6 Popular Managed Services Pricing Models

Popular pricing models for managed service providers include monitoring only, per device, per user, all you can eat,
a la carte and the tiered pricing model.

Popular managed services pricing models in use today offer a range of options for generating revenue.

For a startup managed service provider (MSP) or a company transitioning to managed services from another channel
business model, pricing ranks among the top considerations along with sales and service delivery. How to price your
services is a critical question and one that requires careful deliberation. A misstep here can damage a service
provider's prospects for growth and profitability.

The primary managed services pricing models at an MSP's disposal include monitoring only, per device, per user,
tiered pricing, all you can eat and a la carte. The following sections describe each pricing model and its core
attributes. All have something to offer a budding MSP business, but there must be a close fit between the model and
how your customers want to buy services.

1. Monitoring-only pricing model

Sold in small and medium-sized businesses (SMBs), as well as midsize and enterprise environments, the
monitoring-only pricing model provides network monitoring services and alerting services by the MSP, the midsize
or enterprise customer's in-house IT staff or both.

In this scenario, several different service levels can be employed. For example, an SMB-focused offering that
provides operating system and software application patch management, antivirus and antispam updates, disk
optimization and backup monitoring for a flat fee per month allows the MSP to bill for additional remediation
activities identified through remote monitoring. A midsize or enterprise service-level offering forwards all alerts to
the customer's in-house IT staff only and allows MSPs to address and perform all incident resolution. Another
service level might be where the MSP participates in basic incident resolution or even more advanced support.

2. Per-device pricing model

The per-device pricing model is fairly simple and many MSPs use it primarily for this reason. The premise is to
develop a flat fee for each type of device that is supported in a customer environment. For instance, a basic per-
device pricing model might designate a flat fee of $69 per desktop, $299 per server, $29 per network printer and $99
per managed network.

The benefits of this approach, compared to other managed services pricing models, are that per-device pricing is
very easy to quote and illustrate costs for a potential customer. It's also easy for the MSP to modify the monthly
service fee as the customer adds additional devices.

3. Per-user managed services pricing model

The per-user pricing model is like the per-device pricing model, with the difference being that the flat fee is billed
per user, per month and covers support for all devices used by each user. This might entail supporting an office PC,
a mobile device -- or devices such as laptops or smartphones -- a home PC and connectivity and communication
from hotels and kiosks while traveling. Something to think about when evaluating this model is that it can lend itself
to selling managed IT services based more on price rather than benefit. The experienced MSP will realize this and
will modify their sales presentation accordingly.

4. Tiered pricing model

The tiered pricing model might be the most popular among MSPs. The premise is to build several bundled packages
of services with each increasingly more expensive package providing more services to the customer.

With the tiered pricing model, for instance, a "bronze" desktop managed services package might include basic phone
and remote support, patch management and virus and adware removal for an entry-level price. Bumping up to the
higher priced "silver" desktop managed services package might include on-site visits, and the "gold" package might
include emergency after-hours support -- being the highest-priced package.

5. All-you-can-eat pricing model

The all-you-can-eat pricing model is extremely flexible and includes all remote support, on-site support and lab or
bench time for an entire organization for a flat fee per month. It also might provide 24/7 year-round support or
services during certain hours and/or days of the month only with additional charges billed for services rendered
outside of those times. The primary goal is to provide the customer with the ability to realistically budget their IT
support costs over a year's time and to experience no extraordinary billing fluctuations.

6. A la carte pricing model

The a la carte model contrasts with all-inclusive, or bundled, managed services pricing models. In a la carte pricing,
an MSP sells discrete services that address specific customer needs. Those services could include disaster recovery,
managed backup and patch management. A la carte pricing gives customers the ability to select and pay for just the
services they need. They can also select multiple offerings to create a customized package of managed IT services.

Choosing a pricing model

When it comes to MSPs and pricing models, there's a lid for every pot. It's up to the individual service provider to
understand what they are offering, identify their likely customer prospects and price accordingly.

