One of the most recurring questions of those who are starting to undertake in the world of IT support is: how much to charge for the service provided? In fact, this questioning about pricing is
One of the most recurring questions of those who are starting to undertake in the world of IT support is: how much to charge for the service provided? In fact, this question about pricing is very natural. To the extent that, often, the professional still does not have much reference on how to leverage profit while maintaining stability and, at the same time, practice a price that is competitive.
Generally, the calculation of the price of service must take into account the investments necessary for the execution. That is productivity, which can be calculated by hours or devices, in addition to the value generated for the customer. With the digital transformation and the change in level that the information technology sector has gained in companies. In this sense, not only the volume of work has increased, but also the impact that this service has on the success of companies.
In short, we can say that pricing must take into account the knowledge of the accounts themselves, the added value of the service, and the workload that the client’s infrastructure requires. Do you want to understand how to achieve a competitive price and simultaneously ensure customer satisfaction? Keep reading!
What are the main IT pricing challenges?
Even the most experienced managers, used to dealing with technical and business issues, have doubts about pricing models when it comes to IT support. You can’t blame them for that, as there are a number of pricing patterns in the market. In addition, the technological innovations that are added by the company promote new challenges for professionals, who end up having to review their performance.
The main service of IT vendors is to supply the necessary resources to the clients’ companies — equipment, services, people, and tools. Most of the time, the calculation is based on the expected increase in productivity and the investments needed to meet the demands.
Based on this principle, it is up to each supplier to choose the collection model that adds the greatest profitability and, at the same time, allows for preserving its customer base. For customers, especially those who do not have information technology as the core of their business, the focus is on cost reduction and more security. This is where the negotiation takes place.
What is the most effective way to increase profitability?
Basically, we can define three ways to increase profitability:
- Raise the price — which has a direct impact on the customer’s budget;
- Reduce the cost — either by reducing the structure or by reducing the team, which can limit the service provider’s ability to act;
- Increase productivity — produce more using the current structure. It is a big challenge and requires automation and remote monitoring tools, which will allow professionals to service more than one device at the same time.
At this point, you might be wondering: how to produce more with the same structure? Think of automation on three levels:
- Remote access — for example, mass antivirus installation;
- Patch and antivirus policy ;
- Standalone tasks — custom scripts.
What are the elements that should be considered to arrive at the final value of service?
The calculation of any product or service must take into account three basic elements: direct cost, commercial expenses, and contribution margin. The following is a detailed description of the concept of each of these elements:
- Direct cost — an added value of providing the service;
- Business expenses — costs related to the provision of the service, which includes taxes, travel costs, and others related to support;
- The contribution margin — is the value defined by the manager for the services that will be used to contribute to the payment of fixed expenses, such as salaries, rent, energy, water, telephone, etc.
From these three indicators, it will be possible to arrive at the reference value of the service, and the manager will be able to analyze whether or not the final value will be compensatory, both for the IT supplier and for the customer. To arrive at the calculation of the reference value, you must add the three elements.
After all, charge by the hour or device?
This is one of the great dilemmas for those who are starting to undertake as an IT support provider. The natural tendency is for technicians to opt for hourly billing, as the first analysis made is that the same service may require more time on different machines — often caused by users’ lack of skill.
The truth is that hourly IT support, as much as it seems like the right solution for solving one-off problems, can be expensive in the long run, in addition to punishing productivity. This solution also impairs more personalized service, as this type of approach is 100% reactive, that is, the professional only works to solve problems, “putting out fires”.
However, this is out of line with the current needs of the market, which needs proactive professionals who provide a managed service, preventing problems instead of just solving them.
Pricing should be done by device, but prioritizing the agreement
From the moment companies and entrepreneurial professionals begin to discover the benefits of becoming MSPs, they begin to base their pricing on two models. In this scenario, it will be up to the manager to analyze the characteristics of his company and the services provided. The two models that serve to guide pricing are as follows.
Pricing per share
In the pricing model per share, the service provider is very close to the customer. When there is a certain demand, the MSP sends the quote to the customer for evaluation.
The big problem with this model is that it can harm the availability of the client’s infrastructure, since there can be a delay between the presentation of the budget and the necessary action, that is, the client’s response. There is also a detriment to the MSP’s productivity, as it is left with an uncertain schedule, waiting for the customer’s response, and may miss other opportunities.
