MSP Basics: Rates and Services
RATES AND SERVICE TYPES
The biggest question facing any MSP is “what the heck should I charge?”.. this of course starts up a great debate. Well.. maybe I can help you..
Methodology of Service Delivery and Invoicing
What will be your primary method of business?
How are you going to charge for services?
What will be your offerings?
Most MSPs set up business in one of three ways or a combination thereof (a separate write up on each model is forthcoming):
Full Managed Services – This means that all time and materials related to the support of the client will be charged on a flat fee basis. Typically this fee is determined on a per user basis. But some MSPs get creative with other models that help show value and increase revenue.
Device Only Management (Hybrid Managed Services) – Most smaller clients will typically go with device only management as it is cheaper (on the surface) based on pure reoccurring monthly charges.
Time and Materials – These are open billing agreements between you and your client whereby you perform work on their behalf and send invoices for the work itself.
Flat Fee Projects – This is the most common type of arrangement you see for project work. By definition, this is where you provide a quote to a client for a block of hours based on your assessment of their needs and estimate of time it will take to accomplish the goal.
Once you have determined the methodology (you can use more then one or all of the above) then we can start talking about pricing and rate structures.
Rates
Rates are a difficult thing to determine, ideally they should reflect your true costs along with your margin. Most MSPs will simply come up with a number that sounds good! Some will even research their area to find out what the competitors are charging so they are not drastically over or undercharging for their services.
If you want to deep dive into rates we can book a series of calls to determine your true hourly overhead number and create rates based on educated numbers.
A rate structure, however, should be determined prior to opening your doors. Even a veteran MSP ought to examine their rates and where they are in the marketplace to determine their structure.
A typical rate structure will follow a set of rates based on the work being performed. Especially as you get into a PSA, this structure will drive billing and revenue. A typical break out of rates usually looks like this:
Onsite – Any work performed at the client site. Usually a higher rate then remote support to offset costs of the tech being out of the office for that time and drive time.
Remote Support – an MSP’s standard rate – 90% of your time will be entered under this work type.
Project – Some MSPs bill projects at a differing rate then other services. Mainly because project teams involve higher end resources like a project manager and L2 or 3 engineering. More time goes into projects as they need to be consistently managed for time lines and milestones.
Consulting/Professional Services – As the industry takes Cyber Security more seriously, the role of consulting is taking a more central focus in MSPs. Professional services rates tend to trend higher as they involve specialized talent to facilitate the tasks. Think of things like DOD style audits, Cyber Insurance evaluations, industry specific compliance/regulatory auditing. There is even a need for MSPs to do M/A consulting for private equity firms.
Set your rates according to your margins, taking into consideration what your local market will bear.
Some are asking- “If I am doing full managed services.. then why do I need to define rates??”
GREAT QUESTION…
Because once you are in your PSA, it will be vital to examine how you are doing profitability wise on those clients. By having rates assigned to the type of work you are doing, you get not only an effective cost of labor (what you pay the engineers) but a bill rate based margin. This will guide you on determining profitability based on the type of work being performed on a granular level. Certainly you could not set a rate, have people do work and bill against a contract. You will see their varying internal pay rates. But to get measurable profit based on the company margin per work type, setting these rates is vital.
Plus, for project scoping, defining these bill rates will help determine the overall cost of the project to the end client.
To summarize:
An MSP needs to define the methodology it will use to deliver their services. This can be either Full Managed Services, Device Only Management, Time and Materials or Flat Fee Projects.
An MSP can use all of these types of modalities, it just needs to be defined for clarity between you, your customers and your technicians