Pricing your IT services for maximum profits
As a former MSP myself, I know what it’s like to try to make sense of pricing. I quickly learned that the right price was more about perceived value than competing with the market. So many new technology solution providers (TSP) just throw a price out there to see if it sticks. That’s dangerous, and here’s why: What if you’re not even breaking even?
Let’s walk through some of the basics you’ll want to factor in to your pricing.
You have questions
How you price your managed services practice area can either secure your success or leave your bank account looking light. Here are the four most common pricing questions I hear from TSPs:
- How do we keep the price of managed services for small businesses within reach, but not lose our shirts if a customer’s network goes haywire?
- How can we tell if we’re making money?
- Should we be charging more for our services?
- How can we justify charging our clients more?
We have answers
All of these challenges can be solved by simply understanding your burden costs. This will help you discover how to package your offerings and what to charge hourly. So, what does burden cost include? These three things:
Billable staff burden (hourly rate, payroll taxes, benefits, etc.)
Non-billable staff burden (non-technical employees with annual salaries such as admins or marketing/sales professionals)
Annual expenses (rent, utilities, insurance, etc.)
Think about it this way; charging $50 per hour may sound really attractive at first, but if you lose 70% of that right off the bat in taxes, subscriptions, rent and utilities, you’re selling yourself short—so short, in fact, that you’re only bringing in a measly $15 per billable hour. At that rate, you might be better off working at Starbucks.
Don’t get stuck in the rut of selling your services short. Knowing how to price your services starts with knowing what your hard costs are.
Quick Tip: As a general rule of thumb, aim for a 50% profit margin. If you’re just starting out, you might not be able to command this, but plan to work up to it.
Give your pricing model a facelift
Start by understanding your burden rate, or the true cost of doing one hour’s worth of service. Once you understand that number, you can calculate the right price to bring in the profit margin you’re looking for.
That’s often easier said than done, so to help you successfully start down the road to greater profitability, I’ve developed the Burden Rate Calculator. Use it to determine how much you should charge based on your hard costs and desired profit margins. Get started now.