The technology landscape is constantly changing, and with new changes come new opportunities and challenges. As a business or company, it's more important than ever to stay ahead of the curve and make sure your infrastructure is one that delivers the kind of value that puts your business in a position where competing with your peers is the least of your worries.
One way to do this is by implementing managed IT services. But how are these services priced? This guide will answer those questions and more. So if you're thinking about making the switch to managed IT services but not sure of the pricing model to adopt, read on!
The 8 types of managed IT services pricing models
You may have realized that when it comes to managed IT services, pricing can be a little confusing. That's because there are quite a number of different models that service providers use.
A pricing model is the way a service provider charges for their services. Each model has its unique foundation and expectations.
Here is a comprehensive look at the models:
1. The flat rate model
The provider charges a fixed price for a predetermined level of service. Under this model, you know exactly what you will be paying every month, regardless of how much service your team uses.
This pricing model has become increasingly popular in recent years as businesses have sought to contain IT costs. It offers predictability and budget certainty, and allows you to budget for IT services in the same way you budget for other essential services like rent or payroll.
The flat rate carries a couple of benefits for business owners. Here are some of the most important ones:
- More predictable service levels: A flat rate pricing model ensures that you receive the same level of service each month. This eliminates the variability that can occur with hourly billing rates.
- No unexpected bills: Unexpected bills are the worst, especially when they're for something like IT services. With the flat rate pricing model, you'll never have to worry about getting a surprise bill for your services.
- Increased transparency: A flat rate pricing model provides complete transparency into the services you are receiving and the cost of those services. You'll know exactly what you're paying for and what you're getting in return.
Before you settle on the flat rate model, it's important to ask the managed services provider a few questions regarding this model. Here are some key questions to ask:
- What services are included in the flat rate?
- What are the monthly/annual fees?
- What is the minimum contract length?
- How often will you be billed (monthly, quarterly, etc)?
- Are there any unexpected charges or fees?
- Can you cancel the service at any time?
- What's the average response time for support requests?
- What's the average resolution time for support requests?
2. Per device model
In this model, your company pays a fixed monthly fee for each device that is connected to the managed IT services. This includes computers, printers, smartphones, tablets and any other device that is connected to the account.
This pricing model is a great option for businesses that are expanding and want to ensure they are prepared for the added devices.
Here are a few tips to keep in mind when considering the per device pricing model:
- Reflect again to make sure the per device pricing model is actually the best option for your business.
- Get an accurate estimate of how many devices will need IT services.
- Negotiate a fair price for the services you need.
- Make sure the contract allows for changes in device count, so you won't be penalized if your business grows or shrinks.
- Read the contract carefully to make sure there are no hidden fees or penalties.
3. Per user model
In this model, you pay a fixed monthly fee for each user that you have on the MSP account. This fee covers all of the managed IT services that provider spells out in the contract, including support, maintenance, and updates. The per user pricing model is flexible and scalable, so it can grow with your business.
Here are some tips to you help make the most out of the per user pricing model;
- Make sure every user is licensed. This may seem like a no-brainer, but it's important to ensure that each and every user is licensed for the services you're using. This will help you avoid any unexpected charges down the road.
- Assign a primary contact. The primary contact is responsible for managing the users and billing under the per user pricing model. It's important to designate one person as the main point of contact so there's someone who can raise concerns as soon as they arise.
- Stay organized. With a per user pricing model, it's more important than ever to stay organized and keep track of which users are using which services. This way, you can avoid any unnecessary charges and keep your costs under control.
4. Break/Fix model
In this model, the provider will only bill you for services that you request on an as-needed basis. This means that you only pay for services when something goes wrong and needs to be fixed.
This can be a good option for small businesses that don't have the budget to invest in a full-time IT staff or for businesses that only need occasional help with their IT needs. However, it's important to remember that this type of model can be expensive and can end up costing you more in the long run if problems are not addressed quickly.
