Your average seat price hides the price each client actually pays. Discounts, grandfathered rates and devices nobody added to the contract all pull individual clients away from the average, and you only see it client by client.
So work out two numbers per client. The seat fee per seat is the managed services fee divided by seats, and it is the number to hold against the model's $225 goal and $150 floor. The all-in recurring revenue per seat adds resold licenses and other recurring product, which is how the model's belief on seat price defines it. Track both, and label them, because they answer different questions.
What Counts as a Seat, and What Counts as Price?
A seat is a billed user, or the device count if that is larger. A client with 20 people and a pile of shared workstations has as many seats as it has devices, because that is what you patch, monitor and secure.
The seat fee is everything you bill for managing those seats: the flat fee, per-device charges, server fees, the security add-on you sell with it. Resold licenses earn a product margin of about 30%, not the 50% managed services margin, so they belong in the all-in number and not in the seat fee.
The model's example shows why the labels matter. Its seat fee is $225, and the recurring product it resells adds about $91 a seat, so all-in recurring revenue is $225 plus $91, or $316 a seat. Both are true. Held against a $150 floor, the $316 hides how much of it is product earning 30%.
Why $150 Is the Floor
Because below it there is very little margin left for the business. The MSP model costs a well-run seat at $103.10 a month in people and tools. Hold that cost, change only the price, and the example MSP looks like this.
| Seat Price | Managed Services Margin | EBITDA for the Whole MSP |
|---|---|---|
| $225, the goal | 54.2% | $730,276 (20.1%) |
| $175 | 41.1% | $310,276 (9.7%) |
| $150, the floor | 31.3% | $100,276 (3.3%) |
The target is 20% EBITDA and the danger line is 10%. At $175 the example is already under the danger line. At $150 the whole business still earns 3.3%, positive, with almost no room for a bad quarter.
Two more prices are worth writing on the wall. A seat price of $206.20 earns exactly a 50% managed services margin on that cost. A price of $224.50 earns exactly 20% EBITDA.
The $225 goal is the price at which this plan earns its 20%.
How to Find the Clients Below the Floor
- Export last month's invoices for managed services only, one row per client.
- Strip out licenses, hardware and project work, and keep them in a separate column for the all-in number.
- Add the seat count for each client: users or devices, whichever is larger.
- Divide each client's managed services fee by its seats. That is its seat fee per seat.
- Sort the list, lowest first, and draw a line at $150. Draw a second one at $225.
The arithmetic is quick to check. Say a 20-seat client pays the $2,000 a month that the model treats as a minimum. Divide $2,000 by 20 seats and you get $100 a seat, a third below the floor, whatever the total looked like on the invoice.
A client below the floor is not proven to lose money. Its margin depends on what it actually costs you to deliver, so treat the list as the clients that need a cost and margin review. Check whether the oldest rates and the clients whose seat counts grew since they signed sit near the bottom; that is a hypothesis your own list can confirm or not.
What Do You Do With the Clients Under $150?
Not all of them the same thing. My order is measure, then reprice, then replace.
- Measure first. Price each client's delivery hours at burdened cost, then compare with its fee. A refresh project that cuts a client's hours can lift the margin before you touch the price.
- Reprice the weakest first. Start with the lowest margin you measured, not the largest account, and say plainly what the fee covers and what it does not.
- Replace, do not just remove. If a client leaves, win back the revenue with a better one, so the total does not shrink while the average improves.
Whatever you do, do not discount the monthly fee to keep the peace. If you need to give something, give a one-off item. And write a fixed yearly increase into every renewal, 5% in the model, so the price does not drift back under the floor.
Where the Floor Is Not Enough
The $103.10 cost behind the floor assumes a well-run desk at about 0.5 tickets a seat a month. A typical MSP runs 1.0 to 1.4.
The example still charges the full $225 a seat. At 1.0 tickets a seat, the same 700-seat MSP earns a 41.1% managed services margin. If your ticket volume is typical, a client at $150 carries a higher delivery cost than the table assumes, so measure it before you decide where it stands.
So treat $150 as the line no seat fee should be under, not a target. The goal is $225, and the work is moving clients from the first line toward the second.
mspoutpost.com/articles/know-your-all-in-seat-price-and-the-floor-under-it
Written by Graham Whitfield
MSP Outpost publishes information, not legal, financial, insurance, tax or compliance advice, and reading it creates no professional relationship. For decisions about your business, talk to a qualified professional.