Pricing Loss Leader Services Competitively And Up-selling Managed Services

In an industry as competitive as IT, a “loss leader” is one of the best ways to attract new business. For those unfamiliar, this is when you price high demand services at very low prices in order to transact with a new customer, then up-selling (in this case Managed Services) once you establish a relationship. This softer sales process allows for you to convert the customer much faster, but requires you to continue your sales efforts well beyond the initial sale.

The most classic and globally recognizable example of this that comes to my mind is meat and/or fish at your local grocery store. Around holidays, the demand for specific types of meat will increase. During this time, grocers typically price their meat as low as possible and focus the majority of their advertising around that particular product. Their hope is that they will get shoppers into their store to buy their ham, turkey, fish, etc. and they will do the rest of their grocery shopping while they are there, making up the margin that they lost on the meat on all the other items they sell.

This strategy has proven to also work in the Managed Services industry. There are a handful of services that all businesses require that drive the majority of demand for the IT channel. While it is the dream of every IT Sales Professional that a prospect is all-in on managed services from the first sales call, that is not always the case. It is common for prospects to inquire about one particular problem they have or service they require. The better you are able to price these gateway services, the more likely you can win the deal, then nurturing the customer into a full Managed Services contract when the time is right. Here are some of the top loss leaders that we have come across right now in the industry.

Email Security

With all the phishing, spoofing, and spamming going on right now, email security services have been in high demand. When an employee’s inboxes become compromised, the natural thing for a Company to do is to turn to their IT Provider. If they do not have a Provider, then there is a very good chance they will search one out.

Providing low cost email security add-ons in addition to Office365 or whatever your flavor of cloud based email service is a great way to get your foot in the door with a new company. These are must-have tools for businesses of any size and a smooth migration and implementation can go a long way in showing what your team is capable of.

File Sharing

There is a large market of small businesses that are stuck with an overly complex and clunky file storage and sharing solutions. These solutions were likely deployed in the early 2010s and often have become unstabel to the point where users break process to avoid headaches. Once business owners become so tired of their fractured process, they turn to a new provider for a better solution.

Implementing one of the dropbox-style file solutions that are becoming common in Managed Services can solve this problem and be your loss leader. These solutions are well supported, simple to implement, and most appear to be overall sound technology solutions. Making a seamless workflow for a new customer will be a great first impression and leave them wanting to come back for more.

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Cloud Backup

In 2019, cloud backup is a mandatory service for any business, regardless of size. Most business owners are beginning to understand that it simply does not make sense to operate a business without this, in the same way that they would not fail to renew their General Liability Insurance. Those who do not believe this is necessary are very likely to learn the hard way within the next 12-36 months.

With demand for cloud backup at an all time high, there is a good opportunity to offer this as a loss leader service. Consider creating various service tiers for different levels of recover-ability, ultimately offering the service as a whole at a very affordable price. As an IT Pro, you probably agree that if you have to give away margin it is better to do it on services that have a high technology impact. Backup certainly falls into that category.

VoIP / E-Fax

Since most Managed Service Providers are white labeled re-sellers of the same handful of VoIP solutions, the game is entirely about competing on price and providing solutions. With margins upwards of 70% this is the perfect product to use as your loss leader to attract new customers and eventually flip telecom customers into the IT side of your business.

Having flash sales of your VoIP service can be a great way to attract new customers to your brand that were not otherwise looking to change providers. Offering the service at cost, or even free for a limited amount of time can lure customers away from their current provider should they not be entirely thrilled with the support they are receiving. The transition from VoIP to full Managed Services is not as natural from a loss leader perspective, but the industry has proven that it can be done.

Anti-Virus / Security Suite

Anti-virus, the once king of IT loss leaders, has seen a diminishing in its value as a stand alone product. The popular trend is to offer customers a “Security Suite” instead. This is a revolving package of security products outfitted for today’s threats. The demand for type of product is high as fear of security breaches are keeping business owners awake all over the globe.

This is the perfect loss leader to use when pitching a prospect that has a security related issue, such as a ransomware recovery. By discounting the “prevention” and making your margin on the “cure” you will ultimately reward customer’s that are being proactive and show legitimate consequence to those who do not. Not only is this a good way to bring on a new customer, but it sets a healthy tone for the relationship going forward.

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Web Hosting

It is always a hot button issue whether or not an MSP should get involved with hosting their customer’s websites. We have all had a prospect who paid some random family member for a crappy wordpress site, only to let it sit unpatched for years, getting hacked to digital dust. This happens constantly and often leaves the prospect searching for a solution, ultimately landing right on your lap.

Should you decide that you want to provide these type of solutions, it is probably best to do it as a loss leader and not a primary service offering. Web hosting is a fairly high margin service as long as nothing goes terribly wrong that requires resource time to recover and restore. While you probably won’t blow a new customer away by providing sound hosting service, it might be a natural transition to other backup and cloud products before pitching Managed Services.

Password Management

Every Managed Service Provider wishes that their customer’s would use a password management system and commit to a documented password policy. While the demand isn’t quite there yet, it appears to be growing year after year. Pretty soon, this will be a service that companies are shopping out exclusively and will favor MSPs that offer one.

Since not every MSP is offering password management yet, you can use this service as a loss leader AND a differentiator at the same time. Offering the service for free for the first few months will reduce the friction in the sales process. Once the customer has a chance to use the service and recognizes the ease of logging in and out of websites, they are sure to keep it, possibly opening up to trying other services as well.