5. Tiered model
The tiered pricing model is a system in which managed service providers offer different pricing plans to their clients, depending on the needs and size of the business.
Typically, there are three tiers or levels of service that most MSPs use: basic, standard and premium. Basic services are usually aimed at small businesses with limited needs, while standard and premium services are geared towards larger businesses with more complex requirements. The highest-priced level of service usually includes features like 24/7 support and on-site visits from the service provider.
Each tier usually offers a different combination of services, such as remote monitoring and management, offsite backup, help desk and consulting services. This ensures that businesses can find a plan that fits their specific needs and budget.
The price for each tier is then set based on the level of service it includes. This billing model can be advantageous for businesses that want flexibility to scale up or down as their needs demand. However, it is important to note that the price for each tier can vary significantly based on the provider, so it is important to shop around extensively.
6. A la carte
Under this model, IT providers offer a range of services that are priced differently, and clients can choose the services that they need. So you will look at the menu of services offered by the MSP plus their pricing, then choose the package that you want to utilize. In fact some providers allow their customers to customize the services and tailor them to their unique needs. This can be advantageous if you only need certain services, and so there is no need spending resources on bundled services. However, it can also be more expensive in the long run, since you're not getting the discounted rates that come with bundling services together.
The a la carte pricing model is flexible and can be scaled to meet the changing needs of a business. It is also a transparent pricing model, which makes it easy for businesses to understand the costs of their IT support.
7. The hourly model
The hourly pricing model is one of the most popular pricing models in managed IT services. Providers charge clients according to the number of hours they spend on tasks and projects related to managing and maintaining your IT infrastructure.
This model is best-suited for clients with relatively small IT needs that don't require a lot of attention or ongoing support. It also gives you more visibility into your IT expenses, as you can track how many hours are being billed each month.
The greatest risk of this model is that it can incentivize IT service providers to take longer to complete tasks. This is because the provider is paid based on the amount of time they spend working, so they may be tempted to drag out projects in order to increase their earnings. This can result in subpar work quality and higher overall costs for the business. Be sure to discuss this concern with your provider and put measures in place to avoid this challenge.
Also known as the All-You-Can-Eat pricing model, this model gives companies access to an unlimited number of IT services.
There are a number of reasons why you might want to consider the all-you-can-eat pricing model for your managed IT services. Here are the key ones:
- You'll have access to unlimited support, updates, and features - all at one fixed monthly costs.
- You'll never have to worry about overages or surprise charges.
- You'll have a dedicated account manager who will take care of all your needs.
It’s easy to confuse this model with the flat rate model that we started with. The main difference between the unlimited pricing model and the flat rate model is that under the all-you-can-eat pricing model, you pay a fixed price each month and you can use as much IT service as you need. This means that you can call your IT provider whenever you need help and they'll be happy to assist you. Under the flat rate pricing model, you pay a fixed price for a few defined services each month. This means that if you go over your allotted services, you'll have to pay an additional fee.
Deciding the model: factors to consider
So, which model do you go for out of all these? Consider these items during the decision-making stage;
Size of business
The bigger your business, the more complex and costly your IT needs are likely to be. This means you'll likely need a pricing model that offers more flexibility and scalability. The smaller your business, the more likely you are to need basic support and maintenance for your IT systems. This means a pricing model with lower monthly fees may be more appropriate.
Scope of services
How many devices do you have? What are your specific tech needs? How often do you require support? Do you have any compliance or security concerns?
The scope of services is a big factor to consider when choosing a pricing model. If you require a lot of services and support, a subscription-based pricing model like tiered or flat rate might make the most sense. If you only need help with a few devices or tasks, a la carte pricing might be more affordable.
It's important to consider the industry you're in when deciding on a pricing model. For example, if you're in the retail industry, you'll likely need a pricing model that offers more flexibility and is more per-use oriented, as opposed to a model that charges a flat monthly rate.
