Projects are an important part of your business. Is your pricing based on actual costs and margin goals?
By Louis Bagdonas, Senior Program Manager – MSPs, Moovila
Securing and pricing recurring managed service contracts may be your bread and butter but you also need a clear and efficient way to price projects for those managed clients. According to a recent Kaseya survey, project-based professional services accounted for 40% of revenue for MSPs in 2023. Whether you are a handling a new office setup, network upgrades, or an Office 365 migration, pricing projects needs to be something you can do effectively and with confidence.
Project-based professional services accounted for 40% of revenue
for MSPs in 2023
– Kaseya
When it comes to pricing labor for a project, a lot of MSPs do a quick calculation and hope for the best. They might guess something like: This project will take 20 hours at a rate of $150 an hour and add a contingency to – hopefully – cover any overages. A common practice is also adding a flat percent on top of engineering labor to cover project management.
These ballpark estimates are a good start.
But you are putting a price on something that could be accounting for nearly half of your revenue. It’s smart to develop a strategy that accurately calculates all levels of labor – including project management and different engineering skill levels. Most importantly, that strategy needs to align with your margin goals.
To do that, and to evolve your services toward a higher level of operational maturity, you will need to start collecting and reviewing data.
Overall pricing strategy
When it comes to pricing projects, there are a few basic strategies:
Quote a fixed price for a type of project.
Bill as you go, charging for time and materials as the work unfolds.
Some sort of combination of fixed fee and time and materials.
The ability to quote a fixed price for a project requires certainty about your time to delivery and costs . Without accurate and specific data on how long your team takes to accomplish every step in a project, bidding at a fixed price can be risky.
Because many MSPs have not yet gathered enough granular data, charging for projects based on time and materials is very common.
Even if you use this model, though, your clients will want a ballpark for how long a project will take and what it will cost.
Those questions require data to answer with certainty, too.
Estimating labor billing rates
One strategy for estimating your hourly project billing rate is to multiply the cost of your engineers – based on their W2s – by three. The idea here is that you charge $3 for every $1 you spend on wages , to capture all the costs you don’t bill for – such as project management, scoping, and profit – while giving you a number that’s easy to calculate.
As you continue to grow, there are going to be a number of questions that come up.
What if a job requires several types of engineers who come in at wildly different costs to you? Do you lump them together or just bill at the highest rate? That’s easy but could cause you to bid too high and lose the opportunity. Do you do a weighted calculation to come up with an engineering rate that more accurately reflects your costs? That’s safer but may requires constant calculations and recalculations.
What if the project requires minimal time from an engineer but significant project-management time with a high-touch client? If you spend five hours on project management and one on engineering, pricing the project based on engineering hours would cost you money.
A complex project, too, could require significant, ongoing, project management time. Especially in the case of a move, a significant amount of your time could involve coordinating, communicating, and checking in to make sure equipment was delivered, and contractors showed up – long before any engineering is involved.
You might also not realize how much high level, expensive time you spend scoping projects. Even if it only takes a couple of hours, scoping should tap multiple resource levels, which is will add up.
Start gathering data
So, my advice when it comes to pricing projects, is – even as you use a time and materials model – start gathering data and work toward higher accuracy.
As you do this, your company will also evolve and be better built for scale. Ultimately, not only does setting up a process to track the minutia of projects lead to better pricing estimates, but it also leads to better processes and more predictable delivery dates. These are all things that help grow your business.
With Perfect Project, collecting data is easy to do, too. Start with a project template.
Let’s say you are planning a move for a client. Your project could include everything from packing equipment to loading it onto a truck to unpacking it, setting it up, wiring things up, and testing. It will also could include internal and external approvals. For each step, you will estimate the time the work will take, a duration for getting it done, a resource, and when one task is dependent on the completion of another.
Save this plan as a project template.
Next, use that template to manage the project and observe how well your estimate matches the reality that unfolds. Did you miss anything? Add it. Did you overestimate or underestimate how long things would take? Update your template.
Do post-mortems
At the end of every project, take some time to do a post-mortem. Give yourself a task to do this review in your template and original plan. Pull up the template and get feedback from everyone who worked on the move. Did everything go to plan? If not, why not?
If, say, you estimated a day to unpack equipment and set it up, but that work took three days, change the duration in the template. If you estimated 15 minutes for approval meetings that took an hour, change that estimate to match reality. If the engineer you assigned to a task needed help from someone more experienced, change the resource type in the template. This project is not only helping you stay on track as the project unfolds, but is also tracking the time everything takes, broken down by resource type.
Your template for this type of project will get more accurate every time you use the template and conduct these post-mortems. Eventually, it will become a tool you can use to estimate all your labor time quickly and accurately.
Iterate to fixed-cost perfection
As you grow more confident in the data in that template, you will find that you feel confident using it to bid a fixed fee. As you build out templates for all the projects you take on – and fine-tune each of them – you will find yourself more and more able to quote a fixed price for all your project-type products.
Meanwhile, your time estimates for clients have become more accurate. Because you have an accurate template, all you need for the project is a start date, maybe some relevant variables, and tell the client precisely when you can expect to finish a project and the milestones along the way.
This data will help you scope projects, too, by making it easy to stipulate, for a client, precisely what is included and what isn’t. This helps you avoid expensive and demoralizing scope creep.
Project templates collect the data you need to work smarter. Working this way doesn’t add to anyone’s workload – in fact it brings clarity to the work – but it helps you gather essential KPIs to help your professional services operate – and quote prices – efficiently.
Are you looking to gain more skills and best practices related to MSP project management? Check out our monthly educational webinar series, lead by Louis, that covers all aspects of MSP Project Management. View upcoming and previous sessions here.
 | Louis Bagdonas is the Senior Program Manager overseeing MSP experience at Moovila. Having spent extensive hours onboarding managed service providers to Perfect Project, he understands the unique challenges Service Delivery & Project Management Leaders face. Louis is dedicated to collaborating with our Partners to ensure project management best practices are embedded not only in the tools they use, but also across their processes, to ensure profitable and repeatable project outcomes. |
