2112 Report: MSPs Need Price Integrity
The first line from a new report by The 2112 Group says it all: “A plague has befallen the managed services marketplace. Once the bastion of predictable revenue and sustained profitability, MSPs are watching their average sale prices and margins erode precipitously under competitive and economic pressures.”
While end users have more choice in selecting MSPs and there is a fair amount of competition, 2112 defines the real problem as “artificial commoditization” caused by poor pricing practices and a failure to maintain price integrity.
Released today, the report, “Countering Artificial Commoditization and Poor Pricing Practices in Managed Services,” defines artificial commoditization as the self-inflicted wound that’s draining the managed services segment of its vitality and sustainability. The report was produced with the support of managed services enablement vendors N-able and NetEnrich.
“We hear a lot about challenges with pricing and commoditization from our partners. This whitepaper shares the knowledge we’ve gained on MSP market opportunity and pricing pitfalls, plus it offers a logical approach to selling and delivering managed services, which is very different from selling and providing traditional IT solutions – a challenge the IT industry as whole seems to struggle with,” says Justin Crotty, senior vice president and general manager at NetEnrich.
2112, publisher of Channelnomics, produced the report based on interviews with scores of managed service providers and years of observation of trends in the managed services segment. Lead author Lawrence M. Walsh blames artificial commodization on MSPs’ failure to treat services differently from legacy hardware, not basing price on value and benefit delivered to their customers, and misreading the competitive landscape. The failure to properly execute on these three areas causes MSPs to make poor decisions on pricing and customer engagements.
>> CLICK HERE to Receive the Report
The perception is a series of best practices in which MSPs can base services prices on real expense models, delivery capacity and resource utilization, value differentiation, competitive pressure and future investment needs.
“In order to sustain profits and clearly differentiate their services, MSPs must master the art of value-based pricing and value-driven communications,” says JP Jauvin, president and COO of N-able Technologies. “This new whitepaper, combined with the ongoing investments N-able and NetEnrich continue to make in partner development and sales modeling, offers great business-building resources that help MSPs mature their businesses and deliver greater value in the eyes of their customers.”
The full report is now available on the 2112 Web site <<CLICK HERE>>, as well as the N-able <<CLICK HERE>> and NetEnrich Web sites <<CLICK HERE>>.
For more information about this report or other 2112 research projects, please email info@the2112group.com.
One Response to “2112 Report: MSPs Need Price Integrity”
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We’ve been warning about this risk for several years now.
When your managed services look just like everybody else’s managed services, you become a commodity broker.
Commodity brokers tend to see HUGE margin dilution, which is why MSPs betting their futures on commoditized or semi-commoditized services better be prepared to scale to 8-figure revenues quickly, or find a better business model.
Managed computer consulting anyone?
(i.e. traditional IT consulting + managed services where you still add VALUE)