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4 MSP pricing strategies for clients facing financial deficits
When managed IT services customers face revenue shortfalls, MSPs don't have to respond by offering discounts and taking a loss. Consider these MSP pricing options first.
The COVID-19 pandemic has affected every business in some way. The most common effect has been economic disruption. As an MSP, you may have clients that are now struggling financially, even while they still have needs regarding IT, cybersecurity and infrastructure. The question is, how can you provide your client with essential services while keeping those services fiscally feasible?
You could chop your managed IT services pricing and offer deep discounts, but that doesn't do your business any favors, and, depending on the circumstance, those price cuts may not be enough to cover the deficit your client has. Rather, you need to get creative and identify MSP pricing strategies that offer a win-win for you and your clients.
'As a service' is not a new idea, and you have probably even leveraged as-a-service offerings to some extent in your business prior to the pandemic. It's time to take a more serious look at this option.
If your clients have IT needs that you can convert into an as-a-service agreement, doing so can help them overcome the hurdle of capital outlay. This can be very beneficial for clients that have had to close temporarily but are now reopening. With revenue down to zero for a while, but now starting to come in again, these clients may not be cash-rich, but they may feel comfortable signing a monthly commitment. As a result, converting capital expenditure to operational expenditure can make services and projects more attainable.
If a client's main concern is project spending and the outright purchasing of hardware, software and the labor to deploy it all, then consider partnering with a third-party leasing company.
Leasing accomplishes the same type of result as an as-a-service offering, but with a few key differences. Leasing with a $1 buyout at the end enables a client to replace a large upfront expense with monthly payments. The two biggest differences are that the client owns the equipment at the end of the lease, and the long-term responsibility is no longer on your shoulders.
When you hear the phrase long-term responsibility, you might think of financial burden. But there is more to it than that. With hardware as a service, for example, if any hardware fails, you must repair or replace the hardware on your dime because you own the equipment. However, if the hardware is leased with a $1 buyout, the client owns the hardware, which means you don't carry the burden of maintaining the hardware.
If a client wants to make monthly payments and also own the equipment, then a leasing option rather than an as-a-service option would be the way to go.
Project phasing is another option for clients facing financial struggles. The approach here is to break an IT project into sections over billable periods. The different phases of the project can then be done in separate months or quarters.
Phasing a project is a good alternative for a business owner who wants to own the equipment, and who doesn't want to pay monthly fees or interest. The phased approach enables a business owner to have a comprehensive game plan for reaching an IT goal and the flexibility to advance at their own budgetary pace. It doesn't get things done quickly, but it does get them done in a way a business owner can feel comfortable with.
The one thing you will need to be careful of, and inform your client about, is the possibility that some vendor discounts may expire before the project is completed. Additionally, prices could change from one phase of the project to the next.
Annual subscriptions for nonprofits
Technically, annual subscriptions are possible for any type of company.
However, when a for-profit company is thin on cash flow, converting a monthly subscription into an annual one usually has a negative impact. It means the for-profit company must come up with 12 monthly payments all at once, which is the opposite of what they are trying to do.
When dealing with a nonprofit organization, this option can be very attractive in some respects. Nonprofits are eligible for grants and donations. In most cases, though, grants are not intended for regular operating expenses such as ongoing services, monthly subscriptions and as-a-service offerings. Instead, grants are usually intended for specific projects.
If you take a service or subscription that is typically charged monthly and convert it into an annual subscription, it could be used toward an IT project that qualifies for a grant. This gives the nonprofit the opportunity to secure the services they need without having to commit to monthly expenditures or use their own reserves.
If you support nonprofit clients, look at what type of monthly services and subscriptions they currently use or need and find out which ones you can convert into an annual subscription.
When it comes to budgetary creativity, there is no one-size-fits-all solution. Consider all MSP pricing strategies, determine what works best for your clients and have honest discussions with your clients about what fits their priorities most.
In this pandemic recovery environment, meeting customers' IT needs is not the easiest thing to do, but with a little conversation and ingenuity, it is possible.
Scott Ford is a member of The ASCII Group, a North American IT community for MSPs, solution providers and systems integrators.