationships for years to come. Yet, finding the sweet spot in MSP pricing can be tricky. You need to consider all factors that influence MSP pricing to help you strike the perfect balance between profitability and client satisfaction.
Key factors influencing MSP pricing
A variety of factors shape how MSPs determine their rates. While many service providers rely on industry benchmarks, it’s crucial to tailor pricing to your unique cost structure, service offering, and market segment. Consider the most significant drivers behind MSP pricing when creating your revenue structure:
1. Operating costs
Your operational overhead includes everything from payroll and employee benefits to hardware, software licenses, office space, and remote work stipends. Understanding the cost of delivering services is the first step in establishing profitable pricing. Failure to factor in day-to-day costs could inadvertently undercut your margins.
2. Service scope and complexity
More complex projects, such as advanced security services, intricate cloud migrations, or custom application development, warrant higher pricing because they require specialized expertise. Accurately scoping each service to match the effort and resources needed ensures you don’t undersell high-value, high-complexity engagements. Some companies may include a variance range when delivering an estimate to account for the uncertainty that can come from early on scoping.
3. Market positioning
Your brand, reputation, experience, and the perceived value you bring to clients contribute to your market positioning. Top-tier MSPs with advanced or niche capabilities can command higher rates than newer, untested providers. If your positioning leans toward premium, your pricing should reflect that level of service quality.
4. Competitive landscape
While you don’t want to race competitors to the bottom on pricing, keeping an eye on market rates in your region or vertical is wise. Clients expect pricing to be competitive, but remember that undercutting competitors can devalue your expertise and strain profitability.
5. Client industry and size
Vertical specialization sometimes allows MSPs to charge more, as niche expertise can solve industry-specific pain points quickly. Large enterprises with complex needs often expect enterprise-grade services. Conversely, smaller businesses may require a more budget-conscious approach. Narrowing in on a specific market often proves more profitable than trying to capture every client. Productizing different service options or focusing only on one or two target audiences can bump up an MSP to the next level of growth.
6. Geographic location
Location-based cost variances can affect your pricing strategy. For example, MSPs operating in high-cost cities like San Francisco or New York might factor in higher overhead and labor expenses, leading to elevated price points. Expanding remote teams has muddied these waters, as regions across the US are serviceable by most MSPs. However, it remains a factor to consider as MSPs often charge extra for work provided after hours, and depending on which coast a company is based on, that could result in additional fees the company might not want to pay.
Common MSP pricing models
There is no one-size-fits-all approach to MSP pricing. Each model has pros and cons and excels in specific scenarios. Below is an overview of the most common models, along with additional pricing formats that might be relevant in specific contexts.
1. Per-device pricing
What it is: It is a model in which you charge a fixed monthly fee per endpoint, such as a workstation, laptop, or server.
Pros
- Simple to explain: Clients only need to multiply the number of devices by the monthly rate.
- Easy to scale: Adding or removing devices adjusts the monthly fee without complication.
Cons
- Lack of flexibility: Different devices often require varying levels of support, but all get lumped into one price.
- Potential for undercharging: A client with many devices might pay disproportionately low fees if some of those devices require more support work than the average device.
2. Per-user pricing
What it is: You charge a standard rate for each user, covering all devices and services a user needs (e.g., workstation, tablet, smartphone, software licensing).
Pros
- Predictable revenue: User counts are relatively stable, simplifying monthly revenue projections.
- Integrated services: Because one fee covers a user’s entire tech environment, it often encourages holistic, high-quality support.
Cons
- Complex service usage: Similar to the drawback of per-device plans, some devices demand more resources or have specialized needs, leading to overhead creep.
- Potentially high entry barrier: Smaller clients might get sticker shock if their user base is large, but each user only needs minimal support.
3. Tiered pricing
What it is: You create multiple service packages with each successive tier offering additional services, faster response times, or more robust solutions at escalating price points
Pros
- Customizable offerings: Clients can choose the best tier for their budget and needs.
- Upselling opportunities: As clients grow, they can move to higher tiers, increasing your average revenue per client.
