Am I Undercharging? How to Tell if You’re Underpricing Your MSP Services

“Am I charging too little?” is one of the most common questions that surfaces for MSPs. And it’s not just for those just starting out. Sure, setting your pricing when you don’t have established clientele at first can be incredibly daunting. But adjusting pricing can be even scarier. After all, what if you’re just overthinking it? What if your clients push back (or worse) leave because of the changes? 

Like Dean Trempelas from Empath said, “no one wants to ask someone for money and no one wants to pay someone else.” 

It’s a friction point. And one that determines whether you can keep running. 

We’ll go over the real signs that you are undercharging so you know you can trust your instinct and that it’s time to increase prices. We’ll also touch on what determines a fair service price, and then how to set them.

You’ll receive practical advice and specialized knowledge from industry experts on the topic (Matt Zaroff from Visionary 360 and Dean Trempelas from Empath) from our webinar on the Common Financial Issues for MSPs we did that focused on these very kinds of topics. 

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5 Signs You’re Undercharging Clients

There are many misconceptions about pricing in the MSP industry. The first one to diffuse is that there is a “best” billing model. Whether you bill with break/fix, tiered, monitoring-only, per-device, per-user/seat, à la carte…etc depends on your services, your technicians, where and how you want to grow. Each MSP will be different in that regard. Secondly, and somewhat related, is that your competition does not know the best price for you. It can be easy to compare yourself to someone down the street, but the best pricing strategy will always stem from what is most natural for you and what will allow you to grow margin-wise. 

Below are signs that (despite your billing model), your pricing may be set under the value it actually is. 

1. Your gross margin per client is declining over time

If you track gross margin per client, a downward trend is a red flag. This often happens when labor costs rise, tooling costs increase, or new compliance and security requirements are layered on. Even a “profitable” client can become a money drain if you haven’t factored in these ongoing costs.

For example, you rolled out multi-factor authentication and endpoint protection upgrades but didn’t adjust your monthly service fee.

2. You added tools or licenses without a pricing update

MSPs constantly expand their stack: remote monitoring and management (RMM), PSA add-ons, security suites, cloud services, backup solutions, and more. Vendors also hike prices regularly. If you’ve added tools or licenses to deliver better service but haven’t adjusted pricing, you’re effectively subsidizing the service.

Adding SentinelOne or extra Microsoft 365 licenses for security reasons but keeping the same monthly fee slowly erodes your revenue per client.

3. You haven’t adjusted pricing in 12–24 months

Even a stable MSP faces cost drift. Labor rates rise, software subscriptions increase, client environments get more complex, and the economy changes overall. If you haven’t revisited pricing in a year or two, your rates likely don’t match the work required or the economic reality you are living in.

Build a routine pricing review into your quarterly business planning. Even a 5–10% adjustment annually can keep margins healthy.

4. Clients expect more than the contract actually says

Scope creep is a silent margin killer. When clients start expecting services outside the agreed contract, like additional helpdesk hours, proactive projects, or ad-hoc cloud migrations, you’re effectively working for free until you adjust pricing or have an honest conversation about expectations with those extra services they’re receiving.

What can help with this is making sure your contracts are airtight to begin with so you have something physical to point to if you refuse to offer a service outside the scope of their contract with you. 

5. You can’t confidently state your true margin by service line

If managed services, projects, and resale items are bundled together, it’s easy to hide undercharging. Without clear margin visibility by service line, you can’t tell if certain services are loss leaders or profit drivers.

Break down your P&L by managed services, projects, and resale to see which areas are underpriced and adjust accordingly. Sometimes you don’t need an entire pricing overhaul, but just to revisit one structure that is under or over-performing.

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What Determines a Fair Service Price?

Setting a fair price for your services isn’t just about picking a number that feels “right.” It’s about evaluating the client’s environment, the level of service you provide, and the market you operate in. Every MSP has to balance these factors to ensure pricing reflects actual effort, risk, and value delivered.

First, consider the client’s environment. The number of users, devices, endpoints, and physical locations directly affects the time, tooling, and oversight required to manage their IT. A client with ten users and a single office is much easier to support than a client with hundreds of users across multiple locations. Larger or more complex environments naturally justify higher pricing, because the workload grows faster than the simple per-user or per-device calculation might suggest. 

Next, the services included are critical to keep track of. Basic monitoring or reactive support carries far less operational cost than full-service management, cybersecurity, or compliance-focused offerings. Services like 24/7 helpdesk support, proactive patching, endpoint protection, and vulnerability management take dedicated resources and expertise, which should always be reflected in your fees. Bundling these high-value services without adjusting pricing is a common way MSPs unintentionally undercharge.

