VARs Tread Carefully on Raising Service Prices

By Jessica Davis

With the long winter of the 2009 recession seemingly behind us, everyone has got an eye out for signs of spring—job creation, more hiring and more contracts. Is there also room for higher technology services prices?

The answer seems to be a qualified yes.

For five essential tips to follow before you raise your price, click here.

More competition for fewer services jobs over the past few years has driven prices down. Many a VAR saw customers close up shop, shut down spending or negotiate lower rates for services during 2009. As OnForce CEO Peter Cannone tells Channel Insider, "There's been a price resetting. It's going to be a slow recovery in terms of increased pricing."
Cannone says jobs that used to command $300 are now getting $175.

"For a lot of services jobs, pricing has become commoditized," he says. The good news is that the price decreases that have characterized the market over the last couple years seem to have stabilized. So that means the big question is, Will pricing stay where it is now, or will we start to see it climb again?

"I do see it coming back," Cannone says. "But it will take a few quarters. And it won't come back to the levels we saw in 2007 and early 2008."

Cannone says he expects it to increase by 7 to 9 percent over the course of 2010 for typical OnForce work events.

How are VARs handling the pricing issue as we tiptoe into recovery? Carefully.

"Based on the economic climate, we have not raised our prices to existing clients, but we are not offering some discounts we've offered in the past on services except in cases when a client pays us in advance for either six or 12 months of service in order to get that discount," says one VAR representative who asked to remain anonymous. "We are increasing our prices on certain service elements on new contracts, however." Those are service elements that the VAR believes now have been underpriced previously.

Another IT solution provider also expresses caution.

"We have not raised prices in the last year plus," says Steve Alexander, president of Third Eye Technologies. "We never polled our clients; however, there have been enough clients contacting us in regards to cutting back on our services that it just didn't seem like a good idea.

"The good news is that the result has been an excellent retention rate and overall growth of 10 percent each of the last two years in our monthly recurring revenue," he adds.

MJ Shoer, president of Jenaly Technology Group, tells Channel Insider that he's not afraid to raise prices, "providing we are delivering a corresponding value."

Shoer says he believes that in the IT solution provider industry there is a reluctance to raise prices during down years that leads to bigger price increases after a recovery. That's a mistake, according to Shoer.

"A client once said to me he would much rather pay a 3 percent increase every year than a large increase every two or more years," he says. "In any services business, if you are delivering value, it should always exceed, at some level, the price that you charge and, therefore, there should be no concern with raising that price."

His company is building an "up to 5 percent" annual increase into all its agreements, he says.

"That way we may or may not raise our prices on an annual basis, but at least we have the capability to and by a reasonable amount."

This article was originally published on 2010-05-03