Back in January, I shared some ideas around how I’d personally approach NCE. To this day, it’s one of my most popular posts. To that end, I thought I should elaborate on some of the contract ideas I’d shared previously.
Before we get Started
Keep in mind that my model was far from a traditional MSP. I was well on the road to being fully cloud, had eliminated almost all servers under management, and leveraged a private cloud (at the time) for hosted application needs. My model brought the entire platform with it, so we charged one fee per user and that was it.
The pricing in here is fictitious for the sake of easy math, be sure to calculate and charge what works for your business. Finally, this obviously isn’t legal advice nor is it meant to be preachy, please do what works for your business. I’m simply hoping to spark an idea here.
My Pricing Scenario
As I mentioned, I’m going to use fictitious pricing for easy math. Let’s say that I was charging $100 per user at my solutions provider. To maintain my IT platform model, my pricing offerings would diversify a little bit as follows:
|Customer on month-to-month||Customer on 12-month agreement|
|Price per user per month (only invoice item)||$120||$100|
|Effect on price||20% increase||Stays the same|
|Cancellation terms||30 day notice||30 day notice; contract buyout for Microsoft costs|
|NCE purchase type||Monthly||Annual commit, monthly payment|
This, for me, would have been the easiest model to go with. Simply tell the clients what is happening with Microsoft, and present these options. My gut says that most customers would have taken the 20% increase to stay month-to-month, but some certainly would have agreed to 12 months. In this model, the cash flow stays monthly but I can still have a recourse should the customer choose to leave. It’s important to note that I would have worked very closely with my attorney to make the contract fully enforceable. And of course, you have to have the will to enforce the contract.
I recognize that this isn’t for everyone, so I wanted to also share another option with you. Let’s break out the Microsoft licensing from the service cost:
|Customer on month to month||Customer on annual||Mix and match|
|Invoice Items (Monthly)||· Service charges (for actual support and business services)
· Retail cost of M365
|· Service charges||· Service charges
· MSRP of monthly M365 licenses
|Annual Invoice||none||· M365 licenses||· MSRP of annual M365 licenses|
|NCE purchase type||Monthly||Annual commit, annual pay||Mixed|
As you can see, this approach is drastically different. For me, I would prefer not to use it due to the complexity. I’m simply trying to demonstrate that you can break out and commoditize the licensing should you wish. It’s worth noting that I would not decrease my per user fee the full MSRP of the license, but rather frame it as the customer getting a discount on the licensing when it was all bundled in.
Whichever route you choose to go (even if it isn’t listed here), we’ll get through this. Market changes happen in every industry on the planet, and we’re no different. If I look at things objectively, many other SaaS companies are looking for annual commitment as it is, Microsoft is merely making changes to match. Am I a fan of how it was implemented? Nope. Is it survivable? Absolutely.