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.
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:
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.
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.
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.
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.
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.
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.
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.
What it is: It is a model in which you charge a fixed monthly fee per endpoint, such as a workstation, laptop, or server.
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Cons
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).
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Cons
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
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Cons
What it is: A set monthly fee covering all services and solutions, from network monitoring to software updates and helpdesk support.
Pros
Cons
What it is: Clients pay for actual usage, such as bandwidth consumption, storage space, or hours of support per month.
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Cons
What it is: Clients pay separately for individual services from your service menu, such as backup, antivirus, cloud storage, and network monitoring.
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Cons
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.
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:
Identify the minimum revenue needed to cover expenses. This break-even analysis clarifies how competitive you can be while still making a profit.
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.
Factor in additional training, staffing, or third-party licensing fees for complex or high-demand services. Your high-value projects should yield higher margins.
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.
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 →
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.
With so many variables, it’s easy to make pricing mistakes. Knowing which pitfalls to watch out for can help you avoid them:
Learn how to estimate time and cost for more profitable projects →
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.
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.
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.
Providers focusing on specific in-demand industries, such as healthcare, biotech, finance, and legal, can command premium prices for specialized expertise.
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.
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.
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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