What we know with certainty is going on in the world today, is that inflation is rising and technical talent is costing a lot more money. If you’re running an MSP or IT services company, you’re also probably loaded with projects. You’ve probably got a ton of work to do, and you’re very busy, but everything you need to get this work done is going to cost you. The cost of running a business is going up. That is why you must begin figuring out how to raise prices in your MSP.
A conversation that we’re having with a lot of our members right now is whether or not they should be raising prices. And if they’re going to be raising prices, then by how much and how exactly do they go about that without alienating, or pushing their customers away? What if they accidentally price themselves out of the marketplace? That’s the situation as we’re seeing it right now.
So, yes, prices are up across the board. More and more MSPs are busy. All their engineers are underwater right now, but the problem is that a lot of them, while their revenue is going up, their margins are falling. That is because in a lot of cases they have not raised their prices. Labor is up, vendors are charging more. Hardware is going to continue to rise. There have been price increases already.
If you’re an MSP and you have not raised your prices in the last two years, I can tell you right now you are losing margin.
It’s practically inevitable. I don’t know anybody who still has 2019 or 2020 pricing and has not seen a significant dip in the money that they’re making. By raising your prices, that’s one way that the most successful MSPs are able to grow and increase profitably. Their profit margins are in the 20% EBITA range, and that’s after paying the owner a fair market salary. They’re growing at the rate of at least 10% – 30% YoY.
All of the most successful MSPs have raised their prices by 20% – 25% compared to last year and haven’t suffered from it at all. In fact, they also have not lost any customers. Across the board, the MSPs that are really succeeding have already raised their prices. So the question for you is, do you need to raise your prices? I can tell you this: if your gross margin on services is not north of 50%, or if your EBITDA is 10% or less, without any shadow of a doubt, you are underpriced.
You need to raise your prices across the board, and that doesn’t only mean for new customers coming in.
You’re probably going to have to go back to existing customers and raise the rates on them for their projects as well. You want to be north of $200 an hour on project work for managed services. You want to be somewhere in the “per-seat” pricing of about $150-$250 per-seat price. I want to caveat this with one thing, and that is to say, know that telling somebody a per-seat price is useless until you really know what goes into it, what the tools are, what your costs are, who the customer is, and what you’re delivering. A better measure is your gross margin and of course your net profit, or your EBIDTA. If your EBIDTA is 10% or less, or if your gross margin is 50% or less, then you’re going to have to do that price increase.
3 Components You HAVE To Get Right When Creating Your Service Offering
1. It’s got to be scalable.
If you have a service offering that’s custom to every single client, with each having different tools, and on a different pricing plan, it gets very difficult to scale that. So the first and most important factor you must have in your service offering is to make sure it is scalable.
2. You must be competitive.
If you are not going back to your customers and offering them advanced cyber protection, (and in some cases even compliance as a service), your service offering is falling out of being competitive. Because right now the insurance companies are pushing a lot more cyber protections for “Regular Joe” business owners. If I don’t as a small business owner, then I could have my crime or cyber liability insurance claim denied because I am failing to put in place certain cyber protections. (See How Insurance Companies Are Causing MSPs To Lose Clients And How To Stop It From Happening To You.)
Across the board, more and more business owners are going to their IT providers and they are asking for advanced cyber protections so that they can be compliant with their insurance policies, HIPAA, and with the SHIELD Act, or any number of regulatory bodies. And obviously, by state, the SHIELD Act in New York and the Consumer Protection Act in California, for example, are driving demand for advanced-level cyber security solutions and compliance as a service coming from IT professionals like you.
3. Your service offering also has to be profitable.
Your service offering has to be scalable, competitive, and profitable. You can put together a great service offering, but if it’s not profitable and you’re not making any money… That’s a problem! You’re not going to be able to sustain that MSP business for very long. I would suggest listing your clients from least profitable to most profitable, taking a look at each one and redesigning their service offering, and approaching them about upgrading them to a better plan with more robust cyber protections. Create a newer revised plan for 2022, the year we’re in, and go back and sell that to them.
But there’s a lot to this, right? Raising your prices isn’t as simple as saying, “Oh, okay, well, I’ll just go back to my clients and raise their prices by 20%.” I know you’ve got a lot of questions. One of the things I would recommend highly to you if you are looking to not only raise your prices but also to attract more high-value clients, clients that are willing to pay a higher fee to get a better service, not the cheapos, not the people who constantly fight you… not those people. I’m talking about high-value clients who appreciate what you do. They’re willing to pay for it. They don’t fight you over every bill. They don’t fight you over every recommendation. They are fully integrated into your service stack, they take your advice, and they behave as clients.
If you want to get more of those high-value clients and raise your prices, then you need to come to this year’s annual Roadshow event.
One of the things that we are going to GIVE you the minute you register is a fantastic webinar that we just put together and delivered with templates, pricing tools, and examples in it. There are examples of how to go about specifically raising your prices, not only knowing by how much you have to raise your prices, but giving you tools for the actual pricing. You will also get an outline of a service solution you need to be included in your plans right now, in order to be competitive. The marketing templates are not just how to go back and talk to your customers about raising their prices, but having them actually be happy about it. All included and available upon registration for the IT Marketing Roadshow!