A company that is just entering the managed services market might want to start with a very limited monitoring
offering, so, in that case, the monitoring-only pricing model could prove the best fit. A service provider that caters to
customers that provision multiple devices for each employee could consider the per-user pricing approach. An MSP
that wants to lure new customers with a basic offering, while also building in upsell potential, could select the tiered-
pricing model.

In addition, it's possible to mix and match the various managed services pricing models. A service provider, for
example, could use the all-you-can-eat approach to price most of its services and use the a la carte method to offer a
couple of add-on services.
What are the challenges of managed service providers?

Despite their advantages, managed service providers may also come with challenges, for example:

Not all MSPs offer security measures. Many MSPs do not have a major focus on cybersecurity.

Dependent on third-party organizations. Organizations that depend on an MSP to handle daily tasks may form a
reliance on them. If the MSP fails to follow through on the SLA, the organization could experience system
downtime.

Waiting on a response. It may take time for an MSP to respond to an issue.

Potential upselling. An MSP may try and upsell an organization on technology or services they do not need.

Inaccessible information. An organization's information may not be freely accessible if the MSP is using a
proprietary tool to manage and monitor its infrastructure.

Benefits of managed service providers include the following:

Help an organization fill staff shortages. If an organization lacks workers, it can outsource some of its tasks to the
MSP.

Provide expertise. Hiring a reputable MSP provides an organization with access to expert resources.

Provide business continuity. An SLA documents the MSP's obligations to the business to prepare for or recover
from a disaster.

Provide constant network monitoring. Many MSPs offer 24/7 monitoring services using network monitoring tools
that offer system visibility and cloud management.

Improve security. Some MSPs provide security software and awareness training.

Improve cost efficiency. If numerous unplanned repairs are needed, paying a fixed monthly charge can be more
cost-effective than paying hourly. While the MSP handles the day-to-day management services, customer
organizations can focus on improving their services.
A managed service provider (MSP) is a third-party company that remotely manages a customer's information
technology (IT) infrastructure and end-user systems. Small and medium-sized businesses (SMBs), nonprofits and
government agencies hire MSPs to perform a defined set of day-to-day management services. These services may
include network and infrastructure management, security and monitoring.

MSPs often handle management services on a daily basis so customer organizations can focus on improving their
services without worrying about extended system downtimes or service interruptions.

While some MSPs may specialize in specific segments of IT, such as data storage, others focus on specific vertical
markets, such as legal, financial services, healthcare or manufacturing. Managed security service providers, for
instance, offer specialized types of services, such as remote firewall administration and other security-as-a-service
offerings. Managed print service providers maintain printers and supply consumables. Often, MSPs perform their
tasks remotely over the internet.

What are MSPs used for?

Hiring a managed service provider can help an organization improve its operations.

SMBs are typical MSP customers. Many smaller companies have limited in-house IT capabilities, so they may view
an MSP's service offering as a way to obtain IT expertise. But larger enterprises may also contract with MSPs. For
example, government agencies facing budget pressures and hiring limitations may contract with an MSP to
supplement their in-house IT staff.

MSPs handle the complex, consuming or repetitive work involved in the management of IT infrastructure or end-
user systems. MSPs typically do the following:

handle the management of IT infrastructure;

offer technical support to staff;

add cybersecurity software to IT;

manage user access accounts;

handle contract management;

offer compliance and risk management; and

provide payroll services.

How do MSPs work?

When a managed service provider is requested to meet the business objectives of an organization, it is often
expected to fill in some gap or role in an IT system or staff. Communication between the MSP and the organization
typically begins with an assessment that determines the organization's current environment. This assessment may
point out potential room for improvement and how to properly support business goals.
There is not one specific setup for every organization, so an MSP may provide many different service options. Two
examples of MSP offerings are technical support fix services and subscription services.

MSP technical support fix services focus on remotely fixing or sending technicians to a business's location to
resolve any issues. MSPs that provide this option charge the company for the time spent troubleshooting and for any
parts used to repair the problem.

MSPs that offer a subscription service model work on the quality of service of an organization's network and usually
bill customers monthly. If an issue arises, the MSP will fix the problem as part of the agreement between the
organization and the MSP. Payment through the subscription model is based on defined rates per computer or
equipment.

