Raising your prices 10% does not raise your profit 10%. On a typical MSP running an 8% net margin, it takes profit per client from about $80 a month to $180, an increase of 125%. You could lose half your clients and still make more than you do today. Before raising rates, test each client's service gross margin against a 65% target, and fix overstaffing or tool overspend first. Then rate each client's profitability, bake annual increases into every contract, add a premium security and compliance tier priced 30% to 40% higher, and stop discounting to win deals.
Discounting your fees is a voluntary pay cut you inflict on yourself for not being confident in your value.
Years ago, I heard a great lesson about pricing involving the famous artist Pablo Picasso.
As the story goes, Picasso was sitting at his favorite café in Paris when a woman recognized him and approached, asking if she could pay him to sketch her a quick portrait. He agreed. A few minutes later he handed it to her.
"This is brilliant!" she said. "How much do I owe you?"
"Five thousand francs," he replied.
The woman was stunned. She said, "But it only took you five minutes!"
Picasso looked at her calmly. "No, madame," he said. "It took me forty years."
That story captures a lot of wisdom about how to put a value on, and price, your services.
If you're like many of the MSPs I've worked with, you've spent years, probably decades, building expertise, earning certifications, staying current on threats, tools and technologies that are evolving faster than any client can keep up with. You carry the weight of your clients' data, uptime, compliance and cyber risk on your shoulders. You are their de facto CIO, their insurance policy, their first call when something goes sideways at 5:00 p.m. on a Friday. And you were the lifeline that kept businesses running during the Covid shutdowns.
Yet many of you are charging less per seat than a gym membership.
Underpricing isn't modesty, nor is it a smart marketing tactic to win clients. It's not being client-friendly or "reasonable." It's an emotionally charged, amateur decision that bleeds your company dry, making your business harder to run, harder to staff and impossible to scale.
And the tragic irony is this: GOOD clients don't trust cheap IT providers. In a zero-trust world where every business is a potential ransomware target, the MSP charging bargain rates is exactly the one HVCs, high-value clients, suspect can't really protect them.
Know this: price is not just what you charge. It's a signal of value.
Be careful what signal you're sending.
Who You Are Pricing For
Most MSPs price for the widest possible audience, then chase more mediocre clients. More cheap clients means more techs, more tickets, more headaches and a front-row seat to your own burnout.
The right way to go about this is to curate your services for the specific HVCs you actually want, the client for whom price is NOT the first, second or third criterion in their decision to buy, and then charge more for those services.
Think about that.
You are setting your fees based on what you think the most price-sensitive, budget-obsessed, tire-kicking prospect in your market will accept. And in doing so, you are making yourself unattractive to the very clients who would pay more, complain less and stay for years.
High-value clients, the business owners and executives who treat IT as a strategic asset rather than a necessary evil, are not looking for the cheapest MSP. They're looking for the most competent and trustworthy one. When your price is too low, you raise their suspicion. You make them wonder what corners you're cutting.
If you suspect the real issue is your own confidence rather than your market, the reasons MSPs struggle to charge premium prices are almost all internal.
"But If I Raise My Prices, My Clients Will LEAVE!"
I've heard this from thousands of MSPs.
It's the number-one objection I get when I tell MSPs they need to charge more. I understand. You've worked hard to build your client base and new clients aren't easy to come by. The last thing you want to do is churn clients over a 10% fee increase.
So let's be logical and walk through the math to see how a price increase that triggers client churn would truly impact you. But let's base it on NET PROFIT, not just revenue, because at the end of the day, top line is for vanity, bottom line is for sanity.
For easy math, let's say you have 20 clients paying an average of $1,000 per month.
20 clients × $1,000 = $20,000 MRR, or $240,000 a year.
At an 8% net profit margin, which is the average net profit for MSPs, you are at $19,200 in annual net profit ($240,000 × 8% = $19,200).
That means each $1,000-a-month client is generating only about $80 a month in net profit.
Now raise your prices 10%, from $1,000 to $1,100. That's not massive, but it goes DIRECTLY to your bottom line. That's because that extra $100 doesn't have any cost associated with it. You don't have to hire another employee or spend a dime on marketing.
Let me say this again: that $100 goes straight to YOUR bottom line.