The solution is to create packages of basic actions with a monthly subscription, with an agreement that makes it very clear that, if any service is requested that falls outside this package, the customer must submit this extra request for the support provider’s review.
Managed agreement
Above, we’ve covered basic stock agreements, but in this topic, we’ll talk about full support service agreements, which are based on the assets and maturity of the customer’s IT infrastructure. This is the ideal model for practicing managed service.
In this way, an agreement will be closed that will govern the provision of services and that will take into account the client’s IT environment — machines, software, and licenses, among other important points. An assessment of this infrastructure will be necessary in order to discover points that require greater attention, such as old devices, obsolete software, and priority service needs.
How do I calculate the pricing of my IT support service?
You can base the pricing on three pillars — the services you will offer, the customer’s equipment, and the chosen SLA agreement model:
- Services offered — will other types of services be included in addition to the packages that were contracted?
- Customer equipment — what is the status of your customer’s park? How long will it take to implement the solutions? Are the tickets very recurring?
- Chosen SLA — will a default deadline be set? Will a priority SLA be contacted?
Dealing with customer objections
Every successful negotiation is fraught with objections from both sides. Therefore, when you present your packages and values, it is very likely that the customer will offer some kind of resistance. The most common objections are as follows.
The service is expensive!
In this situation, you will have to counter-argument and find out if he is comparing your price with that of a competitor. Ask what he considers expensive, highlight your differential and tell him how your service will add value to his company. It is especially important not to set yourself up as a mere “fixer” of computers.
The competitor is cheaper!
In this scenario, your first attitude should be to analyze whether what you are comparing are services of the same category. If it is, explain how you arrived at this value and show how strange it is that the competitor reaches such a low value with the same demands. Another argument you can use is to ask if he is comparing the initial outlay or the final cost.
My budget is tight!
This is the time to offer better conditions, for example, negotiate a longer payment term or even provide a leaner package, with priority services. Don’t forget to ask what his target price is, as this action will open up an opportunity to argue so that the deal is good for both parties and is closed.
How important is an SLA?
Now let’s delve a little deeper into one of the pillars of pricing, the SLA — Service Level Agreement or Service Level Agreement, in literal translation. This is the document that will formalize the agreement made between the supplier and the customer. It is a document standardized by ABNT, with the NBR ISO-IEC 20000-1 seal.
Understand the importance of SLA for the IT industry
It is the SLA that defines the rights and obligations of the service providers and the contracting party. In service routines, there may be several simultaneous demands, which require a degree of prioritization.
In this scenario, it is important to pre-agree on what will be prioritized clearly, so as not to give rise to objections. For example, if it is necessary to prioritize a resolution of a problem in an e-mail server that has stopped, the technician does not need to worry about the probable complaints that may come from other sectors.
The SLA will also allow IT, vendors, to scale the size of the staff and infrastructure that will be required to deliver the standard of service required by the customer.
Understand what care is needed to define the service level
The definition of the SLA will require some specific care, such as making it very clear to the contractor that the ticket opening time should be used as a basis for monitoring and not the total time that will be required for a solution to be found. This is one of the ways that the supplier has to demonstrate proactivity, one of the requirements for support to remain competitive these days.
The SLA also works as a defense for the parties, that is, as it is the best way to formalize the relationship between customer and service provider, it explicitly sets out the activities that will be offered and how they will be delivered. This will include the deadlines, the indicators used, the format of the support that will be provided, the measurable goals, and whatever else is necessary to avoid future divergences.
In short, we can say that the SLA comes to give more transparency to the process of hiring IT services. Thus, the company is able to clearly define which services are offered and have a defined and predictable amount to receive. For the customer, it is a way of knowing what they are paying for and why they are paying.
Why is it necessary to analyze the competition?
Analyzing the competition also helps when defining your pricing. For this, seek to know what the market and your competitors are offering. This comparison should only be done for the purpose of potential analysis — be aware of your limitations as well as their limitations.
The first thing you should do is list your competitors, especially those in the same region where you are operating. After that, make an analysis of the prices charged by them. Understand the differentials of each one, as this is what influences the price variation.
Keep in mind that in order to charge a more competitive price, you will need to have the know-how. It’s no secret that the experience adds value to the service offered. In this scenario, professionals and companies that already have a “name” in the market appear more confident and, consequently, are able to adjust their prices taking this factor into account.
