Prices change in the best and worst of times. Organizational leaders must pay close attention to economic factors, including inflation, and constantly monitor how rising costs affect their business operations and customers. While technology demand typically remains strong even when those conditions become troubling, managed services businesses that can address these financial challenges with specific solutions and programs create more value for their clients.
Inflation is a cyclical event, rising and falling as economic conditions change and the demand for dollars ebbs and flows based on a variety of factors. With robust demand in many sectors, including the automotive, real estate, and, yes, technology industries, and supply chain issues still a thing, costs are skyrocketing in some areas and affecting virtually everything else. The September consumer price index, a key inflation barometer, increased 8.2% in September relative to 2021 − a number that would be hard for any company to absorb without raising its own rates.
Successful MSP owners understand the need to pass on most, if not all, of those escalating costs to customers to prevent margin and cash flow concerns within their own organizations. Timing truly is everything. Clients might jump ship if they feel your firm raises prices every time there’s a blip in the market, but rate stagnation can put your business on shaky financial footing if your internal expense costs rise faster than income. Finding the balance between the two extremes is critical.
That division doesn’t need to be equal, and MSPs should be able to more than compensate for the rise in their own expenses. Finding the right mix may not be easy. Some providers offer a low-cost value-add to soften the blow of proposed increases or offer some discount to clients for agreeing to adjust payment terms, sign a longer-term contract or adopt other processes that favor the IT firm. Most clients won’t complain as much about paying higher monthly fees if the services provide value. With unchecked inflation, few will object to price increases from business partners that deliver continual efficiency improvements in their operations.
Challenges are True Opportunities
MSPs often get paid to address bad circumstances. Dealing with all the pandemic-related restrictions and business challenges of the past two-plus years clearly demonstrate the capabilities of the greater provider community. IT services firms admirably stepped up to drive, secure, implement and deliver ongoing support for remote and hybrid workforces in a matter of weeks (if not days, in some cases).
That same type of consideration and support should go into developing a 2022-2023 pricing strategy. How can you continue developing and better securing your clients’ IT systems without hitting them too hard in the pocketbook? At the same time, what steps can you take to boost your company’s financial situation − or at least ensure your margins don’t slip? Here are a few best practices that can help MSPs keep pace with inflation:
♦ Increase Value-Add and Rates. No client should be surprised when an MSP announces new pricing in the current economic environment. However, providers that create more of a win-win proposition by delivering more services along with that price increase typically receive less negative feedback and enjoy an easier transition. Most business owners and managers understand the situation today. If their IT provider provides an additional solution that will improve their efficiency or security posture along with a proposed 5-10% price increase, that extra “value-add” may partially, if not completely, offset the additional expense. For example, an MSP could add services such as dark web monitoring or password management with contract renewal or implement technology refresh programs that bring higher margins (instead of raising rates). The key is keeping the cost of those extras or portfolio changes below the rise in your expenses. Successful MSPs understand the things their clients need and provide new services to justify price increases, helping inflation-proof their businesses while boosting support levels and capabilities.
♦ Manage Costs. This may seem like a “no-brainer,” but with so many activities in a typical day, some MSPs don’t take the time to assess their cost of doing business periodically. Evaluating the highest cost items such as rent and mortgages, insurance, and personnel is the perfect starting point. Like their clients, MSPs may choose to adopt virtual or hybrid environments to minimize, if not eliminate, expenditures for buildings, utilities, and insurance. To offset rising gas prices, some companies are downsizing vehicles or leasing EVs. Evaluating everything from software and phone systems (VoIP is a cost-effective alternative) to software applications and internet providers regularly help ensure your operations are running efficiently.
♦ Implement Automation. Every IT services business owner should know how valuable properly implemented and supported automated technologies are to an organization. For MSPs, that means PSAs and RMMS to streamline client management and integrate with a host of other critical tools. On the financial side of the business, eliminating manual steps in the quoting, accounting and collections processes can save a tremendous amount of labor. With the shortage of talent and the high cost of hiring and retaining employees, the ROI of automation tools is rising, so MSPs should continually seek new opportunities to deploy these types of solutions.
♦ Leverage UCaaS. Communications are the perfect place to improve efficiency and reduce costs for clients and gain higher margins for MSPs. UCaaS replaces costly phone lines and other business applications, empowering end-users with a single management platform at a lower monthly price point.
Drive New Efficiencies
Strong IT services partners are invaluable − even more so today than before the pandemic and rise in cybercrime. Your clients are similarly looking for ways to trim their expenses to avoid passing on huge price increases to their customers. Similar to the value-add option mentioned above, MSPs are the innovators that can leverage their ingenuity and beneficial technologies to create new business efficiencies. WFH and hybrid environments are great examples. Encouraging clients to downsize offices and better enable remote workers can significantly lower costs. That money can be reinvested in sales, marketing, and other technologies that drive additional revenue, increase customer satisfaction and reduce employee turnover. How does that help MSPs counter inflation? Those technology investments allow providers to reconfigure monthly payments and augment IT contracts, with an opportunity to boost revenue and margins.
What is your strategy for countering inflation? Planning is critical. With the right approach, MSPs can mitigate their own rising costs while delivering broader and deeper support to their business clients and communities. The key is building a win-win strategy that everyone will understand and appreciate.