What is MSP pricing? A guide to pricing your MSP services effectively

Pricing can make or break your MSP business, not because of the number, but because of how you arrive at it. It’s a decision that shapes your margins, client trust, and long-term sustainability.

According to BusinessWire, the 2024 Channel Futures Survey stated that the top-performing MSPs saw an average 19% growth in recurring revenue^[1]. The reason? They treated pricing as a living strategy. They constantly updated it with tech shifts, client needs, and market competition.

If your MSP pricing model isn’t evolving with the above factors, you risk losing out either in profits or client trust. So, how do you go about strategizing MSP pricing? Don’t worry, we’ve got you covered. 

Let’s start with understanding the basics.

What is MSP pricing (and why it’s more than just math)

MSP pricing is the process of determining how much to charge for managed IT services. It is about assigning a monetary value to the support, tools, and expertise you deliver to clients. This typically takes place in a recurring or subscription-based model.

So, how is MSP pricing calculated? 

Understand that Pricing is not a simple formula of hours multiplied by rates. Successful MSP pricing models reflect the value you deliver, the risks you assume, and the costs you incur to maintain uptime, security, and performance for your clients.

If you only calculate MSP fees based on headcount or device count, you risk leaving out key factors like service complexity, compliance needs, and support SLAs. Ultimately, that can lead to:

• Thin profit margins
• No room for reinvestment or growth.
• And a situation where clients expect more than what they’re paying for. 

Remember: ‘If the price is too high, and you lose deals. If the price is too low, you lose money.’

Instead, managed service provider pricing should strike a balance between competitiveness and sustainability. And this can be done by choosing the right pricing model. 

9 popular MSP pricing models

Implementing the right MSP pricing model can make all the difference in how you scale your business and meet client needs. Let’s explore the most popular models, their pros, and cons.

1. Per device: Clients are charged based on the number of devices managed, including desktops, laptops, mobile phones, etc. 

• Pros: Simple to understand, easy to implement.
• Cons: Complexity of different devices is not reflected e.g., servers vs. smartphones.
• Use when: Your services are standardized and device-specific.

2. Per user: Charges are based on the number of users, regardless of how many devices they use.

• Pros: Simple, predictable, and flexible for the client.
• Cons: Might lead to underpricing for high-demand users.

3. Flat fee (all-inclusive): A fixed monthly fee for a defined set of services, not the number of users or devices.

• Pros: Budget-friendly for clients with clear expectations. 
• Cons: MSPs risk over-delivery if clients use services heavily.
• Use when: You offer standardized services and want predictable income. 

4. Tiered pricing: Clients choose from a pre-defined service bundle. 

• Pros: MSPs can cater to a broad range of clients, resulting in high client satisfaction. 
• Cons: Clients may struggle to understand what’s included.
• Use when: You serve clients with diverse IT maturity levels.

5. All-you-can-eat: Clients pay a single flat fee for unlimited access to services.

• Pros: Highly attractive to clients who prefer pricing simplicity and predictability.
• Cons: Can lead to lower profitability.
• Use when: You have strong process automation and can control costs.

6. A La Carte: Clients select and pay for individual services they use from a menu.

• Pros: Highly customizable for clients. Only pay for what’s needed.
• Cons: Risk of service gaps and unpredictable revenue.
• Use when: You serve clients with very specific or evolving needs.

7. Monitoring only: You only provide remote monitoring and alerts without full IT support.

• Pros: Lower cost for clients and more scalability for MSPs. 
• Cons: Can be frustrating for clients who need more comprehensive support.
• Use when: Clients want visibility but can manage incidents internally.

8. Value-based pricing: Pricing is based on the measurable value you provide, like reduced downtime or increased revenue.

• Pros: Deepens client trust and leads to long-term alignment.
• Cons: Hard to quantify and may need frequent reviews.
• Use when: You offer consultative services with clear business outcomes.