Your profit per client jumps from roughly $80 to $180 per month.
Put another way, a 10% price increase increases your profit per client by 125%.
If all 20 clients stay, your annual net profit goes from $19,200 to $43,200. That's an additional $24,000 in NET PROFIT from simply charging $100 more per client.
"But Robin, Some Clients WILL Leave!"
Okay, let's do that math to see how many clients you could lose before it becomes a bad trade.
If you lose TWO clients, you're left with 18 clients:
18 clients × $180 = $3,240/month in net profit, or $38,880/year.
In that scenario, you lost 10% of your clients and still DOUBLED your profit.
What if FOUR clients leave?
16 clients × $180 = $2,880/month, or $34,560/year in net profit.
You now have 20% fewer clients to service and you're still making 80% MORE profit than you were before.
But what if HALF your clients left? It's not likely, but let's suppose they did.
10 clients × $180 = $1,800/month in net profit, or $21,600/year.
You'd have half the clients, half the tickets, half the meetings, half the account-management burden, and you'd STILL make more net profit than you were making before the price increase.
The Whole Picture In One Place
| Scenario | Monthly net profit | Annual net profit | vs. today |
|---|---|---|---|
| Today: 20 clients at $1,000 | $1,600 | $19,200 | baseline |
| Raise 10%, lose NO ONE | $3,600 | $43,200 | +125% |
| Lose 2 clients (10%) | $3,240 | $38,880 | +103% |
| Lose 4 clients (20%) | $2,880 | $34,560 | +80% |
| Lose 10 clients (50%) | $1,800 | $21,600 | +13% |
That's why stressing out over client churn due to a needed price increase, when you're dramatically underpriced, makes no sense.
Your goal isn't to keep every client. Your goal is to keep the RIGHT clients at a price that allows you to deliver excellent service AND make a healthy profit. And the simple reality is that most MSPs don't have a stampede of clients marching out the door when they raise prices.
So the concern should NOT be "What if they leave?"
The concern should be: "What if you DON'T raise your prices…and they STAY?"
How To Determine If You Need A Price Increase, Or Not
In my experience, most MSPs undercharge.
However, I would be remiss if I simply told you to "raise your prices!!!" without giving you the true test of whether or not a price increase is warranted.
The first step is to calculate GROSS MARGIN for each managed services client you support.
Note that you should NOT include hardware, product resale or even projects in this calculation, only what's INCLUDED in your managed services delivery.
Why? Hardware and software are straight markups. Projects are one-offs. Both are lower margin, and mixing them in hides what your managed services are REALLY making. Projects still matter. They get clients onto your standard stack, which is what makes your managed services profitable in the first place. They just don't belong in this number.
The Formula
Gross Margin % = (Managed Services Revenue − COGS [tools and labor]) ÷ Managed Services Revenue × 100
Tools in your COGS should be anything you need to deliver the support you provide, such as your RMM and EDR or MDR. NOT product resale for Microsoft 365, Azure, Duo and so on.
Labor should be direct service labor, your techs doing the support. Do NOT include sales, marketing, the executive team or office administration. Don't include the CEO's salary unless a good portion of the CEO's time, 40% to 50% or more, is spent doing the technical work. In that case, prorate your salary and dedicate the appropriate portion to service COGS.
The Targets
Your gross margin goal is 65% for each individual managed client, and 48% to 50% overall in your service department.
That 65% figure is the first item on the standard for a fully monetized client.
If A Client's Margin Is Low, Find Out Why First
Often, you simply need to raise your prices. But that's not always the case.
Gross margin is impacted by three things:
- What you charge for your services. Too low and you'll kill your net profit.
- What you pay for COGS, meaning the cost of tools and labor. Too high and you'll have to raise prices too much to cover the costs.
- Your service department's efficiency. Underutilized, incompetent or slow techs, coupled with chaos and rework, will also burn your profits.
If your tech department is overstaffed or underutilized, or you're overspending on tools, I recommend you fix that FIRST before moving to raise prices on your clients.
There is a market cap on what a client will pay. And while I'm all for premium pricing, if you're grossly overcharging clients, it's only a matter of time before you churn them to someone offering the same services for 20% or 30% less because they're more efficient and prudent with their costs.
