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:

5 Questions

You Must Answer When Choosing a
White Label Backup Solution

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.

Lower Range

¢10cents per GB
  • For higher volume plays of TB or more
  • More aggressive to compete against commodity product

Most Popular

¢25cents per GB
  • Great for mid-level customers with 100+GB
  • Competitive but profitable

Higher Range

¢50cents per GB
  • 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:

Tier A

$2000monthly

Tier B

$4000monthly

Tier C

$8000monthly

Tier D

$10000monthly

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
  • De-duping
  • SQL/Exchange
  • 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.