On the other hand, if you're in the healthcare industry, you'll likely need a pricing model that offers locked-in rates and predictable billing, as opposed to one that charges for usage. This is because the healthcare industry is highly regulated and plates need to be able to plan their budget years in advance.
The geographical location of your business can have a big impact on the pricing model that you should choose. For example, businesses in cities with a high cost of living will typically have to pay more for these services than businesses in rural areas. This is because businesses in high-cost areas generally have higher overhead costs, which means that they need to charge more for their services in order to make a profit.
Additionally, businesses in certain parts of the world may have to pay more for managed IT services due to currency fluctuations. For example, if the US dollar weakens against other currencies, then US-based businesses will need to pay more for IT services that are priced in foreign currencies.
Are managed IT services worth the cost?
The answer is a straight yes. As a business owner, by now you probably know that IT can quickly spiral out of control. Not only do you have to keep worrying about the state of hardware and software, but you also have to keep up with maintenance and support. And if something goes wrong, you may be facing a hefty bill for repairs. For many businesses, managed IT services offer a way to budget for IT costs and avoid the pitfalls of unexpected expenses.
With managed IT services, you pay a defined fee for access to a team of high level IT experts..As a result, you can focus on running your business, safe in the knowledge that your IT needs are being taken care of by experts whose business is precisely that - to take care of IT. So while managed IT services may require an upfront investment, in the long run, they can save you a lot of pain that can potentially bring down the very business that you have spent so much time and money to build.
How to calculate the ROI of Managed IT Services
Every business wants to get the most out of their managed IT services investment - after all, no one likes wasting money. But how can you be sure you're getting a good return on your investment?
Calculating the ROI of managed IT services can be a tough exercise, considering that most of these services are supposed to improve your productivity, enhance your processes or prevent risks. They are more qualitative than quantitative.
However, you can use the following approaches to arrive at a sensible estimate of the ROI that these services will deliver to your business;
The total cost approach
This is perhaps the simplest way to calculate the ROI for your managed IT services. Simply take a hypothetical figure of how much it would cost you to handle the IT services in-house, subtract this cost from what it would cost you when you outsource them, divide the difference by the in-house cost then multiply by 100 to get the percentage. Remember that here, the savings you make by outsourcing your IT services is the figure that we are using to get the percentage ROI.
ROI = (Total in-house costs - MSP costs) / In-house costs x 100
Let’s say it would cost you $15,000 per month to handle the IT services in-house. But if you made use of an MSP it would cost less, say $8500. You’ll calculate the ROI as follows:
%ROI = (15,000 - 8,500) / 15000 x 100 = 43%
Of course this is down right hypothetical, but it should give you a rough idea of how to put the value of MSP services on the ROI perspective.
You can also decide to calculate the ROI based on the value you get from specific services that have the greatest impact on your business. For instance, you can use the downtimes the MSPs help you prevent, or the amount of time your employees save thanks to MSPs. Let’s look at these two formulas:
Every time your business experiences a downtime, your revenue is going down the drain. But MSPs get rid of this problem, meaning the revenue you would ordinarily lose to downtime is salvaged. This revenue is your ROI.
ROI based on downtime = Average hourly revenue x average downtime per month
So if your business makes an average revenue of $500 per hour and you experience an average downtime of 15 hours per month, using an MSP will recover ($500 x 15) =$7500.
Similar to the downtime formula, you simply multiply the total number of time your team saves per month thanks to MSPs, by the average revenue that your business generates per hour. Time saving is one of those items that some businesses never think about. But it could make the difference between your business growing and stalling.
Pros and cons of these pricing models
A la carte
No matter which managed IT services pricing model you decide is best for your business, make sure it delivers real long term value. That means not only ensuring that the services you get are top notch, but also that you’re constantly looking for ways to utilize those services to set yourself apart from the competition.
With the right approach, managed IT services can be a major boon to your company—and we hope this guide has helped get you settled on the most suitable pricing model for your entity.