Prices go up in the best and worst of times. Inflation is ever-present and a cyclical event, rising and falling as economic conditions change and the demand for dollars ebbs and flows based on a variety of factors. The concept is fairly simple to understand: the government measures the price of selected goods and services over a determined period and calculates that rate. The higher the percentage, the greater the decline in purchasing power. That economic formula has a long tail, affecting numerous business activities and the bottom lines of many organizations.
With robust demand in many sectors, including the automotive, real estate, and, yes, technology industries, and supply chain difficulties still causing issues, costs are skyrocketing in some areas and affecting virtually everything else. The March 2022 inflation numbers reflected the largest twelve-month increase since December of 1981 at 8.5%, up from 7.9% in February. Those price increases are hard for any company to absorb without taking action.
Successful MSP owners understand the need to pass on most, if not all, of those rising costs to customers to prevent margin and cash flow concerns within their own organizations. Timing truly is everything. Clients might jump ship if they feel your firm raises prices every time there’s a blip in the market, but rate stagnation can put your business on shaky financial footing if your internal expense costs rise faster than income. Finding the balance between the two extremes is critical.
That division doesn’t need to be equal, and MSPs should be able to more than compensate for the rise in their own expenses. Finding the right mix may not be easy. Some providers provide a low-cost value-add to soften the blow of proposed increases or offer some discount to clients for agreeing to adjust payment terms, sign a longer-term contract or adopt other processes that favor the IT firm. Most clients won’t complain as much about paying higher monthly fees if the services provide value. With unchecked inflation, few will object to price increases from business partners that deliver continual efficiency improvements in their operations.
Turn Challenges into Win-Win Opportunities
MSPs often get paid to address bad circumstances. Dealing with all the pandemic-related restrictions and business challenges of the past two-plus years clearly demonstrates the capabilities of the greater provider community. IT services firms admirably stepped up to drive, secure, implement and deliver ongoing support for remote and hybrid workforces in a matter of weeks (if not days, in some cases).
That same types of consideration and support should go into developing a 2022-2023 pricing strategy. How can you continue developing and better securing your clients’ IT systems without hitting them too hard in the pocketbook? At the same time, what steps can you take to boost your company’s financial situation—or at least ensure your margins don’t slip? Here are five proven MSP best practices to help you keep pace with inflation:
- Increase Prices with New Value-Add
In the current economic environment, no client should be surprised when an MSP announces new pricing. However, providers that create more of a win-win proposition by delivering more services along with that price increase typically receive less negative feedback and enjoy an easier transition.
Most business owners and managers understand the situation today. If their IT provider delivers an additional solution that will improve their efficiency or security posture along with a proposed 5-10% price increase, that extra “value-add” may partially, if not completely, offset the additional expense. For example, an MSP could add services such as dark-web monitoring or password management with contract renewal or implement technology refresh programs that bring higher margins (instead of raising rates). The key is keeping the cost of those extras or portfolio changes below the rise in your expenses.
Successful MSPs understand the things their clients need and provide new services to justify price increases, helping inflation-proof their businesses while boosting support levels and capabilities.
- Review Expenses
This may seem like a “no-brainer,” but with so many activities in a typical day, some MSPs don’t take the time to periodically assess their cost of doing business. Evaluating the highest cost items such as rent and mortgages, insurance, and personnel is the perfect starting point. Like their clients, MSPs may choose to adopt virtual or hybrid environments to minimize, if not eliminate, expenditures for buildings, utilities, and insurance. To offset rising gas prices, some companies are downsizing vehicles or leasing EVs.
Regularly evaluating everything from software and phone systems (VoIP is a cost-effective alternative) to software applications and internet providers helps ensure your operations run efficiently.
Every IT services business owner should know how valuable properly implemented, and supported technologies are to an organization. For MSPs, that means PSAs and RMMS to streamline client management and integrate with a host of other critical tools. On the financial side of the MSP business, eliminating manual steps in the quoting, accounting and collections processes can save a tremendous amount of labor. With the shortage of talent and the high cost of hiring and training employees, the ROI of automation tools is rising, so MSPs should continually seek new opportunities to deploy these types of solutions.
- Enable New Efficiencies
Strong IT services partners are invaluable—even more so today than before the pandemic and rise in cybercrime. Similarly, your clients are looking for ways to trim their expenses to avoid passing on huge price increases to their customers. Like the value-add strategy mentioned above, MSPs are the innovators that can leverage their ingenuity and beneficial technologies to create new business efficiencies. WFH and hybrid environments are great examples. Encouraging clients to downsize offices and better enable remote workers can significantly lower costs. That money can be reinvested in sales, marketing, and other technologies that drive additional revenue, increase customer satisfaction, and reduce employee turnover.
How does that help MSPs counter inflation? Those technology investments allow providers to reconfigure monthly payments and augment IT contracts, with an opportunity to boost revenue and margins. Also, it’s in your best interest to suggest efficiencies that keep your customers profitable and in business so they can continue to invest in your solutions.
- Encourage More MSP-friendly Payment Terms and Processes
No one likes a price increase. Understanding client motivations and decision-making processes make it easier for MSPs to soften the blow on those announcements and create mutually beneficial proposals. Many providers leverage price increases as part of the bargaining process, offering a smaller bump if clients agree to adopt certain practices, financial terms, or technologies. For example, the new contract might include a different collections process that requires payment within ten days of invoicing with a secure payments gateway like ConnectBooster to streamline the process.
MSPs may incentivize or penalize clients to encourage the adoption of these cash flow-critical solutions. Providing a discount less than the inflation rate will be less costly (and easier) than having your team call, email, and otherwise track down clients seeking payments for overdue invoices. Instead of increasing their monthly fees by 10% or more upon renewal to compensate for inflation, MSPs can propose a lesser increase (for example, only 3-5% increase) for those who agree to use ConnectBooster and enroll in autopay.
What is your strategy for countering inflation? Planning is critical. With the right approach, MSPs can mitigate their own rising costs while delivering broader and deeper support to their business clients and communities. The key is building a win-win strategy that everyone will understand and appreciate.
As inflation drives costs up, your clients might expect a rate increase. You can minimize your clients’ financial strain by incentivizing adoption of your ideal payment process—autopay. ConnectBooster makes it simple to get paid on time, every time, with rule-based, variable billing and two-way data syncing. Contact us to see how autopay with ConnectBooster can help you save money and achieve consistent cash flow.