Maintenance, security, monitoring, reporting and other services are defined using an SLA that documents what the
organization can expect from the MSP. Response times, performance and security specifications are also included in
the service agreement.

MSPs may deliver their own native services, other providers' services or an integrated mix of the two. Pure-play
MSPs specifically focus on one vendor or technology and more commonly offer their own native services.

MSPs also focus on deploying specialist software platforms that automatically manage functions. These platforms
consist of RMM tools and professional services automation (PSA) applications:

RMM software enables off-site technicians to maintain IT systems, such as networks, servers, desktops and mobile
devices. These tools also enable MSPs to apply patches and other system updates.

PSA tools enable an MSP to manage an organization's projects, billing, assets and inventory.

A managed service provider often provides its service offering under an SLA -- a contractual arrangement between
the MSP and its customer. The SLA spells out the performance and quality metrics that govern the relationship.
Organizations need to be precise when agreeing on the commitments they make in SLA contracts. An SLA may be
linked to an MSP's pricing formula. For example, an MSP may offer a range of SLAs to customers, with the
customer paying a higher fee for higher levels of service in a tiered pricing structure.

What are the types of MSPs?

The types of managed service providers can differ depending on the criteria chosen to categorize them. For example,
if a business chooses to organize MSPs by the size of their target customers and how much responsibility they take
on, MSPs can be organized in the following way:

Pure-play MSPs. These tend to be smaller providers that focus on monitoring networks and application performance.
They offer their own native services that focus mainly on reporting and alerts.

Staffing legacy MSPs. These MSPs generally target midlevel organizations and Fortune 500 companies and often
offer a wide range of services, including monitoring, reporting, and software installation and upgrades.

High-level MSPs. These consist of small and large providers that enable their clients to outsource as much of their
IT processes as needed. Typically, high-level MSPs offer a wide range of services.

MSPs can also be categorized by the type of services they offer:

Monitoring. These MSPs offer real-time monitoring software for different applications, network devices, servers or
websites.

Remote support. These MSPs offer cloud-based software, support remote devices and remotely troubleshoot
technical issues.

Proactive support. These MSPs perform preventative maintenance to stay ahead of any device or network issues that
could arise.

Centralized management. These MSPs provide a management console for complex networks, remote monitoring,
patch management and security software.

Scheduled maintenance. These MSPs offer organizations regularly scheduled network maintenance.

Simplified billing. These MSPs handle invoicing, payments and budgeting via a billing management system.

What is the pricing model for managed service providers?

Managed service providers typically use one of the following pricing models:

Per-device pricing. The MSP charges the customer a flat fee for each device it manages.

Per-user pricing. The MSP charges a flat fee for each user, accommodating users who use multiple devices.

All-inclusive pricing. Also referred to as the all-you-can-eat model, the MSP charges a flat fee for its IT
infrastructure support and management services.

Tiered pricing. Organizations can choose the bundle of services that best fits their needs. This is typically a favored
pricing model for MSPs.

Monitoring-only pricing. MSPs only offer monitoring and alerting services for an organization's IT infrastructure.

MSP roles and responsibilities: 5 ways MSPs deliver value

CIO and MSP strategic partnerships are formed for many reasons, as the CIOs,
management advisors, researchers, business executives and MSP leaders
interviewed for this article made clear. But, in general, an MSP that functions as
a strategic partner to the CIO takes on all or some of the following
responsibilities:

1. Delivers a needed service cost-effectively. "This frees up CIOs to

focus on customer needs and innovation and not worry about the run,"
said Chad Willaert, a principal consultant at business and IT consulting
firm Open Systems Technologies.
2. Brings process improvement knowledge. An MSP's deep expertise
in a specialized area helps CIOs identify ways to improve
processes and create further efficiencies.

3. Provides a highly skilled workforce. Modern MSPs are generally

competitive in recruiting, retaining and upskilling IT talent in their
specialized areas.

4. Aggressively keeps up with technological advances. Modern MSPs

constantly identify, test and prove out emerging technologies that can
bring incremental and transformational changes.

5. Supports transformation. MSPs draw on their experience with what

has worked at other organizations and across industries to advise and
support CIOs on digital transformation initiatives.