A lot of things can cause Managed Service Providers to raise costs. You may be experiencing higher rent prices or increases in price from your vendors. If you’ve brought on new employees or promoted current team members, you have higher salaries to pay. Also, things just seem to get more expensive year after year.
You likely have a valid reason for raising your prices. You don’t just want a new car or a new house, you want to continue providing value to your clients. No matter your reasons, you have come to a point when it is necessary to raise your prices. But, how do you do that without losing clients?
When should you raise your prices?
Raising prices can be a scary thought. MSPs rely on their clients for their source of income, and they fear that a price increase could cause customers to look for another provider. You know your services are worth the money, but can you convince your clients of the same?
Finding the line between maintaining customer relationships and increasing MSP profits is difficult. It can often feel like walking a tightrope and hoping you don’t fall. However, there are sometimes when you may have no choice but to raise your prices.
- You experience lower profit margins: As your cost of doing business increases, your profit margins will suffer. You can quickly find yourself doing more work for less money, which is not a sustainable method of doing business. A steady decrease in profit margins can indicate that it is time to increase your prices.
- You have more customers: More customers can bring in more revenue, but they can also stretch your team thin. You may need to hire more employees, make more purchases from your vendors, or find a larger office space. All of these costs add up quickly, making it necessary to raise prices. Otherwise, you and your staff will be working day and night with little reward.
- Your vendor increases their prices: You have little control over the pricing your vendors set. If they increase prices, you may have to follow suit.
- You offer new features and services: If you have recently expanded your features or service offerings, it may be time to raise prices. You and your team are handling more work and adding increased value to your customers. It stands to reason that you should earn more for doing more work.
Tips for MSPs that Increase Prices
Add scheduled price increases into your client contracts.
You can make annual price increases part of your client contracts. This method is a very upfront way to raise prices on a regular basis. You are building a cushion to handle price increases from your vendors or increased business expenses. Choose a small percentage to raise prices and include it as an increase for inflation each year.
This strategy also trains customers to expect price increases at the same time each year. They are able to build the increase into their annual budget, instead of feeling blindsided by a price hike. Regular, consistent price increases can go over much easier with customers than random price spikes.
A word of caution: Customers who do business with you for many years may expect discounts or price breaks for their loyalty. You can combat this expectation by providing improved services and features each year to justify higher prices. Remind your customers why they should continue using your products and services.
Communicate with clients when your vendors raise prices.
Honesty is the best policy when it comes to raising your prices. If your vendor has upped the cost of doing business, you can communicate this to your clients. Sometimes providing a valid reason for raising prices can help customers understand where the increase is coming from. It also provides a subtle way to shift blame from your company to your vendor. After all, the price increase is out of your hands.
If you experience an unavoidable price hike from your vendor, try to distribute this cost to your customers over time. Instead of one big price increase, consider breaking it up into smaller increases and spreading them out. It may be easier for your customers to budget these smaller raises in price than one unexpected jump.
Explain the benefits received with the higher cost.
Any time you raise your prices, you must also raise the value your clients receive. You will lose customers if they feel your cost does not justify the services received. Instead of sending a mass email or automated message informing clients of a price increase, consider calling each of your clients individually.
You can present a personalized message that explains the reasoning for the price increase and the new services and features they will benefit from. Making it personal can help your customers see the value you bring to their business. It also shows that you appreciate their loyalty and want to maintain a working relationship with them.
Prove the potential ROI from doing business with you.
No one will be happy with a price increase, but you can prevent clients from getting overly upset. While they may be investing more in your services upfront, they will get a better return later. When you communicate your price increases to your clients, be sure to reiterate why they should continue doing business with you.
Having concrete numbers and proof on the potential ROI with your services can go a long way. If you can provide measurable results for your clients, they can better justify paying a higher rate. Follow up after your increased costs go into effect to ensure you are actually adding the value you promised.
Don’t be afraid of increasing your prices.
You should not raise your prices all the time, but it is okay to increase your prices when necessary. In fact, some providers find regular but small price increases work better than random or unexpected hikes in cost. Consider your clients and what would work best for their business.
Loyal clients who understand the value you provide will stay with you through reasonable price increases. If they see the potential ROI you can offer, they will continue to be your client. For clients who only care about price, it is important to realize that they likely do not value your services. If you are able to convince them of the value you provide, that is great. If not, understand that they may not be the right fit for you anyway.
Are you ready to increase your prices?
If you are still concerned about raising prices as an MSP, it’s time to realize you may not have another option. You can’t sacrifice your profits or your business, and many times raising prices is the only way to stay afloat. What’s more, you don’t just want your business to float, you want it to thrive.
Offering value to your clients is the first step in raising prices. If you are not providing a valuable service to customers, you have no business increasing your prices until you do. Once you are sure of your talent, abilities, and value add, you need to communicate this to your clients. Learn about their businesses and needs to better set yourself apart. Identify how your services fulfill a need or solve an exact problem they experience.
Clients who see the value in your work will remain loyal through reasonable price increases. Of course, if you jack your prices up on a regular basis, they may take their business elsewhere. But you already know not to do that.
The best method for raising prices and seeing an increase in MSP profits seems to be factoring regular price increases into your annual contracts. If you are able to utilize this strategy from the beginning, your customers will never see an unexpected rise in cost. The key with regular increases in price is that you must also provide regular increases in service. No one is going to pay more for the same level of service, or worse, a lower level.
All in all, it is possible for MSPs to increase their prices without losing clients. You should prepare for comments or questions about the price increase and be able to describe the value you provide to each individual client. Don’t trick yourself into thinking clients will be happy to accept a price increase, but if you do it right, you can maintain your loyal clients.