Managed Services / MSPs Face Intensifying Pricing Pressure

MSPs Face Intensifying Pricing Pressure

By Michael Vizard | Posted 2016-01-26

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MSPs Face Intensifying Pricing Pressure

To offset stiff pricing competition, MSPs would be well-advised to reduce their overall costs whenever and wherever possible.
MSP Financial Growth

Just under a quarter (23%) report their three-year average annual monthly recurring revenue (MRR) growth is more than 20%. At the same time, however, 51% put that number at less than zero. On average, MSPs say actual managed services only account for 35% of their revenue.
Average Size of Contract

Just over a third (35%) put the value of an average contract between $1,000 and $2,500 per month. Another 34% put it at less than $1,000.
MSP Pricing Strategies

Almost six in 10 (59%) are using value-based pricing models, 28% are using a cost-based model and 21% rely on a price-match model.
MSP Hourly Rates

The rates MSPs charge per hour range from $88 to $111, depending on the level of technical support provided.
Price for Server and Device Support

Just under one-quarter (24%) are charging up to $125 per month. Only 13% are above $250 per hour.
Number of Bundles of Services

Just over a quarter (27%) bundle three or more services. But about a third (31%) price services a la carte.
Number of End Users Supported

More than half report that the majority of their customers have fewer than 25 employees. Another 32% have 26 to 100 employees in the majority of their customer bases.
Number of Endpoints Managed

Just over a third (34%) manage 1,001 to 3,000 endpoints. Just under a quarter (23%) manage 101 to 500 endpoints. Another 15% manage 501 to 1,000 endpoints.
Reliance on the Cloud

More than 50% now offer cloud services (IaaS, PaaS, SaaS). In addition, 75% of the MSPs who offer cloud services report that this revenue source increased in 2015. Well over 50% also expect revenue for these services to increase in 2016.
Tapping Into Mobile

A full 69% of MSPs said they offer some level of support for mobile computing devices. Another 18% said they plan to actively manage mobile devices in the next six months.
Drivers of Demand for MSPs

Security tops the list of demand drivers, at 26%, followed by the cloud, at 19%, and a general increase in the appreciation of the business value of IT, at 13%.
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There's no doubt that in the face of stiff competition at almost every level managed service providers (MSPs) need to be more resilient than ever. In fact, a new survey of nearly 400 MSPs conducted by Kaseya, which offers a platform for managing those services, finds that at least half the respondents are hard-pressed to grow their monthly recurring revenue. However, roughly one-quarter report that they increased that number significantly. Of course, that growth is likely tied to the size of the MSP and how long they have been providing managed services. In general, it appears that MSPs continue to be challenged in terms of the pricing they can command for their services. Yet most also expect that the shift to the cloud will enable them to generate higher-margin revenue in 2016. The challenge, of course, is that many cloud services will be delivered directly by vendors. The opportunity for MSPs is to aggregate those services in a way that provides the end customer with a better overall IT experience. In the meantime, MSPs in the face of stiff competition would be well-advised to reduce their overall costs whenever and wherever possible. We examine key takeaways from the study.