I remember when I first started training MSPs and speaking at MSP events, probably around 2008 or 2009. At that time, many IT providers were trying to change from an hourly business model to a recurring revenue model. I told people they had to get to $150 a seat. Many of them couldn’t believe their ears! “Gary said what?” “Is he crazy?” “We charge $100 a seat, and customers are already complaining.”
Over time, most of you figured out how to build a valuable offering that could command that price. At a recent peer meeting, people reacted similarly when I told them it was time to set $300 a seat as the new standard. I believe we all need to achieve this price or, more importantly, this value level for our customers in the next few years.
You have more tools, higher wages, and more security, process, and governance. All of these have dramatically impacted your cost.
A seat cost of $90 at a 70 percent gross margin is $300 a seat. That’s the math. You all have a seat cost today above $50 a seat — without backup, or a SOC or SIEM solution. Add some security process, and you’re knocking on the door for your cost of $90 a seat.
Listen, in the transition to $150 a seat, we saw MSPs who struggled to make the change start to leak margin and have their growth severely slowed. The difference was it happened more slowly the first time. Things are moving faster this time, so you must get your expectations set now and begin bulking up your value.