Inflation. Raising wages. Increasing software costs. Competitive positioning. Business growth.
The list of reasons to consider raising your seat price is endless.
But we also know it’s a little daunting...
What if you lose customers?
Where do you start and what should you raise prices to?
How do you explain the sudden changes to customers who have been with you since the start?
How will you match your competition but not discourage potential customers?
Being an MSP can be challenging.
But raising your prices shouldn’t be.
After all, you can’t grow and scale your business if your prices are too low.
Research shows that MSPs are in demand now more than ever. So, let’s see how you keep current customers, win new business, and raise your seat price.
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What is per-seat pricing?
Per-seat pricing, also referred to as per-user pricing, is a type of pricing model where you charge a specific fee for each user or 'seat' using your MSP services. This fee includes access to various services and customer support.
Unlike the per-device pricing model, seat pricing accounts for every device a user might use and sets the cost accordingly.
Most MSPs use this pricing model because it's simple yet scalable.
You know how many seats your customers need and can scale your services accordingly. And your customers can budget for their IT expenses without worrying about fluctuating bills.
When it comes to determining your seat price there are various factors you’ll want to consider.
For example:
- What do your current overheads look like? This includes employee wages, equipment and tech, insurance and legal services etc.
- What services do you offer? Do you offer a variety of services such as Client Services Automation, a Unified Client Portal, cybersecurity, BCDR, cloud and endpoint security, AI chat, etc?
- What is the state of the market and how do your peers compare? What MSP trends are influencing the way your peers price and package their services? Will you all be competing for the same customers? How can you remain competitive and profitable at the same time?
When it comes to pricing, the most important thing to consider is, will this make my MSP profitable?
And if the answer is no, you’ll need to go back to the drawing board.
Why should you consider raising your seat price?
The truth is, most MSPs (including you) struggle to set prices that reflect the true value of their services.
However, by simply raising your seat prices, you'll be able to charge a rate that aligns more accurately with the level of support and services you offer.
And the best part? You'll become more profitable while still providing the high-quality service your clients expect, and you will also be able to:
- Enhance the quality of your services by investing in more resources to meet your customers’ needs.
- Invest in the latest tools and tech to deliver the best customer service possible.
- Innovate your service offerings and develop your business model.
- Nurture happier customers. With all the above, you'll be able to deliver exceptional value and build customer relationships built on loyalty and trust.
When should you raise your per-seat price?
Like any business, MSPs are grappling with the increasing cost of doing business. Supply chain issues, labor shortages, and inflation are just a few of the challenges everyone is facing.
And these challenges can seriously affect your bottom line and make it hard to remain competitive in the MSP market.
To stay ahead of the curve and ensure your business's long-term success, it's a good practice to assess your pricing model to ensure that it reflects your business's current needs and market trends.
By reviewing your pricing strategy, you can identify opportunities to increase your prices. Especially if you're experiencing:
- An increase in demand for your services: If your demos are converting well and your current customers are requesting more, the market will be willing to pay more for your offerings.
- Client growth and retention: A price increase won't bother happy customers who see the value in your services and if you deliver on promises.
- An increase in value-added services: If you consistently add new features or technology, or continuously enhance your services to improve your value, increasing your prices is a must. Otherwise, you'll be losing money — it's that simple.
- Rising operational costs: The costs of labor and technology are on the rise and while you need to invest in both to keep your business running, you need to ensure you cover your overheads — and make a little profit of course.
The goal with raising prices is to help your business remain profitable and competitive.
What should you raise your prices to?
Pricing strategies vary from MSP to MSP. There is no one-size-fits-all approach.
However, Syncro reported that the average MSP gross service margins typically range between 40% and 60%. Top MSPs achieve 70% or higher. If your margin falls below 50%, your first step should be to see whether you can increase it reasonably.
To figure out how much you can raise your per-seat/per-user pricing, you should pay attention to the following factors:
- Market demand: How many MSPs operate in your local area? Is there a need for more, or is the market completely saturated? If there's a need for more, you can afford to be more flexible with your pricing.
- Your competitors: Research your competitors and look at what they charge for the services they offer. How do your prices compare? Are they attracting more, or fewer customers based on their prices?
- Business costs: Look at your current overheads. Does the amount you charge per-seat/ per-user cover your outgoings while ensuring you make a profit?
- Customer feedback: Do your customers feel they get what they pay for? Do they see the value in your services? The happier your customers, the easier a price increase will be.
Getting the pricing model right and understanding the numbers is the key difference between a profitable business and going out backwards.
What if you lose customers?
Don't panic if you lose some customers.
There will always be more.
That being said, when discussing pricing, make sure you approach the topic with care.
Be upfront and clear and give them plenty of notice, but make sure you thoroughly explain why your prices are increasing.
- Tell them about the added value they will receive.
- Let them know about any new features, upgrades, or improvements.
- Address any concerns or questions while you’re talking to them.
- Let them know you value their business, you’re grateful for their continued support, and you’re still putting their business needs first.
Doing the above will help your customers understand and accept the change.
And if they don’t, they didn’t see the value in your MSP and were probably the ones flooding your support desk with tickets while paying the minimum amount for your services.
Remember, your customers are business owners too and have likely had the same conversation with their clients. So go in with confidence and make sure you sell the value of your MSP.
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Raising seat prices might feel daunting, but it can bring many long-term benefits.
More money means you can invest in better services, technology, and talent, which can help you stay competitive and profitable.
And as Harvard Business Review states, the fastest and most effective way for a company to realize its maximum profit is to get its pricing right. The right price can boost profit faster than increasing volume; the wrong price can shrink it just as quickly.
So, don't worry about the initial challenge. Keep your eyes on the long-term benefits. You've got this!
Annie Jenkins
