What we do when we quote is use a modified version of Erick Simpson's "Cost Analysis" that we found in the first book I posted. Coincidentally, this is almost the same exact thing to what Terry Hedden from Infinity Business Systems presented at Kaseya Connect with "Pricing Strategies: Developing the ROI Value Proposition". I know that Kaseya filmed all presentations, but I am not sure when they are releasing the video. Anyway, without getting into too much detail we have a sheet that we fill out with figures after asking potential clients (and their employees) key questions. We then calculate the cost of downtime is/was, lost productivity (employee wages, etc.), true cost of previous break/fix IT support and come up with an overall figure.
Commonly this figure is fairly large, but clients have a hard time refuting it because all the figures are derived from their own payroll and employees mouths. Example: If their Exchange Server was down for 8 hours last year and it severely effected the productivity of all 50 employees and the average salary is $45k/year (or $23/hr) that is a "soft" loss of about $9300. That's just lost productivity from the result of downtime. Then you add what the previous IT provider charged them to fix it (say 4 hours of work at $100/hr) and that figure goes up to $9700 just for the Exchange Server alone. Figures quickly add up when you take into account workstation issues and all the other problems that they faced.
We also add in the time that "Bob in accounting" spent doing the daily computer help "because he knows computers". Well, they hired and pay Bob to do the accounting, and not IT right? How much do they lose by Bob doing 8 hours a week helping co-workers with their email? If they hired Bob to do their accounting at $50k/yr. and he is spending 416 hours a year doing computer stuff they are losing $10k that could be made by keeping Bob in accounting. Remember Bob makes the company money when he is doing accounting, not when he is fixing computers.
Soon enough, you have a sheet in front of them that says they either spent or lost $30,000 last year without you or your managed services. Sure most of it is "soft" costs, and you will get people that object and say "my employees can continue to work with the server down", but let's get real here. Downtime is the most unproductive time ever. The boss might think that employees will continue to work, but both you and I know that is not the case. Even if that were the case, there is time spent on catching up with that downtime.
So we take this sheet into them and go over it. We deflect objections as well as we can, and generally quote them right around 5%-10% less what the ROI sheet says they spent. So using the $30,000 figure above we quote them $27,000 per year ($2,250/Mon.) for Managed Services. We obviously remind them that that figure is still cheaper than hiring an internal IT staff.
Granted this seems like a large figure. And it is. It is a tough sell to convince a company with 20 workstations and a server that they need to spend $2,000/month for your services (not including projects!). But the question is, how many $2,000/month clients do you need to be profitable? Not that many I'd imagine. The bonus is that they are all "A" clients and they get it. So you are now dealing with better clients and because you don't need as many clients to be profitable you don't need a huge staff.
Say you are pricing by the device, to get that $2,000/month for that same client (20 workstations, one server) you would probably be pricing workstations @ $75/month and servers @ $500/month. Judging from what I have heard from other MSPs those figures would be nuts to ask. The average that I have found is around $45-$50 per workstation and around $199-$299 for servers. A Kaseya agent can cost as low as what...$4 for a workstation? Even less over time because agents are purchased not leased. It costs your company maybe $25/Mon to support a desktop including salary, insurance and other overhead.
Which leads to my question - I like your idea of working up the figures based ROI part of things and I'm going to read that book, however what do you do when your clients add 5 or 10 new PCs to their network or a new Terminal Server to the mix? How do you adjust pricing for that based on your ROI model?
Would you mind describing what type backgrounds (experience and/or certifications) you require for your L1, L2 and L3 people?
Also, what software do you cover in your "unlimited plan"? Where do you cross the line as far as what you will upgrade for a client (covered) vs. what will be a "project"? If you cover L1 Support for Client Buisiness Apps, do you charge them extra per month?
strategicmicroSo now you have convinced your prospect that paying $2700/month will fix all their problems based on the soft and hard calculations. The hard ones are easy to defend. But how about the soft ones. Like the exchange server that went down for a day and had people twiddle their thumbs for a day. Which was a soft cost loss of $10,000 or whatever.
HOW is going MSP preventing the loss of this soft cost?
Because a client can STILL be down for a whole day. Sure, we can catch a lot of stuff. But if a RAID controller tanks or a internet connection goes down for a day (yes, even FCC regulated T1's do that). What then? How do you sell this? Just curious. As this is our thoughest discussion when it comes to convincing clients.
boudjSteve, do you assign your tech to a certain set of Managed Service accounts?
boudj... I am now giving my guys set accounts (3 or 5 fixed clients depending on size) and setting up metrics that they need to achieve each Q. ...
firstname.lastname@example.org...Many successful Kaseya customers sell the concept of "We are your Outsourced IT Department." If that is the vision the MSP has for their business, then the closest approximation or alternative of this model is an Internal IT Department. In deciding what to deliver or how to price your "Outsourced IT Department," what would the customer pay for an Internal IT Department? What would they do? etc.
...So if you're doing all the things an Internal Sys Admin would be doing, but your customer is only 25 people instead of 100 (i.e. 25% of the capacity of one SA), you can roughly equate your value at $7,000 x 25% = $1,750/month (or roughly $50/user x 23 users + $299/server x 2 servers).