Cons
- Complexity in managing tiers: Staff must clearly understand and deliver different service levels.
- Risk of devaluing higher tiers: If lower tiers appear sufficient for most customers, your premium offers might undersell.
4. Flat-rate/all-inclusive pricing
What it is: A set monthly fee covering all services and solutions, from network monitoring to software updates and helpdesk support.
Pros
- Transparent for clients: No surprise costs or line-item add-ons.
- Easier sales: Clients appreciate fixed, predictable IT costs.
Cons
- Higher risk for the MSP: Intensive clients could consume more resources than anticipated.
- Potential for narrow margins: Without careful monitoring, some flat-rate contracts can erode profits quickly if the client has more demands than expected.
5. Usage-based pricing
What it is: Clients pay for actual usage, such as bandwidth consumption, storage space, or hours of support per month.
Pros
- Scalability: Clients pay in direct proportion to how much they use, aligning costs with business fluctuations.
- Encourages efficient usage: Clients become more mindful of resource consumption.
Cons
- Unpredictable revenue: Seasonal spikes or dips can make forecasting and budgeting difficult.
- Complexity in measurement: Precise tracking of usage metrics requires robust monitoring tools.
6. A la carte pricing
What it is: Clients pay separately for individual services from your service menu, such as backup, antivirus, cloud storage, and network monitoring.
Pros
- Complete customization: Perfect for clients with unique or changing requirements.
- Easy to upsell: Clients can add specific services as business needs evolve.
Cons
- Potentially overwhelming: Clients may find the sheer number of options confusing.
- Administrative complexity: Tracking each service separately can be time-consuming without a strong internal process.
How to choose the right MSP pricing strategy
Selecting the right pricing model goes beyond simply copying a competitor’s approach. It requires a deep understanding of your operational capabilities, target market, growth goals, and service differentiation. An MSP in a startup phase often needs a pricing strategy that is different from a well-established one. Considering your internal capacity to deliver service is more critical than simply mirroring what you feel like your MSP ‘should’ do.
- Assess client needs: Audit the typical services your target clients require, from help desk support to cloud migrations. The type of services you often deliver can inform the best pricing model for you.
- Evaluate your internal costs: Estimate the time, tools, and resources required to provide each component of your offerings.
- Consider simplicity vs. complexity: While complex models might be more precise, they can also be harder to manage or explain.
- Stay flexible: You may discover that a hybrid approach—such as mixing per-user with tiered add-ons—is the best fit.
- Leverage technology: Tools like ScopeStack can help model multiple scenarios quickly and guide data-driven decisions.
How to ensure MSP pricing supports profitability
Profitability is critical to sustaining and growing your MSP. A great pricing model won’t compensate for prices set too low. Setting prices based on guesswork or barebones margin targets can leave you under-resourced. Below are practical steps to help ensure you price for profit:
1. Calculate your break-even point
Identify the minimum revenue needed to cover expenses. This break-even analysis clarifies how competitive you can be while still making a profit.
2. Add a reasonable profit margin
MSPs often aim for 25% to 35% profit margins, depending on overhead, competition, and service complexity. Know what margin you need to invest in innovation and maintain cash flow.
3. Adjust for complexity
Factor in additional training, staffing, or third-party licensing fees for complex or high-demand services. Your high-value projects should yield higher margins.
4. Monitor resource utilization
Track how much time and labor goes into each client. If certain clients or engagements frequently exceed their expected resource usage, it might be time to rework their contract or update your pricing model.
5. Review pricing
Your operational environment doesn’t remain static; costs change, client demands evolve, and new services emerge. Conduct periodic reviews to align your pricing with real-world conditions.
Learn how to productize your services →
Communicating MSP pricing to clients
Even the best pricing model can fall flat if not communicated clearly. When discussing pricing with clients, it’s essential to highlight the business outcomes they can expect—such as improved uptime, better risk mitigation, and enhanced efficiency—rather than overloading them with technical jargon. Always strive for transparent, understandable language so clients know exactly what they’re paying for.