Overpaying on labor, or a poorly managed service department, is common among less operationally mature MSPs. Your service techs should be 75% to 80% utilized. That means 75% of their 40-hour work week, or 30 hours, should be directly tied to a managed services contract or project. If they are only 50% utilized, your profitability is going to tank, and that's NOT because you're not charging enough, but because you're paying too much for labor.
In some cases, this may be temporary. You lost a big client or just onboarded a new tech. It's perfectly normal to have some fluctuations in service gross margin, but that should be temporary and justified, not an ongoing standard.
How To Raise Your Prices
No client is ever going to be happy that you raised your prices. There is always a natural tension between clients and vendors, where the client wants the lowest cost and the best services while the vendor wants to charge a premium.
But the whole point of having a business is to MAKE MONEY.
Your business isn't a hobby. If you want a hobby that loses money, buy a boat.
Reasonable clients understand this. Reasonable clients know you "get what you pay for." And reasonable clients will be even MORE unhappy if you sacrifice quality of service, or the security and stability of their network, data and operations, because you can't afford to hire the quality or quantity of people you need to do a proper job.
Ideally, you price properly from day one, with no discounting, and bake annual increases into your MSA so you never need a big one. More on that in Step 2.
But if you made the mistake of charging too little, or waited too long to do a price increase, and now you're bleeding money, you are going to have to rip the Band-Aid off.
For A Large Increase: Retire The Old Plan
If it's a significant increase, more than 10%, I find the best way to do this is to re-audit your clients as if they were new prospects and prepare a more appropriately priced service offering to present to them.
Take the blame for allowing them to be on the "old plan" for too long. Explain that while the "old plan" was appropriate for them when you sold it, there have been big changes in technology, threats, liabilities and compliance that have compelled you to revisit what you're doing and revise your service offering.
Doing a new plan and retiring the old one doesn't feel like a straight price increase. It feels more like an upgrade of service.
I've helped clients with this for years and can tell you that, done well, you'll actually build more trust and retain more clients than you anticipate.
For A Straight Rate Increase
If you don't want to take the approach outlined above of creating and presenting a new service offering, you still need to do a rate increase.
To do this, send a brief explanation of why, meaning rising costs of labor, tooling and cybersecurity protection requirements, and frame it as necessary to maintain the level of service and protection they deserve. Don't apologize. Don't discount to soften it. Give the client at least 60 days' notice of the fee increase.
Announce it professionally and calmly, and stand behind it.
The clients who push back are often your worst clients, the ones who are already underpaying and overdemanding. A price increase is your most efficient tool for sorting out who's worth keeping.
The 4 Steps To Raise Your Rates Without Losing Your Best Clients
Step 1: Rate Each Client's Profitability
Pull your client list and calculate average gross margin per client. Any client under 65% on service gross margin needs to be evaluated. Then answer:
- What is contributing to this client being unprofitable: grandfathered pricing, legacy deals, discounts or something else?
- Do you have a standard price increase baked into your contract, or could a price increase trigger a cancellation of the contract?
- When did you last raise rates, and by how much?
- Do you have a premium tier? If so, could you use that as the basis for a new agreement?
- Does the client have old equipment or technology that isn't in your standard stack that is bringing down your profitability? What has to happen to bring them to standard?
This audit gives you more insight into which clients are unprofitable and what your path forward could be for raising their rates. You might find that your low overall profitability is due to a handful of low-margin clients dragging everything down.
RAISE THE RATES ON THOSE CLIENTS FIRST and leave the profitable clients alone.
Step 2: Bake Annual Increases Into Every Contract, And DO IT
This is the simplest and most overlooked mechanism for preserving profitability.
Add language to your MSA that includes an automatic annual price increase of "up to 10%" every year, without triggering a breach of contract or giving them a reason to cancel. When the increase is already in the contract, it's not a conversation. It's a formality. Your clients have already signed it.
Also include language that says you reserve the right to raise the rates more than 10%, but that doing so gives them 60 days to terminate the agreement. Most won't. But that way you are free to raise it higher if a situation like Covid-driven inflation happens again.
Additionally, name your Statement of Work with the year in it. "The 2026 Gold Service Plan." When renewal comes, you're presenting the new year's plan, naturally priced higher. It's a re-packaging move, not a price-hike conversation, and it works.
