MSPs Must Prioritize Proper Pricing

Protecting Profitability and Client Value with 60% Service Margins

In today’s competitive technology services market, pricing is more than a number—it’s a strategic decision that directly impacts your business’s health and growth trajectory. Many Managed Service Providers (MSPs), especially those in growth mode, underprice their services to win business. Unfortunately, this short-term tactic often leads to long-term financial instability.

The Business Case for a 60% Service Margin

A 60% gross margin on services is not a luxury—it’s a necessity for sustainable operations. This level of margin ensures your business can absorb costs and generate consistent profitability. It should cover:

• Salaries and benefits for technical staff
• Tooling and software platforms (RMM, PSA, cybersecurity stack)
• General overhead like rent, insurance, and compliance costs
• Unbillable activities, including documentation, vCIO meetings, and internal training

With a 60% margin, your MSP is positioned to invest in quality service, grow your team, and scale without financial strain. Anything below this threshold compromises your ability to sustain operations—let alone thrive.

The Hidden Dangers of Underpricing

MSPs that underprice often find themselves reacting to problems instead of proactively managing their businesses. Here’s what’s at risk:

1. Cash Flow Shortfalls

Underpriced services may look profitable on paper but often fail to cover actual delivery costs. This leads to cash flow stress—especially during periods of growth or unexpected costs.

2. Team Burnout

When contracts don’t reflect true effort, your staff ends up overworked and under-supported. This increases employee churn and reduces service quality, damaging your reputation.

3. Growth Roadblocks

Scaling requires reinvestment. Without strong margins, you’ll struggle to hire, onboard, or adopt new technology to meet demand.

4. Lowered Business Valuation

If you’re considering a future exit or acquisition, be aware: buyers scrutinize your profitability and pricing structure. Underpriced contracts lower EBITDA and reduce overall business value.

How to Address Underpriced Clients

Raising rates—especially with legacy clients—can feel uncomfortable. However, with the right approach, it’s possible to increase prices while maintaining trust and retention.

Step 1: Communicate Value

Clearly outline the services provided and results delivered. Use real data:

“Over the last 12 months, we resolved 400 tickets with an average response time of 12 minutes and maintained 99.9% uptime.”

Step 2: Anchor in Reality

Explain that service costs have increased, and pricing must reflect inflation, labor, and technology expenses.

Step 3: Offer Tiered Increases

For significantly underpriced accounts, consider raising prices gradually over several months to ease the transition.

Step 4: Reposition as an Upgrade

Frame the increase around enhanced value:

“We’re including monthly cybersecurity awareness training and enhanced endpoint monitoring.”

Step 5: Formalize It

Update the contract with clear deliverables, SLAs, and new pricing to reset expectations.

Building a Smart Pricing Strategy

To protect margins and deliver excellence, your MSP should:

• Regularly analyze cost per service
• Use standardized pricing calculators
• Review client contracts annually
• Avoid discounting unless part of a strategic package

Final Thought

Your pricing is a reflection of your expertise, value, and commitment to service excellence. Underpricing not only weakens your bottom line—it compromises your ability to serve clients effectively. Adopting a pricing model that delivers at least 60% margin on services ensures your business remains healthy, competitive, and poised for long-term success.