The “Scarcity Principle” For MSPs – Are Your IT Services In Low Supply?

While most people know and understand the concept of “supply and demand,” very few MSPs that I have interacted with have put this economic theory to use. For those who need a quick brush-up, Investopedia offers some really easy-to-digest takeaways on what the scarcity principle is and how it affects the price of goods and services:

• “The scarcity principle is an economic theory that explains the price relationship between dynamic supply and demand.”
• “According to the scarcity principle, the price of a good, which has low supply and high demand, rises to meet the expected demand.”
• “Marketers often use the principle to create artificial scarcity for a given product or good—and make it exclusive—in order to generate demand for it.”

High Demand vs. Low Supply 

While this theory seems relatively simple, benefitting from scarcity is actually very difficult to achieve. That is because this equation has two parts and getting them both correct at the same time is next to impossible. 

As MSPs it’s easy for us to chase trends and get swept up in the services that appear to have the highest demand. We saw this occur during the pandemic, as demand suddenly shifted and every MSP began to focus on remote connectivity, collaboration, laptop deployments, and virtual desktops. This is what we needed to do to satisfy customers, but at the end of the day, there were no MSP millionaires born overnight as a result. Why? Because there were plenty of MSPs to go around to solve these problems and once this need was fulfilled, demand shrunk and the market corrected itself.

As the herd of MSPs tend to gravitate towards what services are in highest demand, very few are actually taking supply into consideration. While I think this is a mistake, I completely understand why. If all we are doing is providing service delivery for the software industry (who are at the same time partnering with tens of thousands of MSPs just like us) then how can we possibly be in low supply? This is a great question and it’s one that every MSP needs an answer for. 

Why Scarcity Is So Difficult To Achieve 

The reason it’s difficult to create services with low-supply is because it takes equal parts of guts and opportunity. The way this often happens in our industry is when an MSP stumbles across a unique problem within an industry vertical, finds a new way to solve this problem that is considered “untraditional”, and then leverages the scarcity of this solution to increase the value of their offering. The reason that I say this takes “guts” is because in a lot of cases, it sets you on a course that may be quite different than where the rest of the MSPs in the herd are going. 

An example of this exact situation occurred within our MSP several years ago. We worked out of a shared office space which used an industry-specific VoIP phone system. Since we were the most convenient option, we often helped the company that ran the small office center to troubleshoot issues. This led to a relationship with the industry-focused VoIP provider who then began referring us to other “co-working” companies from New York to Philadelphia. 

The problem was, these weren’t traditional Managed Services clients. Each of these centers had tens or hundreds of businesses within them, many of them with only one single member. For us to actually make this work, we had to throw out the traditional support model entirely and rethink everything to better fit these needs. The result? We became one of the only IT Support providers in the country trying to solve this problem, thus creating something that was truly in low supply. Not only did the customers see this, but the other vendors that sold into that industry did as well, and the referrals started to pile up. 

Developing More Scarce Offerings

We learned a lot of valuable lessons from developing a low-supply offering. One of which was that the path to get there sucked a lot of resources out of our business. At times, it seemed like we were always working so much harder on our specialized business than on the general side, primarily because there was no blueprint to follow. We had to learn on the fly and this is both time-consuming and expensive. If you aren’t careful, it can cost you a great deal. 

If I was going to do it over again with more foresight and control, I probably would have pushed our chips “all-in” sooner. We were trying to solve these unique problems with the tools and resources that we had, but the fit was never quite right. This is like taking the ingredients that you laid on the counter to bake cookies, and deciding to make a cake instead. You might be able to pull it off, but the outcome would have been way better if you started with what you needed. 

My advice to those trying to create a low-supply offering is to build it from scratch. If you are going to commit then do it, throw out the “MSP Best Practices” playbook (or at least a few chapters), and start figuring out the best way to solve the problem at hand. Once you identify your needs, consider leveraging outsourced talent on a contract basis so that you aren’t putting stress on the rest of your business. You don’t want to lose the trust of your team because they are suddenly working twice as hard, with less stability, and for the same pay. At the same time, you don’t want to limit their resources and turn your back on them when they need you, as you continue to chase this shiny new idea. Communicating your plans to everyone in your team and getting their support as you execute them will go a long way. 

Generating Artificial Scarcity 

If you would prefer not to develop a low-supply offering, but want to leverage the scarcity principle to your benefit, you can do so through marketing.  While this is less sustainable than actually having something that is unique, there is no arguing that it could be equally effective. 

Here are a few ways that IT Providers could generate scarcity through marketing: 

• Offer a discounted loss-leader for a limited time only. 
• Have a new-client “waitlist” and only onboard a few per month. 
• Only accept one client per zip code or other geo-fence.
• Make your business “invite-only” and can only be purchased through referral. 

While I wouldn’t necessarily recommend using these examples, they certainly achieve the goal of creating artificially low-supply. The problem with gimmicks such as these however is that it’s obvious that the supply is being intentionally manipulated and thus it loses some of its effectiveness. Also, once a customer buys-in to the hype and realizes you are just an MSP with a velvet-rope, they may have instant regret. This is bad for business and not how you want to start a relationship with a new customer.