Step 3: Create A Premium Cybersecurity And Compliance Tier At 30% To 40% Higher
This doesn't require raising anyone's existing rate.
Create a premium tier, an advanced cybersecurity and compliance package, priced 30% to 40% above your standard managed services offering. Present it to every client.
The cyber liability insurance application is your best sales tool for this. Walk every client through what their insurer is now requiring:
- EDR (Endpoint Detection and Response) and MDR (Managed Detection and Response)
- Multi-Factor Authentication (MFA) on all critical systems
- Immutable, air-gapped backups
- Dark web monitoring
- Employee cybersecurity awareness training
- SOC services and password management
- Compliance solutions (PCI, HIPAA, CMMC as appropriate)
If a client doesn't have these protections, their premiums skyrocket or their coverage gets denied. That's not you selling. That's the insurance company requiring it. You're actually helping them avoid having a claim denied in the event of an attack.
Ten to thirty percent of your clients will upgrade when this is presented properly.
Using our 20-client example at $1,000 a month standard and $1,400 a month premium, even if only 10% of your clients upgrade, you've added $9,600 per year in recurring revenue without a single new client and without touching anyone's existing rate. At 30%, that's $28,800.
Step 4: STOP Discounting To Win Deals
A 10% discount doesn't cost you 10%. It erases your net profit.
Prospects who want a discount still expect the same level of service as those willing to pay full price, so you're agreeing to work for FREE. That's not smart or fair.
I don't care how much you discount, you will ALWAYS get fee resistance. I've coached MSPs selling managed services for under $50 a seat who still struggle to close deals. That's because the problem is almost never your price. It's one of three things:
- You haven't built enough trust before the meeting to justify the fee.
- You haven't clearly communicated the risk they're carrying without your services.
- You're selling to the wrong prospect, a price buyer, not a value buyer.
The answer is not to lower your price. Build more trust, improve your presentation, or target a better-quality prospect. Handle the objection instead of conceding it.
Draw a line: no discounts.
Giving a new client a discount gets the entire relationship off to a bad start. It communicates you were overcharging, which destroys trust. It also sets the expectation that they don't have to pay your asking rates, that your rates are unreasonable or too high.
Don't let this happen. State your fees, explain your value. If they can't or won't pay, they can't be your client.
Case Study: The MSP Who Didn't Raise His Prices For 15 Years
I want to share a case study about Mario Zaki, CEO of Mazteck IT, on raising rates. But before I do, I want to address the MSP reading this that is running a larger operation than Mario.
YOU will sit there and say, "But MY business is different, because OUR clients are larger…OUR rates aren't that low."
Doesn't matter. I specifically used this example because Mario's clients were smaller businesses who scrape by and do NOT spend a lot of money on IT. If HE could do it, YOU can do it. And if you're a smaller MSP, this is exactly what you need to hear.
Now, here's Mario's story.
For the first 15 years Mario Zaki ran his MSP, Mazteck IT, he never raised his prices. Not once. Astonishing.
Gas went up. His mortgage went up. Every vendor's fees went up. Mario's rates? Stuck in the same decade he started the company.
He was a one-man, break-fix shop working out of his kitchen, 24/7/365. The year before he became my client, his monthly recurring revenue was barely scraping $1,000 a month. That's not a business. That's a job on volunteer wages.
After becoming a client, one of the very first things we directed him to do was a price increase. Without the extra profits, he was financially stuck, with no money to hire help and no money for marketing, infrastructure and operations.
But he followed the advice I outlined earlier. He didn't email a cold "effective next month, your rate is going up" notice. He used a marketing campaign I call the "Good News, Bad News" letter.
The bad news: his hourly rates were going up, and significantly. The good news: clients no longer had to worry about the hourly rate, because they could enroll in his new managed services program and be far better protected than they ever were under break-fix.
He didn't sell a price increase. He sold an upgrade.
When he sent that letter in the way I advised, every single client booked a meeting with him to learn more. That's a 100% response rate. Not a stampede out the door, but a line at the door.
He converted nearly all of them to managed services and added $28,875 in new MRR in his first 90 days. Remember, this is a guy who had been living on about $1,000 a month in recurring revenue with "cheap" clients who "won't buy" managed services.