9. Pay-as-you-go: Clients are charged based on their usage for specific services, time, or resources.

• Pros: Very flexible and allows clients to pay only for what they use.
• Cons: Unpredictable revenue for MSPs. Clients may face surprises in their monthly bills.
• Use when: You are working with startups or seasonal businesses. 

How to price your MSP services (The right way)

Pricing your managed services isn’t a one-size-fits-all task. Several factors play a critical role in determining the right price point for your services. These range from strategic business decisions to operational and technical aspects. Below are the key pricing factors that MSPs must consider, arranged in order of importance and relevance.

1. Do a cost-benefit analysis: Before setting your prices, calculate the cost of delivering your services against the potential revenue. Ensure that your pricing covers both your operational costs and offers a healthy margin for profitability.

2. Keep scalability in mind: Your pricing should be flexible enough to scale as your business grows. The more clients or services you take on, the more resources you’ll need. Make sure your pricing reflects the ability to scale up without harming your margins.

3. Identify the targeted market segment: Know your audience. Whether you’re targeting small businesses or large enterprises, your pricing should reflect the needs and budgets of your specific market.

4. Stay updated with the current tech trends: Technology is always evolving. Ensure that your pricing model accounts for the integration of new tools, security updates, and any evolving service offerings.

5. Evaluate your MSP price regularly: Pricing isn’t a set-it-and-forget-it decision. MSPs must continuously assess their pricing based on market conditions, competition, and the value they provide.

6. Keep in mind the requirements of the industry: Every industry has different demands in terms of compliance, security, and regulations. Ensure that your pricing reflects the additional effort required to meet industry-specific requirements.

Key factors that affect MSP pricing 

1. Deployment type and infrastructure: The type of deployment, whether on-premise, cloud, or hybrid, affects the cost of providing services. Each deployment type comes with its own infrastructure costs, security requirements, and maintenance.

2. Licensing fee: Many MSPs incorporate third-party software or tools into their services, and these licenses typically come at a cost. These fees should be factored into your pricing.

3. Features you offer: The more features you offer, the higher the cost of delivery. Each feature (like 24/7 support, advanced security, or data backup) requires additional resources, and your pricing should reflect this.

4. Regulatory and Security demands: Certain industries (e.g., finance, healthcare) have strict regulations that require enhanced security measures and compliance checks. These demands increase the cost of service delivery.

5. Organization size and IT maturity: Larger organizations or those with more complex IT needs typically require more advanced services, higher levels of support, and dedicated teams. Your pricing should reflect these needs.

6. Team experience: The experience of your team also impacts your pricing. If you have highly skilled experts in-house, this adds value to your services and justifies higher rates.

7. Location or geographical region: Pricing varies significantly based on location. MSPs in metropolitan areas or regions with a higher cost of living may need to charge more to cover their expenses.

8. Market competition: Competitive pricing is crucial in a crowded market. Research what other MSPs are charging and ensure your pricing is in line with industry standards. However, don’t just compete on price; instead, emphasize value.

Common MSP pricing mistakes you should avoid

Pricing mistakes can negatively affect profitability, scalability, and customer satisfaction. Managed service providers must avoid the following pricing mistakes and be aware of the practical solutions to avoid them.

1. Underpricing to stay competitive

Offering services at low prices might win you clients, but it rarely leads to profit. 

Instead: 

• Set the price for the value you offer, not volume. 
• Factor in delivery costs such as labor, tools, and overhead. 
• Communicate the ROI you bring.

For example, an MSP ‘A’ charges $25/user/month, which is ten dollars less than its competitor. Later on, MSP ‘A’ will struggle for profits. 

2. Using rigid tiered pricing without flexibility

Tiered pricing offers predefined service levels. A strict three or four-tier structure may not fit all clients.

Instead: 

• Add flexibility to your tiered pricing.
• Offer customizable packages 
• Mix and match services based on client requirements. 
• Come up with a pricing that ensures clients get exactly what they need.

