Pricing Managed Services Part 1

January 4, 2011 by

I recently participated in teleconference with Robin Robins regarding Pricing Managed Services.  It went great and I’ve had a lot of requests to share the information.  I thought I’d put it here over the coming week.

Introduction

Pricing managed services is not a science, it’s not an art, it’s simply viewing information in front of you and making a decision based on the facts.  There are over twenty calculators available to you from your vendors, your competition, your friends, and yes even some that you’ve made yourself.  And guess what?  They are all right even if they spit out different answers.  The caveat is that they are all right for the person making the calculator and what their approach was going to be.

I like to compare pricing managed services to launching a website.  It would seem natural that imitating a successful website would be the right answer.  If Coca-Cola has the best website for sodas and if I’m going to start any beverage company I might as well do what Coke is doing?  Wrong!  Coke developed a strategy based on their target market and their product offering to come up with the most appealing design and function.  If I imitate that for my little company it’s going to seem “off” somehow because it doesn’t match my internal vision for my company.  Same is true of pricing managed services.   If I take a vendor’ s calculator and start plugging in numbers they will be “off” somehow.  The reason is because I don’t understand how and why the person who drew the short straw of creating the calculator came up with his formulas.

As MSPs, VARs, and IT Solution Providers you get hit from every conceivable angle with a vendor trying to simplify your life and give you a formula on exactly what to do.  Well, I’m here to tell you that in our experience, no cookie cutter spreadsheet is going to get you where you need to be.  It’s going to take some hard work, some number crunching, and some data collection on top of having some financial goals of where you want your company to land.

As we get started, please consider the following so you can decide how you need to be pricing your offering:

  1. What is my current SERVICE DEPARTMENT GROSS PROFITABILITY?
  2. What was my SERVICE DEPARTMENT GROSS PROFITABILITY before I started offering managed services?
  3. What is my current NET OPERATING PROFIT?
  4. What was my NET OPERATING PROFIT before I started offering managed services?
  5. What is my target for CONTRACT GROSS PROFITABILITY?
  6. What is my target EFFECTIVE HOURLY RATE?

We are going to address each of these items directly or indirectly throughout this exercise.  If you’re unclear how to calculate any of these, please, interrupt or email me directly at josh@taylorbusinessgroup.com.

Let’s get started!

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