In today's fast-paced, technology-driven world, businesses often grapple with the constant challenges of managing IT infrastructure and operations effectively. Managed services offer a transformative approach, providing a sense of relief by allowing organizations to offload IT responsibilities to expert providers. By leveraging managed services, companies can focus on innovation and growth while ensuring their IT systems are optimized, secure, and scalable.

This blog will explore the core principles of managed services, the role of managed services providers (MSPs), and the pricing models that make them a strategic asset for modern businesses.

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What Are Managed Services?

Managed services is more than just a service. It's a partnership. One where a managed services provider assumes responsibility for delivering specific functions, or outcomes on behalf of a customer. This typically involves proactive management, support, and optimization of systems or processes, enabling customers to focus on their core business. At the same time, the provider ensures operational excellence and achieves defined performance metrics, providing a sense of support and reliability.

Managed Services often include:

• Proactive monitoring and maintenance: Regularly ensure systems are running efficiently and identify potential issues before they escalate.
• Defined Service Level Agreements (SLAs): Setting clear expectations around uptime, response times, and other performance metrics.
• Predictable cost structures: Shifting costs from capital expenditures to operating expenses through subscription-based or usage-based pricing models.
• Scalability and flexibility: Adapting services as customer needs change without the need for significant infrastructure investments.
• Continuous improvement: Leveraging data-driven insights and best practices to enhance performance and value over time.

Aligning the provider and the customer to deliver measurable business outcomes is essential, making managed services a critical offering in the technology services landscape.

What Is an MSP?

A managed services provider (MSP) is a company that delivers ongoing, proactive management and support for a customer's IT infrastructure, applications, or business processes. MSPs provide these services on a subscription or usage-based model, allowing businesses to offload specific IT operations, reduce costs, and improve performance and reliability. MSPs also play a crucial role in aligning IT strategies with business goals, ensuring that the technology supports the company's overall objectives.

Typical Services Provided by MSPs:

• IT infrastructure monitoring and maintenance: Continuous oversight of servers, networks, and endpoints.
• Cloud management: Support for cloud migration, optimization, and ongoing management.
• Cybersecurity: Threat detection, response, and compliance assistance.
• Accounting Services: These providers can take care of bookkeeping, financial reporting, tax preparation, and other accounting tasks, allowing businesses to focus on their core operations.
• HR Services: These providers can handle various HR functions like payroll, benefits administration, recruiting, and compliance. This can be especially helpful for small and medium-sized businesses that don't have the resources to manage these tasks in-house.
• Help desk support: 24/7 user assistance for IT issues.
• Application management: Support for SaaS or on-premise applications. This includes tasks such as software updates, troubleshooting, and user support.

Related: Managed Services and the MSP Customer Journey 

How To Price Your Managed Service for Your Business

In the managed services industry, cost-plus pricing remains the dominant approach. Prices are determined by adding a fixed markup or percentage to the service's cost. While some organizations claim their strategies deviate from this model, a deeper look often reveals a reliance on resource management to establish cost bases, followed by building pricing strategies around them.

This begs the question: Is there a better way? Could innovative pricing models meet market demands and fuel business growth and profitability?

The reliance on cost-plus pricing creates two significant hurdles for managed services providers:

1. Hidden costs: It often needs to account for uncontrolled expenses or poor cost management, undermining profitability and operational efficiency.
2. Unrealistic expectations: It forces providers to absorb impractical margin demands from leadership, which may not align with the actual value of the offering.

Together, these challenges result in a pricing model that struggles to stay competitive in today’s fast-changing market, ultimately hindering growth and profitability. To thrive, managed services providers must explore pricing strategies that reflect value, align with customer expectations, and adapt to market realities.

Pricing Methodologies for Managed Services

Managed services companies adopt various pricing models to structure their offerings. These approaches vary based on how services are defined and described. Commonly used pricing methodologies include:

Key Pricing Models

• Cost-Plus: Pricing starts with the delivery cost, adding a defined markup or margin.
• Market-Based: Prices are based on competitive offerings and market positioning.
• Value-Based: Prices align with the estimated value delivered to the customer.
• Consumption-Based: Pricing depends on the customer’s usage of services or products.
• Outcome-Based: Pricing ties to specific business outcomes achieved over the contract term.

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Trends In Pricing Models

According to our research:

• Primary Models:some text
  • Cost-plus remains the most widely used, adopted by nearly three out of five companies.
  • Outcome-based pricing is the least common, with fewer than one in twenty companies adopting it as a primary model.
• Emerging Models:some text
  • Nearly half and just over a third of companies use market-based and consumption-based pricing as their most common secondary approaches.
  • Outcome-based pricing is used by fewer than one in five companies as a secondary model.

Outcome-Based Pricing Insights

• Adoption challenges: Outcome-based pricing is still in the early adoption phase. Companies using it report mixed impacts, with higher growth rate variability than other models.
• Key pricing levers: Half of respondents apply cost savings as the most frequently used lever. The remaining respondents are evenly split between other factors, including customer satisfaction, efficiency improvements, and revenue generation, each used by less than a fourth.
• Growth impact: Value-based pricing consistently links to positive growth rates. Traditional models, like cost-plus and market-based pricing, are occasionally associated with negative growth.

While cost-plus pricing remains dominant, companies are increasingly experimenting with innovative models like value-based and outcome-based pricing, signaling a shift toward customer-centric approaches.

Related: Mastering Managed Services Pricing

Benefits of Managed Services

Managed services offer businesses a cost-efficient way to manage critical operations by outsourcing to specialized providers. This model enables organizations to reduce overhead costs, avoid hiring specialized staff for every new challenge, and benefit from predictable monthly expenses. By delegating routine or complex tasks, businesses can streamline operations and free up resources for strategic initiatives, enhancing overall productivity and financial planning.

One of the standout advantages of managed services is access to specialized expertise and cutting-edge tools. Providers bring industry-specific knowledge and advanced resources, ensuring high-quality service without requiring businesses to invest in expensive technologies or extensive staff training. This scalability and flexibility allow organizations to adapt quickly to changing demands, leveraging the provider's capabilities to efficiently meet current needs and future challenges.

Managed services also ensure consistency and proactive problem-solving, reducing downtime and operational risks. Providers maintain reliable performance by adhering to industry best practices and staying updated on regulatory compliance, relieving businesses of these burdens. By focusing on delivering consistent quality and addressing potential issues before they escalate, managed services empower organizations to maintain a competitive edge while focusing on their core business objectives.

Ultimately, managed services empower businesses to operate more efficiently, reduce risks, and deliver better customer experiences. By entrusting complexities to experts, companies can focus on growth and innovation to ensure they remain agile and competitive in an ever-changing market.

Your Key Takeaways

• Core benefits of Managed Services: Managed services provide cost efficiency, scalability, and access to expertise, allowing businesses to focus on strategic objectives.
• MSP offerings: From proactive system monitoring to cybersecurity, MSPs deliver comprehensive IT solutions tailored to business needs.
• Pricing models: Innovative approaches like value-based and outcome-based pricing shift the managed services landscape toward customer-centric strategies.

Evolve With Managed Services

Managed services represent a crucial partnership for businesses aiming to streamline operations, reduce complexity, and remain competitive in a rapidly evolving marketplace. Through proactive monitoring, tailored pricing models, and access to expert solutions, MSPs empower organizations to focus on growth while ensuring operational excellence. As the industry evolves, embracing these services can be the key to achieving long-term success.