To help demystify costs, consider using visual aids like charts, side-by-side service comparisons, or short videos that walk clients through the reasoning behind each line item. Offering scalable options can also ease concerns; if a client hesitates to commit to a higher-priced tier, a phased approach or the option to upgrade later can foster trust and show flexibility. Finally, leveraging modern CPQ tools can streamline the pricing conversation by automating proposals, ensuring consistency, and reinforcing professionalism throughout the sales process.
Common MSP pricing model pitfalls to avoid
With so many variables, it’s easy to make pricing mistakes. Knowing which pitfalls to watch out for can help you avoid them:
- Underpricing to win deals: Consistently undercutting the competition can lead to unsustainable contracts and lower perceived value.
- Overcomplicating the pricing structure: A labyrinth of fees can confuse clients and complicate internal administration.
- Failing to account for scope creep: You'll quickly erode your margins if your contract doesn’t account for out-of-scope requests.
- Ignoring market shifts: Sticking stubbornly to an outdated pricing model can stunt growth.
- Insufficient data tracking: Without real-time metrics on resource usage and costs, you risk misaligning your pricing model with actual business operations. A lack of proper project management can also leave employees confused about the requirements, which can result in gold plating and reduced profit.
Learn how to estimate time and cost for more profitable projects →
MSP pricing trends to watch
The MSP industry doesn’t stand still. As technology evolves, so do client expectations and market norms. Staying abreast of these trends will help keep your pricing structure competitive and resilient.
1. Increased focus on cybersecurity
With cybersecurity attacks on the rise, clients are willing to pay for robust protection. Incorporating threat detection, incident response, and compliance consulting can boost margins.
2. Remote/hybrid work environments
Continued remote work adoption creates demand for MSPs proficient at secure networking, identity management, and collaborative tools. Usage-based pricing for these services is becoming more popular.
3. Vertical specialization
Providers focusing on specific in-demand industries, such as healthcare, biotech, finance, and legal, can command premium prices for specialized expertise.
4. Automation and AI-powered services
Automated monitoring, AI-based threat detection, and self-healing systems can reduce operational costs but also require strategic investment. AI is also trendy amongst client requests since machine learning’s popularity is on the rise, so offering these advanced services may justify higher pricing.
5. Subscription-based everything
Subscription-based models are more popular now than they’ve ever been. Clients are used to paying for goods and services this way, making a subscription service easy to sell. Also, some clients may prefer rolling subscription models over significant upfront expenses. Making the payment process easy for clients can contribute to deeper client loyalty and easier cross-selling of additional services.
How ScopeStack CPQ intertwines with MSP pricing, profitability, and client retention
MSPs need data-driven, automated systems that facilitate a seamless experience for both sales teams and clients. ScopeStack’s CPQ makes the estimation and discovery phases easier by pulling in up-to-date pricing for every service and product you offer, drastically reducing errors or outdated rates. This precision prevents profit erosion caused by misquotes and fosters trust with clients as they can easily understand each service’s correlated fee.
Revisions to pricing or scope are tracked automatically. If a client needs an add-on service or a custom solution, you can revise the quote in minutes, reducing turnaround time and making you look agile and professional. You can refine your pricing model by analyzing which quotes close fastest, which packages are most profitable, and which clients upgrade frequently for better margins and higher client satisfaction.
Determining an MSP pricing model and strategy requires assessing your overhead, market positioning, client needs, and competitive pressures. There are many methods to approach MSP pricing, from per-device and tiered pricing to usage-based and a la carte models. But regardless of which model you choose, aligning it with the real-world costs and complexities of your business is paramount to profitability. Conduct periodic reviews, keep an eye on industry trends, and stay receptive to client feedback. With a well-founded, flexible pricing approach and the right CPQ solution in your corner, you’ll be well-positioned to drive profitability, retain clients, and grow your business.
Contact us to learn more about how ScopeStack’s CPQ can improve your MSPs profitability and fit into your pricing model strategy.
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