Solving The Managed Services Equation

How do you keep the price of managed services to small businesses within reach, but not lose your shirt if a customer’s network goes haywire? Real-world experiences are providing VARs with a number of answers to this question.

For Laura Steward, founder and owner of Guardian Angel Computer Services, a full-service network integrator in Norwalk, Conn., surviving the MSP pricing game is a matter of first getting a customer’s network in tip-top shape, then being proactive about keeping it that way. Steward has offered managed services for 11 years and today has an MSP customer base predominately composed of small businesses—ranging from fitness centers to moving companies—with as few as 10 seats.

Steward is able to offer services at a discount by taking every step to avoid costly surprises. ’If a new customer comes on board, we have to do a complete audit of their network and stabilize it,’ she said.

Experience has given Steward an understanding of the costs and time required to resolve desktop and server issues, create images and perform backups, which enables her to arrive at a price suitable to any new small-business MSP customer, she said.

The proactive nature of managed services also means Steward can save customers money. For example, if an existing Guardian Angel customer wants to move to a managed services model, and Steward is familiar with its annual IT spending, she can usually just lop 10 percent off the annual figure to come up with a managed services fee, she said. The result saves the customer money, provides incentive to become a managed services customer, and reduces the strain on Guardian Angel’s own resources.

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Steward also said Guardian Angel always reassesses its MSP pricing after the first quarter of service. In most cases, any change in pricing resulting from the reassessment is an increase, which most customers find fair, considering the services were discounted to begin with and are likely to still be relatively low, she said.

Supplemental or emergency IT support is provided, or can be purchased, for Guardian Angel’s MSP service contracts as well, Steward said. For example, 40 hours of on-site IT service a year are built into Platinum-level partner contracts. ’And if a customer thinks they will have a server upgrade or will be adding new employees, they can buy an additional block of service time, which in most cases can be spread out over 12 months,’ she said.

This fixed-fee system works, as evidenced by the fact that after 11 years, Steward has had only two MSP customers leave and has terminated business dealings with only five for being unprofitable drains on Guardian Angel’s resources.

And while Guardian Angel continues to offer project-based support, the goal is to move all of its customers to a fixed-fee model. ’If they want us to provide reactive support, they are going to pay through the nose,’ Steward said.

New to the managed services game is Mobitech, a six-person VAR in Omaha, Neb., which just began offering managed services a few months ago. Having signed 15 customers already, CEO Amy Luby said she’s learned some important things about pricing.

Mobitech simply counts the number of PCs, workstations and servers used by the potential customer, then calculates the price of providing managed services based on a flexible matrix, Luby said. Mobitech doesn’t factor in routers or printers, which she said are serviced as part of the VAR’s value-add. But what Mobitech’s approach to MSP pricing lacks in network granularity, it makes up for in spades with close, personal customer service, she said.

’We are always re-evaluating with our customers, making sure the pricing is right and that it’s working,’ she said. ’Honestly, when we started pricing [managed services], we just kind of threw stuff out there and asked customers, ’Would you pay for that?’ and ’What would be your top and bottom price?’ ’

Maintaining close communication with its MSP customers is, interestingly enough, almost more of a concern for Mobitech than dead-on pricing, said Luby, who worries about the potential downside of remote monitoring and software delivery. ’One of the biggest issues we are seeing is, we are used to a lot of face-to-face time with customers, and managed services are cutting into that a bit,’ she said. ’I don’t want to lose that. And if we don’t have to be on-site, then we create this issue: Are we really still a good partner?’

Now into its second year of offering managed services, Net Team, a nine-year-old, 15-person shop in Houston, has learned to add more cautionary measures to its MSP pricing strategy, said sales manager Lisa Willis. ’In the beginning, we spent too many hours doing things for free, and we are fixing that right now,’ Willis said. ’But that’s what you learn—that there is some level of risk when you are offering a fixed price.’

Net Team now has clauses written into its MSP contracts so that changes in a customer’s IT environment, or even the addition of new employees, frees the VAR to re-adjust pricing if necessary, she said.

There is even a customer-termination clause in the event that hourly services are abused. ’We want to provide service, but if you hire a moving company, you can’t spend three hours telling them, ’I want the couch over there. Oh, wait, no, I want the couch over there,’ ’ explained Willis.

As it stands now, Net Team has found an MSP pricing sweet spot that generally means a $500 setup fee for 10 or so user seats, double that price for larger business environments, and then an annual maintenance fee on top of that, Willis said.

