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MSPs and the Rate Raise Dilemma: Strategies for a Smooth Transition and Customer Retention

MSPs and the Rate Raise Dilemma: Strategies for a Smooth Transition and Customer Retention

MSPs and the Rate Raise Dilemma: Strategies for a Smooth Transition and Customer Retention

As a managed services provider (MSP), you recognize the critical nature of your offerings to customers, particularly in an ever-evolving cybersecurity environment. While you strive to deliver top-notch service offerings and maintain an edge over your competitors, navigating the complexities of pricing and potential rate adjustments remains challenging.

Despite the fear of losing customers, a rate increase may be necessary to maintain your service quality. Profit margins are shrinking as inflation and tool and labor costs increase. Raising the pricing of your services is essential in order for you to operate effectively and protect your clients and their systems and networks adequately. But how do you ensure a smooth transition and customer retention during this delicate time?

Include rate increase clauses in contracts. The first strategy is to include rate increase clauses in contracts. This means enabling a yearly percentage increment based on your judgment — anywhere from 5 to 10 percent. This clause should be clearly stated in your master services agreement (MSA) so that it's outlined to customers from the beginning. (Remember: Avoid surprises!) By doing this, you ensure that your customers understand that an increase is to be expected at some point. This transparency can help reduce the risk of losing them during the transition.

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Announce increases sooner rather than later. Communication is the key to maintaining customer trust. If you decide to raise your rates, announce the increases sooner rather than later. Waiting could prove to be disastrous! The longer you wait, the more difficult it is to break the news to your customers. This delay can result in customers feeling like they're being blindsided or taken advantage of, resulting in a loss of trust. By announcing your price increase as soon as possible, you'll give your customers enough time to plan accordingly.

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Communicate any price hikes clearly. There's no need to hide your rationale for price increases from your customers. If you're raising prices due to inflation or increasing labor costs, be transparent and clear with your customers. Explain why you're increasing the prices and how this will benefit them in the long run. Avoid using vague and ambiguous language. Your customers are business owners; they appreciate honesty and transparency. (Isn't that what you value most in business relationships?) Clear, candid communication can go a long way in maintaining trust and customer retention.

Highlight your value regularly. To maintain customer trust, MSPs should regularly highlight their value. Make a list of all the services you provide, what you're doing for your customers, and the value you bring to their businesses. You should also hold quarterly business reviews to update customers on the work you're doing and how it's adding value. By reassuring the customers of your worth, you can help mitigate any adverse reactions when raising rates.

The rate raise dilemma is a challenge that MSPs encounter frequently. However, it's important to remember that non-communication can lead to customer attrition. By clearly communicating potential rate increases, including clauses in contracts, highlighting your value regularly, and announcing rate increases sooner rather than later, you can have a smooth transition while retaining your customers’ trust. By taking these steps, MSPs can minimize the adverse effects of a rate increase and maintain a positive, long-lasting relationship with their customers.

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Guide to MSP Profitability in 2023

Download our free guide to learn how MSPs can change their business approaches to maintain high profits in 2023. In this guide, you will find:

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