One of the most common mistakes I see managed service providers (MSPs) make is in pricing their services. Specifically, they base their fees on the time it takes to deliver the service.
The advice I offer is to instead price your services on the value you bring to a client.
The value you deliver to your clients may be peace of mind. It may be saving your clients time or money. Or it may be something else—the perceived value of a product or service is entirely dependent on the client—but it’s rarely based on the time you spend delivering the work.
Provide more value than you take in payment
Let’s take an example from outside the IT industry, one that nearly every business will be familiar with—their accountant.
An accountant may charge you $2,000 each year to do your business tax return. Such a fee is fairly common and there are few businesses that would quibble over it.
Why? Because your accountant provides you with value far in excess of what he charges. You know that in exchange for $2,000, your accountant probably saves you $10,000 in taxes.
Plus you have peace of mind knowing your taxes will be filed on time, with the correct paperwork, to the tax authority’s standards.
Don’t underestimate how much people will pay for peace of mind! It may be an intangible concept—but it’s a valuable one.
So, for $2,000 to do your business tax return, your accountant saves you $10,000 in tax costs and provides you with a great deal of peace of mind. That’s valuable to you, and that’s why you don’t quibble over paying the invoice.
What’s more, you feel good about the service your accountant has provided, and your accountant has made a profit. Everybody wins.
It’s not about the time you spend
Let’s take our accountant scenario a step further. The accountant provides you with a great deal of value for $2,000—yet he may be able to do it without spending a lot of his time.
Let’s say your accountant is highly qualified. He’s spent years learning his trade and has built systems that allow him to quickly process your business tax return, save you thousands in taxes, and file your forms efficiently.
In fact, he’s become so good at the whole process that it only takes him a couple of hours to do your tax return. That’s a fee of $1,000 per hour.
How many small businesses would hire an accountant who said he charged $1,000 per hour to do taxes? I’d wager not that many!
Yet most businesses aren’t bothered about how long it takes to get the job done—they’re only concerned with the value they receive. So a $2,000 invoice for all that value (remember the $10,000 tax savings, ensuring your taxes are filed accurately and on time, and the peace of mind that all brings) feels like a great deal.
The lesson for IT businesses
The accounting scenario I’ve described is not unlike the service many IT businesses offer their clients. You offer to monitor and maintain your client’s infrastructure to reduce issues and increase uptime.
How long does it take you to defragment the hard drives of 50 workstations in your client’s network? With modern remote monitoring and management (RMM) tools, you can do it with the click of a button. Does this mean you should only charge your client a few dollars for the time it’s taken?
Of course not! You charge your client based on the value it brings them. In this case, the client finds a great deal of value in her employees’ workstations running fast and efficiently as a result of the defragmenting you regularly perform. She isn’t bothered with whether it took you a minute or an hour—as long as she’s receiving the value.
Happier clients, profitable business
The time you spend helping a client is secondary compared to the value you bring that client. You should reflect this in the fees you charge for your services and solutions.
You’ll quickly find that the greater the value you bring—regardless of how little or how long you spend delivering the value—the happier your client will be and the more profit you’ll be able to make.