Pricing Audit: Compare MSP Seat Fees and Client Margins

Put the Same Period on Every Row

Monthly recurring revenue, or MRR, is the recurring amount billed each month. Use the current full-month contractual amounts and the corresponding supported count. A part-month invoice or an old count would distort the comparison before you reach the margin calculation.

The model defines a seat as a billed user, or the device count if it is larger. Record which count governs and where you checked it. Don't silently substitute the number of licenses for the number of supported seats.

Reconcile the current agreement with its approved changes and billing lines. Keep a discrepancy as an investigation item with an owner. An unexplained difference between the contract and invoice isn't proof that the lower amount is the intended price.

You can prepare a first pass from available records, but don't promise to finish the audit in an afternoon regardless of their condition. If the current quantity or scope is missing, mark the row incomplete. A fast division doesn't repair an unreliable denominator.

Keep All-In Revenue and the Seat Fee Distinct

All-in seat price is recurring revenue divided by seats. The model's recurring total includes both the managed seat fee and recurring product revenue. Keep that measure in the sheet, but show its components so a larger license bill doesn't hide an unchanged managed fee.

The $225 US example is the managed seat fee alone. Including recurring product raises the example's all-recurring figure to about $316 per seat. Comparing that combined number with $225 as though they covered identical revenue would misstate the pricing gap.

Flag an all-in figure below the $150 floor. Also inspect a managed fee below that level rather than letting product revenue conceal it. For every comparison, keep the revenue basis stated beside the number.

Leave one-time hardware and project revenue outside recurring seat yield. Their costs still matter to the business, but adding a hardware sale to this month's numerator would make the recurring price appear better without changing the continuing fee.

Add Cost Before Ranking the Accounts

Gross margin is revenue minus the direct cost of delivering it, expressed as a percentage of revenue. For managed services, the model includes burdened delivery labor and tools. Count technical work done by the owner as direct labor too.

Assume, only for this worked comparison, that the hypothetical 20-seat account has the model's derived US managed delivery cost of $103.10 per seat. Its monthly direct cost would be 20 times $103.10, or $2,062. Real account effort can differ, so replace that assumption with its measured cost before ranking it.

At a $150 managed fee, the monthly revenue is 20 times $150, or $3,000. Gross profit is $3,000 less $2,062, or $938. Divide $938 by $3,000 and the margin is about 31.3%.

At the $225 goal with the same seats, scope, and assumed cost, revenue is $4,500. Gross profit is $4,500 less $2,062, or $2,438. The resulting margin is about 54.2%.

These are managed-service comparisons with cost held fixed. They exclude recurring product revenue and its cost. They aren't forecasts of client acceptance or proof that changing the fee leaves delivery cost unchanged.

The model's fully loaded managed-services gross-margin target is 50%. That is a target, not a break-even rule. Gross profit still has to support overhead and sales costs before the business reaches profit.

Separate Product Economics From Delivery

Keep each revenue stream with the cost that supports it. On How to MSP, Reed Warren recommends separating direct labor for managed services from project and time-and-materials work. That's his practitioner advice; it fits the audit's need for a consistent cost basis.

For recurring products, use the actual purchase cost against the product revenue. The model uses about 30% product and hardware margin. Don't apply the 70% resold-services margin to product revenue or to the managed seat.

A recurring total can improve while the underlying managed-service margin weakens. Show both results instead of averaging away the explanation. If the cost record can't support that split yet, assign the reconciliation before presenting the account as healthy.

Turn the Flags Into a Repricing Sequence

Sort the completed accounts by actual margin and review fit alongside it. The model calls for fixing a low-margin client before repricing, and for repricing the weakest first. A price below goal tells you to investigate; it doesn't tell you the cause of the delivery cost.

Where an environment creates excess work, scope the corrective project and its expected operating effect. Where the billing record is wrong, resolve the authorized amount. Where the fee needs changing, check the agreement and prepare the client conversation.

A rule of thumb is no substitute for a reconciled row. The client who complains least doesn't become the right first account to change. Nor does a price above the floor establish that its support work is affordable.

• Finance reconciles the recurring fee, quantities, and product lines with the source records.
• The service lead verifies the account's delivery effort and assigns any missing cost evidence.
• The account lead checks scope and terms before proposing an improvement or price conversation.
• The owner reviews revenue dependence and the replacement plan before accepting a departure risk.
• Billing verifies that an authorized change reaches the correct invoice and quantity.

Keep the audit and price notice separate. Foojee's Lucas Acosta describes assigning an inconsistent-discount audit to finance leadership and the communication to other leaders, explicitly ruling out silent client price changes. That is his account of dividing the work, not a prescribed timetable.

Finish with the weakest verified margin result and its next owner. Record which cost or contract question must be answered before the proposal can proceed. Then use the same checked calculation on the next row, rather than turning the whole list into an immediate increase notice.