December 20, 2017
Strategic Pricing Strategy for Managed Services
The concept of billable hours can be convoluted. When working with managed service providers, customers shouldn’t hold back when setting a pricing strategy that work for them. A recent CRN article citing an interview with Karl Palachuck outlines how customers can set prices for value driven results and get the most for their money and time. Palachuck is an author, blogger and former managed service provider (MSP) owner.
Start with the End in Mind
When launching any project with managed services, it’s important to set the end goal in mind to set realistic deadlines and expectations. That way a budget can be set with a sound expectation for billable hours. The MSP is primarily responsible for setting the hourly estimation, but the customer should also create an ideal timeline in order to manage the project effectively.
During any project, Palachuck emphasizes that he obsesses over tracking numbers. He tracks how much time his team spends traveling, in meetings and doing other non-value add activities. He thinks no MSP is more than 80% billable. Knowing what your billable percentage is, MSPs can make more informed decisions on what their hourly price should be. Once an hourly price is set, give everyone on the team one month’s notice to start using the new numbers. Some MSPs may want to hire an administrator to handle billing.
Set a Minimum for Small Customers
Smaller customers and projects ultimately take less time. However, they still require setup, overhead and often take more time negotiating price than larger customers with bigger budgets. For customers of this size, set a minimum price to begin with. When looking for new clients and partners, think of it as an investment. You will want to set the foundation for repeat business. Your team will also get to know your clients’ business better and in turn execute projects with less initial investment and greater operational efficiency.
Do Right by your Customer
Palachuck ultimately condones operating with transparency and efficiency to earn your clients’ trust and repeat business. Try to get things right the first time to avoid repeat visits and subsequent billable hours. Work to deliver preventative maintenance and avoid the “break to fix” cycle. Breaking systems to build them up again is a common methodology used by MSPs but is labor intensive and costly to the customer for little value in return. When working on projects by the hour, your client is trading dollars for time. Everyone eventually burns out and you want to deliver the best work for your client under optimal working conditions. Ultimately, you want to start your project on the right path by establishing fair pricing and time constraints to deliver the most value for your client and earn repeat business.