There’s a direct correlation between pricing within your business, and net profit. Put simply, poor pricing = poor profits.
Common pricing crimes committed by MSP owners include:
- Not reviewing prices regularly
- Not putting prices up (or at least testing different price points)
- Listening to staff worries about prices, rather than tracking the actual effects on sales
- Not tracking costs of delivery and therefore not understanding profit margins
- Not having monthly management accounts sent in a timely fashion from your bookkeeper / accountant, so you can see what profit you are making (or not)
If you’re selling at the wrong price, you’re missing out on profit.
And I truly believe that price should not be dictated by your staff or competitors. There’s only one group of people who can affect your pricing… their opinions don’t count, only their actions.
I’m talking about your clients of course. Let them vote with their wallets to tell you what appropriate and profit-maximising pricing should be applied in your niche or area.
There are three key questions to ask
1) What will the clients pay without becoming dissatisfied?
2) What produces the best long-term profits?
3) How can you separate price from cost in your mind?
Based on the assumption that the average business owner or manager doesn’t know what they don’t know, you can use marketing differentiation to set pricing appropriately.
We don’t want them to be able to compare you to another MSP. Let’s not allow them to think they are comparing apples with apples… lets make them realise they are comparing apples with oranges.
An example from outside IT support. When I bought a new shed a few years back, I shopped around and found essentially the same shed from a number of different companies.
Suppliers A and B were selling it on a commodity basis – here’s the price, take it or leave it, done.
Supplier C took a different approach. I instant chatted them to clarify something about the shed, and they took the opportunity to educate me about purchasing a shed.
“When our delivery team is en-route they’ll keep you updated with text messages, so you can go about your day not worrying about staying in.
“When they arrive, they’ll put the pieces of the shed in the best place for you, even if that means carrying it further.
“They’ll do a full inspection of every part of the shed with you, so if anything is missing or damaged they can replace it immediately.
“And they’ll happily answer any of your questions about where to site the shed, building a base for it, and constructing it. If you have further questions, we’ll leave you details of a construction helpline which is open 8am to 8pm, 7 days a week”.
Supplier C was £10 more expensive than its nearest competitor. They got the sale.
There are always people who will upgrade themselves.
The same shed company, as part of the “shed purchase personalisation process”, talked me through all the different aspects I’d need for the best possible shed I could have.
“What hundreds of our customers have found, Mr Green, is that it’s a real pain to build your own shed. Especially when our delivery team is already on site and can just do the whole thing for you.”
Before I knew it, I had upgraded the preparation of the ground including laying of slabs; a better more robust floor; glass windows instead of plastic; the entire shed built for me; the roof felted; and even 2 coats of paint in the colour I chose!
I ended up spending more than twice what I had intended to spend… and I was happy!
This is why sometimes we need to ignore what our staff think. From their point of view, they may always be trying to minimise bills. That can actually have a dissatisfactory effect on the people who would LOVE to buy more; if only you would put it in front of them.
Remember – the top 20% of your clients will generate 80% of your profit. You’re looking for upsells with little additional cost to you, but significant perceived value to your client.
Bundling offers together can be a powerful way of increasing total price (and overall spend). Look at what Amazon does with its related items. Sometimes, bundles can sell for more than the sum of the parts.
Just like we discussed in differentiation, the way you present the price affects the way people perceive it (frame of reference).
Break down for them the price of your monthly support service – every single item if they were to buy it individually.
And then show them how the bundle is a fantastic bargain. Perception is reality, and you need to be quite overt in showing your clients what a great deal they are getting.
The end goal here is always greater profitability
Assuming your costs stay the same, increasing prices and upselling sees the extra revenue drop straight to the bottom line. Once you’ve paid tax on it, that’s your money.
Profit is good. It gives you options.