chalkboard showing a revenue trend line after an MSP startup set your prices

Set Your Prices

This post will help you ask the right questions about how to set your prices for services and labor in your business. These prices form the basis of not just the customers you serve, but the growth you hope to achieve in your business.

Why Pricing is Important

Pricing has impacts on just about every aspect of your business, even ones you might not readily consider. For example, it might not come as a surprise that pricing is the means by which you determine your profit on labor and products. The higher the prices are over the costs of what you sell, the more money you have left to grow the business or pay the bills.

Pricing also can inform a prospective customer about the quality of your services. It is still a pretty fair truth that “you get what you pay for”. There are outliers which we can point to, but most of the best products and services out there are not on the value shelf.

Pricing Strategy

Developing your strategy will give you the best way to set your prices in your business. You generally will want to strategize around important factors.  These can be how you anticipate you will structure your services and how they are delivered. Will you resell a lot of products, or focus more on installation labor? Do you intend to resell a large amount of recurring monthly services, and provide included support for that price? Do you plan to offer annual contracts which include services, subscriptions, and labor?

Speaking of labor, you’ll want to set your prices to account for what you are paying your people. You’ll need to become aware of the term “fully loaded employee cost” when working with these dollars. It’s not just what you pay them, but the payroll tax, unemployment tax, labor insurance, any benefits you offer, and possibly more depending on your state and city requirements. You are going to hire good people who stick around, that means they’re not going to come cheap.

“Set your pricing to allow future hiring. If you set your pricing with the mind that the only person getting paid is you, you’ll never be able to afford anyone but yourself.”

Wade Stewart

Pricing of course needs to consider the costs of doing business as well. Some of these recurring services will have direct costs you will pay and pass along to your client. If you plan to provide inclusive support of those services, that should be a consideration.

Other costs are not so easy to quantify, as you may have rent on an office space, mileage reimbursements, utilities and more. As technology experts, we might not be the experts in advertising, accounting, legal, or other areas that we need to have people help us out. Good business management also makes you an effective partner to your clients when you aren’t struggling with something you can have an expert take care of.

Lastly, your strategy should have consideration of an overall markup for reinvestment in your business. How much do you intend to spend on marketing? What are the costs of business licensing, insurance and taxes? Don’t forget to pay yourself! You’re the most valuable member of your business.

Other Pricing Strategies

If you are doing your research, which I hope you are, you will find that some businesses choose other ways to do business. Options such as a flat rate, project rate, bundled or value pricing. These strategies are often used to separate a price in a unique way. The pricing might seem more attractive, such as that the price can’t increase if the work takes longer than estimated. One quote with separate line items vs a bundled quote makes them hard to compare.

As you develop your marketing plan, you might find yourself in niche that guides you toward one strategy or another. These other strategies are practical but will take a bit more effort on your end to ensure you’re going to remain profitable.

Pricing Over Time

Your services and service delivery will have costs that increase over time. You will want to review your costs at least every year to make sure your pricing remains profitable. When you’re starting out, you’ll find many cases where you’ll have some unforeseen costs. It’s very important to pay attention to these; especially when they’re recurring.

You’ll want to adjust your pricing and make sure your team is aware of the new prices so as not to confuse prospective customers. You will also want to contact existing customers and let them know your prices will have to change.

In business, costs change, and we are all very aware of it. It won’t surprise anyone if you ask for more money do continue to do great work. Depending on where you are with your business, you might be able to afford to lose clients if they balk at a rate hike.

Starting out, that might not be as likely, so consider extending their contract in order to lessen that rate hike. The promise of more years of paid invoices is something your cash flow will appreciate. The important thing is to set your prices to be profitable.

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