But Net Team doesn’t price solely by counting nodes. Instead, it offers a price based on potential risks associated with the overall network. ’We look at the age of the machines—what’s in warranty, out of warranty. And for safety’s sake, we come up with a figure that it will take to support them, allowing for the possibility of a crash, and then we add 20 percent to it, and that puts us in a very safe place to prevent us from losing money,’ she said.

Jeff Wieler, vice president of services at Do IT Smarter, a San Diego-based VAR that makes as much as 80 percent of its revenue from managed services, agrees that the last thing an MSP wants to do is get creamed by the cost of supporting a network that isn’t up to snuff. In the MSP game for about two years, Wieler and company also enter into managed services contracts by first assessing everything from the condition of a customer’s network, to equipment warranties and disaster-recovery systems. ’We don’t want to inherit an environment that’s ready to blow,’ he said.

Wieler said 25 percent of his MSP customers are small businesses made up of 20 users or fewer, with the balance consisting of all types of midsize and large enterprises. The managed services offered by Do IT Smarter run the full gamut and can include the monitoring and maintenance of complex, service-oriented architectures. Still, Do IT Smarter’s MSP pricing scheme is ’very cookie cutter,’ Wieler said.

Do IT Smarter has crafted several different levels of managed services, such as comprehensive support at the high end, and monitoring, help-desk and specialty security services at the lower end, he said. The set price of each service level, which is based on the size of the IT network being serviced, takes the guesswork out of MSP pricing, Wieler said.

Take a typical small business with just a handful of devices, and Do IT Smarter will provide managed services that cover all the bases for $475 a month, he said. That price includes up to 30 minutes of remote problem remediation, which can be parsed out as problems arise. At this price level, if additional work such as an on-site service call needs to be done, Do IT Smarter contacts the customer for approval and the additional services become billable, Wieler said.

In this same-size IT environment, a set price of $1,250 per month delivers unlimited on-site or off-site remediation, with a guaranteed four-hour response time, Wieler said.

To help prevent network problems from impacting its MSP clients, Do IT Smarter provides daily storage backups and weekly antivirus updates. To ensure long-term network health, Do IT Smarter routinely makes suggestions to its managed services clients concerning new technology that should be added, or old technology that should be replaced. Failure to follow certain recommendations can free the VAR from liability, Wieler said.

’We don’t want to present it as ’our way or the highway.’ It’s just what we’d like to see in the network, and if it’s critical enough, like not having the right backup solution, then we aren’t responsible for data loss,’ he said.

Surprisingly, there are even some small-business customers interested in managed services who can actually stomach a degree of network downtime and thus can be priced accordingly, said Robyn Howes, president of Certified NETS, Chesterfield, Mo.

In business for nearly 10 years but in the MSP game for only two, Howes has learned how to make it easier for many small businesses to add managed services by lowering the barrier of entry below the cost of keeping a network up 24x7, she said.

’What we do is let an emergency be determined by the customer,’ Howes said of her team’s approach to pricing managed services for many of its small-business customers. ’For some small businesses, paper still exists, [so] they can manage. They just need to prioritize what is important and what is not.

’And if there ends up being too much downtime, we’ll make a recommendation,’ she said. ’We’ve never lost a customer that chose to do it that way. And if they have a problem, they usually look at it as a wakeup call.’

Before setting out to chart the waters of managed services, resellers that enlist the platforms of MSP enablers such as SilverBack Technologies, Cittio, N-able Technologies and LPI Level Platforms are provided with some guidance. All the vendors say they want to help VARs succeed in the market. But that’s about where the similarities end.

For instance, discount MSP enabler LPI Level Platforms, Ottawa, offers a free training program called MSP Now, which outlines all a VAR needs to know about offering MSP services, including pricing models and sales training, said CEO Peter Sandiford.

On the other hand, San Francisco-based Cittio gives resellers of its WatchTower MSP platform a far less exact way to pin pricing to a managed services contract. ’On the pricing side, we kind of steer away from printed documentation,’ said CEO Jamie Lerner. ’What we’d rather say is, ’Here's what we hear people are pricing [managed services] at.’ Like if it’s a small legal office in Oklahoma City, $60 to $100 a month per server is what the market will bear. We don't want to tell people what they should be pricing.’

Ottawa-based N-able Technologies recently revamped its channel partner structure to better serve its MSP resellers when it comes to addressing the pricing needs of specific customer segments, said CEO Mark Scott. By drawing a dividing line at 100 seats, N-able can now give VARs a clearer picture of how to price a particular customer environment, and fashion specific support and marketing services, he said.—Dan Neel