How should I price my online backup service?
This is a question we get frequently from our Reseller Network, and luckily we can leverage our 14+ years of experience in this market to provide guidance. Here are a few tips to consider when developing your retail pricing scheme:
1. Never use a fixed fee plan (or unlimited storage)
Using fixed pricing is the easiest way to lose money on a managed backup service, especially if you bundle it with “unlimited” storage. Over time your storage, bandwidth, and support costs scale with the amount of data and number of machines your customer is backing up, so don’t sell yourself short by agreeing to a fixed fee plan.
It may sound more attractive to customers upfront, and for good reason, but in the long run you will want the flexibility to charge more if a client’s backups grow exponentially. As you’ll see below, you can craft an aggressive per GB or tiered pricing model that is fair to both you and your end-users.
2. Use a Per GB pricing model
This is a great way to price your managed backup service, as it’s easy to track either selected data or compressed storage, it’s very fair, and it scales as your client’s data grows.
The key is to choose a per GB cost that makes sense. Here are some price points to consider, with the caveat that each provider is dealing with unique regional markets, client budgets, and competitive landscapes.
- For higher volume plays of TB or more
- More aggressive to compete against commodity product
- Great for mid-level customers with 100+GB
- Competitive but profitable
- Best for smaller customers with 0-20GB
- Most profitable but really have to sell value of total end to end support
Per GB retail pricing models are the bread and butter of the backup industry, and here are some additional points to consider if you choose this route:
- Make sure to have a minimum cost per endpoint priced in. You don’t want to be locked into silly prices like $1.80 a month, so have a floor in place so at least you’re capturing $10-$25 a month no matter how small a customer is.
- Consider adding a per-machine cost of $1-$5. This builds in some extra margin that pays for the backup software, and perhaps some cushion to offer a lower per GB rate. It works well if you have clients with lots of machines vs. a single server.
3. Use a Tiered Pricing Model
A relatively newer retail pricing concept, tiered pricing is becoming very popular in the industry because it allows for much less volatility month to month as data sizes change, while providing opportunities to maximize margins depending on how you craft the tiers.
This is a very effective way to offer a managed service without having to modify the clients’ invoice every time they add a GB of storage. It also automatically gives you a minimum revenue floor no matter how small a customer’s backup is, so helps to keep the service profitable.
Again, the same caveats apply when trying to apply pricing models to different markets, industries, etc…. But the concept holds true. Here is one example of how a managed service provider could craft tiered pricing for their backup solution:
Assumptions when using this kind of tiered pricing model:
- Software/support costs remain high no matter the size of the backup, especially for a managed service, so the lower tiers are more expensive relative to the data
- Storage is easy to acquire for minimal cost, so the higher tiers scale down the cost quickly
- Customers see the max they can backup up at each level (e.g. $80/month for 500GB), but will likely be somewhere in the middle of the tier statistically. This means you can market it as 500GB but see actual margins based on only 250GB of cost as an average.
4. Quote one price that includes everything (don’t nickel and dime customers)
Whether you go with a per GB or tiered model, decide on a price that includes everything you want to offer in your service. In our experience, customers prefer to see a single quote that covers the entire solution and can be very resistant to being nickel and dimed for add-ons, support, or even restoring data. Using that kind of pricing strategy increases attrition in our experience, as well as the resources needed to deal with the complexity of the sales cycle.
Instead, just focus on a reasonable value that includes all the components of a valuable managed backup service:
- Backup software/storage
- Nightly monitoring
- Unlimited support to troubleshoot backups or restore data
- Retention period for older versions of files
- Local backups
- 256AES encryption
- HIPAA/SOX/PCI compliance
You will find the process goes much smoother and your customers will stick around longer.
Hopefully this is helpful but don’t hesitate to contact us if you want to discuss pricing ideas in more detail. We’re always happy to provide guidance to our channel partner network of software resellers.
Frequently asked questions about how to price your online backup service
The tiered pricing model is gaining a lot of popularity. By offering tiered ranges to your customers they can select one to meet their current and future growth needs, they will not need to think much about it later or monitor incremental changes in billing going up or down each month. This also offers you the most value, since customers historically utilize about 50% of the tier.
We recommend using the Per/GB model because it is scaleable, provides options, allows for growth, and most importantly it’s fair for you and the customer. Setting up ranges gives flexibility to your customer and peace of mind if they need to a several GB and not worry about rate changes in the billing.
We don’t recommend using a fixed fee pricing plan when offering your online backup service. Your customer’s data will be growing daily, files are being added and databases will be growing, it’s easy to lowball your initial estimates. You’ll also need to factor in things like file versioning, and data recovery retention periods, these features are highly efficient but do add some additional storage overhead, as such the fixed fee approach is not dynamic and will lose you money.
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