Guide
4 min read
By MSP Margin Editorial
Most MSPs know their costs go up every year. Vendor seat prices change, wages rise, insurance renews higher. Fewer MSPs have a routine for moving their own prices to match. The result is a slow margin squeeze that nobody notices until the year-end numbers come in.
A price increase works best when it is boring: written into the agreement, announced on a schedule, explained in plain terms and modeled before anyone sends a letter.
Put the mechanism in the contract first
The easiest increase to deliver is one the client already agreed to. Review your master services agreement and statements of work for three things.
First, an adjustment clause. Some MSPs use a fixed annual percentage. Others tie increases to a published inflation index, sometimes with a cap and a floor. Others reserve the right to adjust with written notice. Each has tradeoffs. A fixed percentage is predictable for both sides. An index clause feels objective but can produce awkward results in low or high inflation years. A notice-only clause gives you flexibility but invites more negotiation.
Second, a notice period. State how far in advance you will notify the client and how (email to the billing contact, a letter, a portal notice). Then actually follow it. A clause you ignore is hard to rely on later.
Third, a separate path for third-party costs. If a vendor raises the price of a license or tool you resell, you usually want the right to pass that change through on a shorter timeline than your annual adjustment. Spell out that third-party pricing can change when the vendor changes it.
Have an attorney review contract language. The wording matters, and agreements signed years ago may not include any of this. For those clients, the increase is a conversation at renewal rather than a notice.
Decide what you are actually passing through
Separate your price into two buckets before you set a number.
Pass-through costs are the per-seat and per-device items that move when a vendor moves: licenses, security tools, backup storage. When these go up, many MSPs pass the change through at cost or at their existing markup, and say so plainly.
Your own service fee covers labor, overhead and margin. This is where the annual adjustment applies. The question here is not "what did our vendors do" but "what does it cost us to deliver this service now, and what margin do we need."
Keeping the buckets apart makes the client letter easier to write. "Your security tool cost went up because the vendor raised prices, and our service fee is adjusting by a set percentage per our agreement" is clearer than a single unexplained jump.
Model MRR and churn before you announce
Raising prices changes two numbers at once: revenue per client goes up, and the risk of losing a client goes up too. A quick model tells you how much churn the increase can absorb.
Here is an illustrative example with round numbers. Say you have 40 clients averaging $2,500 a month in managed services, or $100,000 MRR. You plan a 5% increase on the service fee.
| Scenario | Clients | Average MRR | Total MRR |
|---|---|---|---|
| Before increase | 40 | $2,500 | $100,000 |
| 5% increase, no churn | 40 | $2,625 | $105,000 |
| 5% increase, 1 client leaves | 39 | $2,625 | $102,375 |
| 5% increase, 2 clients leave | 38 | $2,625 | $99,750 |
In this example, losing one average client still leaves you $2,375 ahead of where you started. Losing two puts you $250 behind. That is the useful insight: the break-even is somewhere under two average clients, so the question becomes which clients are actually at risk.
Run the model with real client sizes, not averages. Losing your largest client is very different from losing your smallest. Also look at margin by client. A low-margin client who leaves over an increase may improve your profit even as MRR drops.
Communicate it like an operating change
Clients take increases better when they are predictable and specific. A few habits help:
- Send notice on the schedule your agreement promises, and earlier if you can.
- Say what is changing, by how much, starting when, and why.
- Name pass-through changes separately from your own adjustment.
- Give the account manager a short summary so they are not surprised on the next call.
- Update the PSA agreement records and recurring invoice templates before the effective date, then check the first invoice run against the expected totals.
That last step matters more than it sounds. An increase announced but never loaded into billing is a common miss, and so is one loaded on some agreements and not others. A simple list of every agreement, its old rate, its new rate and a checkmark when the billing record is updated will catch most of it.
This guide is general information, not legal, tax or accounting advice. Contract terms and notice requirements depend on your agreements and circumstances, so confirm your approach with your attorney and your CPA.