For MSPs, online backup pricing, offsite backup storage pricing and other costs associated with data backup are important considerations for developing a successful managed backup offering. In this article we discuss the factors that you should take into account when setting backup pricing, as well as different pricing models and MSP pricing examples you might use.
What to Consider When Setting Pricing for Backup-as-a-Service
When setting pricing for a backup service, you want to achieve two main goals: Offering competitive pricing for customers while also protecting your ability to turn a profit.
Several factors impact the prices you can charge in order to achieve both competitive pricing and profitability.
Backup Software and Hardware Licensing
Probably the most obvious factor is the cost that you pay to license the software and/or hardware that you need to perform backups. These costs can vary widely depending on the types of backup solution you use.
If you use only open source tools and hardware that you already own, your licensing costs could be zero (although your labor cost and time investment are likely to be higher than average because you will be building your backup solution from scratch). On the other hand, if you license commercial backup software and cloud-based storage infrastructure, you might pay quite a bit in licensing.
The more you pay for licensing, the more you'll have to charge customers in order to turn a profit. In order to avoid paying so much for licenses that you can't offer competitive MSP backup pricing to clients while remaining profitable, try to keep your licensing costs reasonable. For example, if you pay high hardware licensing fees, you can help to balance them out by choosing a low-cost backup software tool.
Deciding whether to use local storage is another important decision that affects your MSP backup costs.
In general, if you have a small customer base and your backup storage needs do not change frequently, building a local storage solution will likely prove most cost-effective.
For a very limited number of customers, a simple set of disk drives in a backup server may suffice. Generally, though, building a NAS solution backed by RAID arrays and a cluster of host servers is wiser if you choose to rely on local storage. This type of solution is more robust and more accessible.
If you have a large customer base -- which, generally speaking, would mean more than a few dozen customers -- offsite storage via the cloud typically proves more cost-effective than local storage. Cloud storage can also help you to achieve your business goals more successfully.
Because most cloud providers charge lower rates for high-volume storage, the more customers you have and the more data you have to back up, the lower the prices you will pay for cloud storage. In addition, cloud storage is usually better for a large customer base because it is more scalable, allowing you to add more customers without having to set up new hardware.
To get the most cost-effective cloud storage, you can take advantage not only of the low pricing available for high-volume storage and "cold" cloud storage tiers but also the ability to leverage other types of cloud services alongside storage. For example, if you use the cloud for storage, you might also benefit from choosing a backup tool that can recover data directly to the cloud. This will save you time during data recovery.
A number of factors can impact the labor costs that you have to pay in order to back up and recover customer data. To determine these costs, ask yourself questions such as:
- How much is the manual effort required in performing backups, as well as managing backup hardware and software? How much does that cost you in hourly labor?
- When data needs to be recovered from a backup, can your backup and recovery tools automate the process, or will recovery need to be performed manually? If it's manual, how many hours will it take your team, and how much will that cost you?
- How will data be recovered? Will you simply send customers disks with copies of their data on it, for example, and expect them to handle the rest? Or will you restore data directly to their production systems? In either case, how much time will this take you?
- Do your customers' RTOs allow you to wait until normal business hours to recover data, or is it possible that you will have to work overnight or on weekends to recover data? If the latter, will you have to pay extra in labor costs for employees who work at these times?
There are too many variables at play to predict backup and recovery labor costs with complete accuracy, of course. Still, having a sense of how many hours will typically be required to perform certain tasks, and how much those hours will cost you in wages to employees (as well as your own time), is essential for knowing how much to charge customers.
MSP Backup Pricing Models
Now, let's take a look at the different pricing models for managed service providers you might want to use to govern the way you charge for backup-as-a-service.
Per-Device Backup Pricing
Charging a flat fee for each device on your customer's network that you back up is the most common and most straight-forward way to set pricing. It works well if the types of devices that your customers own are typical -- workstations, servers and possibly phones -- as opposed to special-purpose hardware, like IoT devices. Generally, customers like per-device pricing because it makes it easy for them to understand the pricing model and predict their backup costs.
Per-User Backup Pricing
You can also charge per user or per employee. This approach is also generally straightforward, but it can be a bit less predictable than per-device pricing. If a customer has a number of part-time employees, for example, the customer may feel that per-user pricing is not the best deal, because part-time employees would still count as users even though they might not create much data to back up.
Another fixed-fee pricing variant is to charge based on the amount of data that each customer needs to back up. For MSPs, this approach offers the advantage of being able to link MSP backup pricing directly to the cost that the MSP pays for data storage.
For example, if you use cloud-based offsite storage for backup, and your cloud provider charges you $0.004 per gigabyte per month, you could use that figure to determine exactly what you need to charge your customers per gigabyte in order to cover your costs and achieve a specific profit goal based on your per-gigabyte cost, combined with the other costs (such as data access fees and licensing costs) that factor into your storage plan.
All-in-One Pricing (All-You-Can-Eat Pricing)
To simplify cost structures for your customers and encourage them to buy more of your services, you could offer all-in-one pricing. Under this model, customers would receive backup services as well as other services as part of a single bundle. This approach can help you to increase sales while simplifying budgeting for customers.
For customers seeking the most cost-effective backup-as-a-service pricing, a recovery-only backup pricing model can be attractive. Under this model, you back up a customer's data constantly, but charge them only when they need to recover it. (You could vary this strategy somewhat by charging a minimum fee for ongoing data backup, but primarily charging for recovery.
This pricing strategy would not be profitable with customers who never require recovery, of course. But most customers will need to recover data sooner or later. As long as your recovery fees are high enough to offset the cost of data backup, this model can be effective -- especially because backup processes are easier to automate (and therefore less costly) than recovery processes, so it is easy to offset ongoing backup costs with occasional recovery fees.
Tiered Backup Pricing
No matter which underlying pricing model you use, you can break it into different pricing tiers. By offering multiple pricing tiers, each with a different level of services, you achieve two goals: First, you help cost-conscious customers who purchase the lowest-priced tier to feel that they are getting a bargain, and second, you emphasize the extra value that your additional services are worth.
Creating a successful MSP backup pricing strategy requires controlling storage costs for your MSP business, as well as developing a compelling storage pricing model for your customers. While we can't tell you exactly which strategy will work best for your MSP business, the backup cost tips and MSP pricing examples listed above provide perspective to help you get started planning your backup-as-a-service offering.