Your geographic region also matters. Market rates for MSP services vary significantly by location. High-cost regions, major tech hubs, and competitive urban areas can often command higher pricing than smaller towns or less competitive markets. Even within the same state, MSPs may see dramatic differences in what clients are willing to pay based on local market conditions. 

An MSP’s own expertise and reputation also play a role in pricing. Years of experience, certifications, specialized skill sets, and a strong track record allow you to justify premium rates. Clients are willing to pay more for providers they trust to protect their data, prevent downtime, and proactively manage risk. Conversely, a less established MSP with fewer certifications or a smaller portfolio may need to position pricing more competitively while they build credibility.

Finally, add-ons and specialized services (like compliance support, cloud migrations, or advanced cybersecurity monitoring) should be priced with intention. These services provide significant value but are often absorbed into monthly fees by MSPs hoping to “delight” clients. Over time, this erodes margins if left unpriced or undervalued.

To put this in context, small businesses typically pay $100–$250 per user per month for comprehensive managed IT support, depending on service depth and complexity. Larger organizations often negotiate custom contracts that reflect their scale and specialized needs. By carefully considering client environment, service scope, market conditions, and your own expertise, MSPs can set pricing that is both fair to clients and sustainable for the business.

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How to Accurately Price Managed Services

Pricing isn’t guesswork. It’s not “what feels fair,” or “what everyone else seems to be doing,” and it’s definitely not something you bolt down once and forget forever. Pricing right means modeling the real economics of your business: what it actually costs you to deliver service, how your tools and labor scale, and the margin you need to stay healthy and grow. These are real numbers. That’s why NinjaOne created a pricing calculator—the math gets complicated quickly. 

Below is how to think about it in three digestible pieces.

Step 1: Calculate Your True Labor Cost

People are the biggest cost in almost any MSP. But it’s a huge mistake to simply take a technician’s base salary and call that your cost. That number doesn’t account for the real cost of having that person on your team.

When setting prices, you need to consider that employees come with:

• Base salary
• Payroll taxes and benefits
• Time spent on training and certifications
• Bench time (when they’re paid but not client-billable)
• A share of leadership oversight and support functions
  
  

Once you stack all of that together, your cost per technician goes up, often substantially. For example, a tech making $60,000 in base pay could cost your business about $90,000 or more once all burdened costs are included. Divide by actual workable hours (usually ~1,800 per year after PTO and internal meetings), and you’re at roughly $50 per hour. But that’s still not the number you use to price client work because not all those hours are billable. If your ideal billable utilization is 70%, you’re effectively allocating that cost across only about 1,260 billable hours, which means your real per-hour labor cost is closer to $71 per hour. That’s your baseline for labor, before adding any margin. 

Step 2: Treat Tools & Licensing as True Cost of Delivery

Too many MSPs treat key tools like RMM, backup, security stacks, cloud usage as “overhead” rather than real delivery costs. But the reality is simple: these costs change based on client environment size, number of endpoints, and usage patterns. They drive work and they reduce margin if they aren’t considered correctly in your prices.

Best practice is to map these costs per client or per endpoint and fold them into your pricing model so they’re transparent and accounted for. 

That means when you quote a per-user or per-device price, you’re backing it up with what your tools actually cost you, not just what you think they cost you.

Step 3: Add Overhead & Margin Targets Last

Once you know your labor cost and your tooling cost, you still need to cover the rest of the business: sales, marketing, rent, finance, leadership, billing, and all the stuff that doesn’t directly show up as “client delivery,” but still must be funded for your business to thrive.

With those totals in hand, you can determine your target gross margin. Think of this as the healthy cushion you need after all direct service costs are considered. Many MSPs target something in the 40–50% range on managed services, but you should set your own goal based on your growth plans and market conditions. 

Once you’ve done that math, the pricing formula looks like this:

Target Price = (Fully Burdened Labor + Tooling Costs + Allocated Overhead) / (1 − Target Margin)

This formula isn’t magic  it’s math. But used consistently, it gives you a confidence band for pricing that reflects your actual business economics instead of hope, intuition, or competitive hearsay. 

Something that’s also important to consider is to button down discounts that may be going on in your sales team.

Is it Underpricing or Just Bad Billing Practices?

Your services are priced reasonably, but you’re not reliably capturing and collecting what you’re entitled to bill.

In other words, you aren’t undercharging on paper, but you are in practice.

This shows up when:

• Endpoint or user counts drift but invoices don’t update
• Licenses are provisioned before billing is finalized
• Usage-based services lag weeks behind delivery
• