The IT Price Is Right

September 02, 2014  
IT is a critical component of any company’s success. Why? Because companies rely on IT to help them remain competitive. As a result, IT spending is on the rise. According to Gartner, worldwide IT spending will reach $3.8 trillion in 2014. To maintain a competitive edge, information technology service providers (ITSPs), managed services providers (MSPs) and other IT businesses must strike a balance when it comes to cost.

Here are five ways ITSPs can spin service costs to their advantage:

  1. Maximize profit. If your hourly rates, which are typically the basis for pricing services, are not quantifiably correct, and you are not meeting or exceeding utilization targets, you could be losing profits. Developing an approach to properly calculating hourly and daily rates for billable staff means ITSPs stand to get the best bang for their buck.
  2. Avoid loss. ITSPs must place a high priority on developing a thorough understanding of the details of costs associated with their service offerings. Don’t be afraid to sell based on the value you bring to the table, and at a price you can make a profit on. Without a thorough understanding of your costs, you run the risk of eroding the profits you planned on earning.
  3. Build client confidence. Being able to clearly articulate relevancy and accuracy of recorded time and expenses, services billed and timing of invoices tied to outcomes desired by clients allows ITSPs to avoid failing to manage expectations. As a result, an ITSP will see an increase in the client’s trust and faith.
  4. Gain new clients. The pricing you propose to a prospect may be higher than your competitors, but you can make up for this if you’re able to coherently articulate that the price difference can be attributed to a more robust offering on your part. ITSPs that can explain the reason behind their pricing to new business prospects give themselves a leg up on the competition, even if their costs are slightly higher.   
  5. Build profitable revenue streams. Maintain an understanding of your costs for all services, including longer term projects, various support services (e.g., time and material, block hours, incident based) and managed and cloud services. You may think you have a solid understanding of your costs, and have built the best rates to generate maximum profit, but if you are not looking at the end results constantly to confirm contract and service profitability, you could be in for a surprise down the road.
To learn more about each of the tips, check out “The (IT) Price Is Right: 5 Tips For Spinning Service Costs To Your Advantage” by Len DiCostanzo in Business Solutions.  
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