It was the exact boost he needed to fund his growth. For the first time, Mario could afford to rent an office, hire a tech, hire an admin and start investing in marketing. With the new higher bar set on pricing, every new client was a blessing, not a nail in the coffin. His first prospecting campaign brought in two new clients, $4,685 in MRR and $26,400 in project work.
Fast-forward a few years. The $200,000-a-year break-fix shop closed out the year at just over $2 million, with more than $145,000 in MRR. He grew from a party of one to a 10-person team, was ranked #85 on the MSP 501 list, and won the Better Your Best contest in front of a packed Boot Camp audience. In that one year alone, he added $678,108 in revenue and $89,803 in net profit.
And for the first time in 20 years, he took a vacation and never opened his laptop.
Here's what I want you to take away from Mario's story: raising his prices didn't cost him his business. It's what finally let him BUILD one. Every year he stayed "content" with his rates, he paid for it himself, in hours, in stress and in growth he never got.
His family also paid for it, in missed vacations, Mario's stress and having to constantly hear, "We can't afford that."
As Mario puts it now: "I learned being 'content' was code for fear. Fear of raising my prices, fear of having my clients fire me. That's the worst possible place an MSP owner can be."
Trust me when I say that raising your rates is probably the thing standing between you and the financial freedom you want.
If you want help working out which clients to raise first, and how to present it so the right ones stay, that is the work I do in one-on-one consulting.
Frequently Asked Questions
Will I lose clients if I raise my MSP prices?
Probably a few, and it is almost always worth it. On 20 clients at $1,000 a month with an 8% net margin, a 10% increase takes annual net profit from $19,200 to $43,200 if nobody leaves. Lose two clients and you still double your profit. Lose half your clients and you still make more than before, with half the tickets and half the workload. Most MSPs do not see a stampede out the door.
How much does a 10% price increase actually add to profit?
Far more than 10%. Because the extra revenue carries no added cost, it goes straight to the bottom line. At a typical 8% net margin, a client paying $1,000 a month generates about $80 in monthly profit. Raise them to $1,100 and that becomes $180, an increase of 125% in profit per client from a 10% price change.
How do I know if my MSP needs to raise prices?
Calculate service gross margin for each managed services client, excluding hardware, product resale and projects. The target is 65% per client and 48% to 50% across your service department. If a client is under 65%, find out why before raising rates, since low margin can also come from overspending on tools or labor, or from an inefficient service team.
How do I calculate MSP gross margin?
Gross margin percentage equals managed services revenue minus cost of goods sold, divided by managed services revenue, times 100. Cost of goods includes the tools you need to deliver support, such as your RMM and EDR or MDR, and direct service labor from your techs. It excludes product resale, sales, marketing, executives and office staff, and only includes the CEO's salary if a large share of their time is technical work.
How should an MSP announce a price increase?
For an increase above 10%, re-audit the client as if they were a new prospect and present a new, appropriately priced service plan that retires the old one. It reads as an upgrade rather than a price hike. For a straight rate increase, give at least 60 days' notice, explain the rising costs of labor, tools and security requirements, and do not apologize or discount to soften it.
What should an MSP price increase letter say?
Do not send a cold "effective next month, your rate is going up" notice. For a straight increase, briefly explain the rising costs of labor, tooling and cybersecurity protection requirements, frame it as necessary to maintain the level of service and protection the client deserves, and give at least 60 days' notice without apologizing or discounting. For a bigger change, a "Good News, Bad News" letter works: the bad news is that rates are going up, and the good news is a new plan that leaves the client far better protected. It sells an upgrade, not a price increase.
Should an MSP discount to win new clients?
No. A 10% discount does not cost you 10%, it erases your net profit, and the client still expects full service. You will get fee resistance at any price, because the real problem is usually insufficient trust, failing to communicate the risk, or selling to a price buyer. Discounting also tells the new client you were overcharging, which damages trust from day one.
How do I build automatic price increases into an MSA?
Add language allowing an annual increase of up to 10% without triggering a breach or a right to cancel, and reserve the right to go higher with 60 days' notice and a right to terminate. Then name each statement of work with the year, such as "The 2026 Gold Service Plan," so renewal means presenting the new year's plan rather than having a price conversation.