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SaaS ManagementHow to Cost Out SaaS Admin Services

November 15, 2020

There’s no denying that MSPs need to show the value they provide versus a DIY route when it comes to offering SaaS admin services. 

At its heart, this argument isn’t much different from other sales engagements where MSPs have to demonstrate their ability to manage software installments and downtime instances. 

The point that needs to be highlighted here is that MSPs have a significant role in end-users’ successful deployment and management of SaaS solutions.

Once you’ve got the sales pitch down, you’ll need to cost out your services. This is a crucial step.

A lot of the success you have pitching your SaaS service offerings comes down to pricing. You can have the most fantastic grouping of services and a compelling reason for your clients to invest in them, but if the cost seems too high or low, customers will pass.

At a high-level, your SaaS admin services’ price is based on three things: your cost of service, the desired profit margin, and the current market influence.

In this article, we provide you a framework for costing your SaaS admin services.

 

The Cost of Service

The cost of your services is determined by the technology and people necessary to deliver the service.

For the former, you’ll want to consider the staff you’re going to need to earmark for your SaaS services or if you need to hire extra employees. If you do need to hire more staff, will they be full-time, part-time, or freelancers? (Also, consider that the cost of onboarding a new employee can range between $2K and $5K.)

Once you’ve calculated your team’s cost, you need to consider the tools you need to manage your services. For example, will you need extra licenses for your project management tool? It’s also important to consider if these costs will be ongoing monthly, one-time, or fixed.

Once you have toted up your service’s cost, we recommend a periodic review of the expenses so that your margins remain protected. That’s because a pricing model must remain effective and profitable as a business grows.

This way, you can avoid stagnated growth due to hastily adopted pricing that is no longer profitable as the client list gets longer.

 

The Current Market Influence

It’s no secret that your competition wants to win your clients. Always keep an eye on the competitive landscape, understand its movements and shifts, and know that your pricing strategy must be able to shift to remain attractive to potential clients. 

You can also look at what others are charging to determine whether you are on the higher or lower end of the spectrum. If your pricing is a lot higher than your competitors, consider undertaking a SWOT analysis to justify why. If you can’t come up with compelling reasons, then you might want to consider dropping your prices.

 

Service Gross Margin

Only 3 in 10 MSPs feel they are doing a great job at maximizing MSP profit margins. For managed service providers (MSPs), an average profit margin is around 8%, while a “best-in-class” MSP is about 18%.

SaaS admin services are higher-margin services than a lot of other MSP activities. That’s why it’s likely to have a positive impact here. However, it’s worth keeping in mind when you price out your services. 

 

Forecast Future Rates

Once you’ve nailed down the cost of your admin SaaS services and are up and running, it’s time to spend some time reviewing and forecasting your future rates.

That way, you can make any necessary changes and give you time to plan how you communicate these changes both internally and externally.

 

One Last Thing on Costing SaaS Admin Services

Price is a component of success here. But price objections are commonplace in sales. One way to avoid them is by not focusing so much on the cost but the benefits of the SaaS admin services. 

If you get this right and go through the above steps to arrive at a fair price, it will rarely ever be a source of objections. 

Derik Belair

Derik Belair

As President and CEO, Derik leads the vision, strategy and growth of Augmentt. Prior to founding Augmentt, Derik was the Vice President at SolarWinds, leading the digital marketing strategy for SolarWinds’ Cloud division. Derik has been working in the channel for over 20 years, starting his career as a channel sales rep at Corel Corp. and eventually becoming the first employee at N-able Technologies in April of 2000.

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888-670-8444
555 Legget Drive
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Kanata, Ontario
K2K 2X3
(fax) 647-372-0393

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