For instance, if a client wants premium monitoring but basic security, allow that customization. It will improve customer satisfaction. 

3. Not identifying your minimum profitable contract

Do not miscalculate the minimum amount you need to charge for covering the operational costs and ensure profitability. This will lead to unsustainable contract offerings. 

Instead: 

• Calculate your minimum viable pricing. Never quote below it.
• Including labor, tech stack, and margin goals. 
• Set a baseline pricing structure that guarantees profit and meets client needs.

Let’s say if it costs $1,500/month to serve a client, charging $1,200 is a loss. So you may charge $2000/month to gain $500 profit. 

4. Choosing the wrong pricing model

Do not adopt pricing models that don’t align with your financial goals or service offerings. 

Instead:

• Select a pricing model that matches your service delivery and business goals. 
• Use value-based or flat-fee pricing for larger clients, per-user for SMBs.

For instance, don’t sell per-device to an enterprise with 3,000 endpoints. It kills clarity and margin.

5. Not reviewing pricing regularly

Outdated pricing can turn profits into losses without anyone noticing. 

Instead:

• Implement annual pricing reviews. 
• Align with the level of expertise, inflation, increased operational costs, market trends, and client expectations. 

Let’s say you add another feature, such as compliance automation or support for a new OS. Now, your old rates no longer reflect your value. It is a must that you renew your pricing to charge for those features. 

6. Skipping escalation clauses in your MSA

No escalation clause leaves you no chance to adjust rates as the price rises due to inflation, new regulatory requirements, or service expansions. 

Instead: 

• Add clear escalation terms for labor, compliance, or tech costs in your Master Service Agreement (MSA).

This ensures that both you and your clients are prepared for price adjustments in the future.

For instance, A 3–5% annual increase clause prevents awkward renegotiations during inflation hikes.

7. Offering too many service options without correct management

Providing too many service options can confuse clients. It makes it difficult for you to manage service delivery and results in a cluttered delivery model.

Instead:

• Simplify your service offering.
• Align them with your customer needs. 
• Offer clients the ability to select optional add-ons.
• Bundle complementary services. 

For example, instead of 50+ à la carte items, offer 3–4 clear packages with optional extras like zero trust access.

8. Ignoring SLA tiers or overpromising

Do not set unrealistic expectations by overpromising services you cannot consistently provide. This can lead to unsatisfied clients, strained resources, and poor customer retention.

Instead:

• Be transparent with clients about the deliverables.
• Define clear SLA tiers, e.g., response time, resolution time, and uptime guarantees. 

For example, you can offer premium SLA to high-tier clients and a realistic baseline to others. 

9. Miscalculating cost-per-seat

Ensure that you don’t miscalculate your actual delivery cost-per-seat. 

Instead: 

• Accurately calculate the true cost-per-seat. 
• Take in account factors including labor, infrastructure, software, and overhead. 
• Ensure your pricing reflects these costs plus a margin for growth and profitability.

Let’s take the true cost as $15/device, but if you charge $10, you’re losing $500/month for every 100 devices.

10. Not protecting yourself from cyber liability

Cybersecurity risks are real and expensive. If you’re not covered, your client’s breach could become your financial headache.

Instead: 

• Include cyber liability insurance in your costs. 
• Update SLAs with breach responsibilities and caps.

This protects both your business and your clients from the financial repercussions of a breach.

For instance, an MSP managing retail POS systems should build liability protections into the pricing and contract to avoid future legal exposure.

MSP pricing must be done with purpose and not guesswork

Pricing your MSP services involves more than just picking a number. It is also about making smart choices that help you grow, stay profitable, and keep your clients happy. The best MSPs don’t guess their prices. Instead, they plan them carefully and adjust them as things change.

Using the right pricing model, avoiding common mistakes, and regularly checking if your prices match the value you deliver will set your business up for long-term success.

In the end, how you price your services matters just as much as the services you offer.

References:

1. BusinessWire