How to price your backup service appropriately (ignore competitor’s pricing)
You probably think you have to meet or beat your competitors’ prices, but what are they selling and what are you? Does their business model actually work such that they (you?) will succeed at those prices? Let’s look closely at how to price your backup service.
We’ve seen countless companies with PPC (pay-per-click) advertisements with ridiculously low prices well below our physical costs. Guess what, they’re all gone or will be soon! Seriously, if you can’t offer a service at the prices they do, then either they are offering a different service or they’re going to fail. When you see new bargain-basement online backup providers appear on the Internet then sit back and laugh, because you now know that they are actually at the failure inflection point because they’re deluding themselves by thinking they can recoup their costs by selling the remainder of their capacity at a loss and guess what, their Internet marketing costs alone are probably higher than their service costs and they’ll be gone before you know it.
The other scenario we mentioned is when a “competitor” is actually selling a different service at a cheaper price point than you. How does one compete in that case? As an example, there are a few large consumer online backup services that price at less than $0.50/GB. Well, it’s actually pretty obvious for them to succeed they have to (a) minimize their server cost and Internet costs resulting in slow data transfer rates, (b) minimize their storage costs resulting in restore times which are unbearable slow (hours to days for them to re-put back together with a user’s backup before it can be restored), (c) provide little to no technical support, and (d) force the onus of monitoring backups entirely on the end user which means it never happens. Business customer’s don’t fit their business model as they’re unprofitable to actually deliver the service businesses really need at the consumer prices they are pitching, so even though they may take them on as customers (perhaps with an upsell to a “professional”, “enhanced”, and “business” class service which it really isn’t) they don’t actually deliver business-class service which means an opportunity for you. It’s easy to find SMBs who were former customers of these consumer providers and who are vocal on the Internet for having been burned badly (which should be no surprise to you as even though these unfortunate businesses were duped, they got what they paid for). We’ve found that when we lose a business client to these consumer services, a fair percentage of them can be won back to keep them in your prospect list and follow up with them every quarter or two.
So, as you are entering the online backup business and have a clear idea of what your customers really need, how to acquire more customers like them, how you will provide the right service for them, and how much that service actually costs you, you’ll realize that you are actually providing a different service than the commodity consumer online backup providers. With this knowledge in mind, you’ll price your service appropriately and succeed because the value you will be providing your customers, and the corresponding confidence you’ll have in selling it to them, will usually blow your competitors out of the water!
Lastly, in terms of actual packaging and price points, we suggest you find a reasonable floor (base level price) that suits the needs of your smallest customers and is profitable enough for you to be interesting. From here you can either scale linearly in terms of cost to your clients as their size increases or you can look at how to price your backup service using tiered pricing that provides additional profit opportunities. For example, the average Wholesale backup client selects 11GB of files/data to back up so one pricing model would say the cost to the client is $W/GB, another would be $X for the base package and an additional $Y/GB for each GB over the base, and a third would a package of 11GB to 15GB costing $Z. You may find that the $Z model is preferable to your clients because it is an expected consistent cost and they may actually be willing to pay more for it (i.e. on average users in that bucket are well below the midpoint of storage for that bucket, so you can make more…).
In addition, there is almost always IT consulting service opportunities associated with backups and restores. WholesaleBackup chooses not to exploit these opportunities as its business model is to work through the IT consultant channel, rather than compete against it, but you may choose otherwise. So, depending on the service you are offering and the skills of your customer, you may choose to bill for your time to set up backups, assist with restores, and even script and monitor backing up specific applications such as Microsoft Exchange.
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