In addition to being able to identify the values that you can practice, the importance of analyzing the competition involves the opportunity to see your current moment in the market. Are you starting now and/or need to win customers to make the business sustainable? Take this into account in your pricing.
You were a contracted service provider and opened your own business. Now, understand your value as a professional and try to add it in some way to your company’s operations.
What other IT pricing tips?
In this topic, we are going to talk a little about differential. This is because, in addition to knowing the customer’s business in-depth, it is important for the IT supplier to be fully aware of what it represents for that contractor so that its price is understood as fair, that is, neither expensive nor lower than expected.
Whenever the client comes across a service provider, especially when he already has experience in the area, he expects him to deliver a differential. The objective is to acquire the services of companies that bring benefits, such as productivity, quality, availability, innovation, and cost reduction.
From the moment he hires your services, you will become part of his business and should help him gain a market differential.
Understand some practical examples
When there is a need to install an antivirus on a computer network in a company, in addition to the quality of the software, deliver efficiency in the execution of the service. Remote antivirus installation in bulk saves everyone time and shows a proactive view of the service provider, which will certainly count in your favor.
Good security and data recovery policies deliver much more than machine protection. The value here is in the protection of corporate data, which, if they fall into the wrong hands, can cause millions of reais in losses. Make it clear to the manager of the client company the risks he runs with the possibility of suffering attacks, such as ransomware. Show what is done to minimize risks and gain added value to your service.
Allied with a good SLA, all this will give you know-how so that you can price your services, seeking greater profitability and, in addition, being able to generate positive references from one company to another.
Focus on cost management
Many service providers, especially the self-employed, focus only on IT operations when setting their pricing, forgetting to account for costs. Understanding the costs of the business and how to introduce them at the final price is very important, because, as in any business, to generate profit the entrepreneur will need to cover the expenses, right?
Therefore, be sure to account for the expenses you have with the maintenance of your infrastructure, taxes, electricity, accounting, travel expenses for external services, purchase of materials, and staff salaries, among others.
Pay attention to customer feedback
Another relevant point to know exactly your place in the market, especially for those who are starting out, is to pay attention to customer feedback on the prices charged. Of course, you need to be aware that he will initially focus on your cost reduction, but you shouldn’t ignore his experience with service companies.
It’s an opportunity to do some self-criticism and see if your service is really delivering the value you stipulated. If so, try to understand why the customer is giving the negative feedback and try to counter-argument with the tips we gave above, with the main objections against prices.
Otherwise, if you see that his argument is valid, try to find out what he really expects from your service, so that you can draw up plans to meet the demands and be able to enforce the price you think is fair.
Leave room for negotiation
Pricing and negotiation go hand in hand, so when crafting the deal and setting the price, don’t think about “frozen” values. Leave room for future negotiations and objections. As we are talking about long-term agreements, sometimes it is worth reducing the margin a little thinking about recurrence. As these deals tend to have a higher value, the customer will certainly ask for a discount and it will be much easier to negotiate if you already have a strategy in place for this.
Does not cover a very low value
Appreciate your work! As much as you are new to the industry and need to price that allows you to enter the market, do not practice values that are far below the competition, as this will be harmful to you in the future.
Of course, we are all free to carry out marketing campaigns and creative ways to attract customers, but this should not be a recurring thing, but a one-off. Too low prices harm the entire market and, as we said, it can harm you in the future, for example, when you want to grow and the market is scrapped.
In addition, prices far below the market generate distrust in customers, who come to see their work as being of low quality. As we are talking about a sector that is increasingly vital for companies, it is difficult for managers to hire a service that does not provide the necessary security.
Find the balance between price and profitability
One more tip for beginners to focus only on pricing: seek a balance between price and profitability, in order to have more basis to present a fair price for both your company and the customer.
First, you must define profitability, which is nothing more than the return on invested capital target – own investment, financing, and loans. Let’s say you spent R$ 50,000 to hire, train the team and acquire the equipment. How long do you want to get this return? From this definition, it will be possible to have a parameter to define your profit margin and start your pricing process with a more structured goal.
We hope that, after reading this text, you can find the best way to price your services. Always remember that pricing has a lot to do with your know-how, the added value of your service, and the challenges that the client’s IT infrastructure presents. The important thing is to understand that it takes several analyzes to arrive at the ideal price, so don’t be limited to just one concept.
