Having trouble pricing a solution per user? Here's what you need to do.
If you’re a managed service provider there are a lot of different ways to price your services.
Illustration: Karthikeyan Ganesh
Do you bill by the number of supported computers and servers? Do you bill for block hours? Do you bill per user? If you’re billing per user, how do you get to that number? We’ll discuss why we think per-user billing is the way to go and a methodology that you can use to arrive at the right per-user number.
Why per-user pricing?
There are a few reasons per-user billing usually works out well for managed service providers (MSPs). One is simplicity. It’s easy to sell and simple for clients to understand. I’ve seen competitors with a pricing model that is so complicated that you need a degree in accounting to understand it. That can be very off-putting to clients. Simple is better.
There are other reasons why it’s good too. Suppose you have per-user pricing, and the client uses an active directory. In that case, you can usually get a software connector you can install on their server that automatically trues up billing as users come and go. This software talked with your PSA to keep billing accurate and saves your accounting department time and effort. Your clients may appreciate it as well.
Per-user pricing also elicits less nit-picking from clients as well. Sometimes per device or hourly billing can have clients calling you every moment to add or remove devices or to dispute an hourly bill. They don’t like that it took John 1 hour to solve a problem with Steve solved it in 30 min. All the time involved costs something, and this can be another advantage of per-user pricing.
Cost of service delivery
When you’re trying to calculate what you need to charge on a per-user basis for support, you’ll need to start by knowing your hard costs. Hard costs are those that you’ll be incurring to deliver service to this client. What do your RMM and PSA cost? If you’re providing AV to the client, what does that cost? If you’re providing backups, what is the cost of any associated licensing? Figure out all of those hard costs per user.
Labor is the next big thing you need to figure out costs on. What do you pay your engineers, including the cost of benefits? We typically refer to that as your fully burdened labor number. Take the time to write it all down and figure out all your labor costs to deliver service. What you’re trying to get to here is an average fully burdened cost for an hour of a technician’s time.
How much will it take to support that client?
Next, it’s time to dig into the data if you have any. Look across all your clients for how much time is spent working on their accounts each year. Divide that number by the total number of users you’re supporting for the same period. That should give you an average hour per user number, which will enable you to calculate labor costs.
We recognize that every network is different and that not all clients are created equal from a support needs perspective. What you’re trying to do here is just get a working average. Once you have that number and all your hard costs, you should have a good idea of your total costs for delivering support on average.
At a larger MSP with a long track record of data, the numbers we pulled came out to 0.96 hours per user per month of support for unlimited remote support and to 1.34 hours per month per user for unlimited remote and unlimited onsite support. If you don’t have data to work with yet, those would probably get you in the ballpark.
Those numbers are worth pulling occasionally. We’re seeing a trend right now of those hours per user going down as businesses migrate to more SASS applications and have fewer servers on-premise.
Most MSPs will want to include at least a 30% margin as a minimum on their deals. A little higher if you can get it. It will keep your earnings healthy so you can be proactive and serve your clients well. After you’ve calculated all hard costs and labor costs, be sure to add in your desired margin.
Time to do the math.
Hard Costs Per User + Fully Burdened Labor Costs Per User + Margin = Customer PriceThis will vary significantly depending on what part of the country you’re in and several other factors. I’ve seen per user pricing anywhere from $50-$200 per user per month. This is why you really need to run these numbers for your MSP to see where you need to be. I would also take a careful look at your competition and see if you can find out where they are at to ensure that you’re competitive.
As your business matures and you collect more real-world data on clients in different industries, use it to your advantage. Once you have your typical average support cost number, it is great to help with pricing. Some industries require fewer support hours, and therefore you can adjust their per-user cost accordingly and still make your required margins. We try to look at our existing clients that are most like a prospect in terms of network complexity and number of users. This can potentially give you an even more accurate forecast of labor hours than the average labor hours calculation. This can allow you to be more aggressive when you know there is competition on a deal.
There is some complexity in pricing managed services on a per-user basis. We think it’s worth the time to do so. You’ll find yourself selling more deals with a simple, clean pricing model that prospective clients can easily understand. We hope these tips have helped you have some insight into how you can calculate your MSPs per-user pricing. Good luck, and happy selling!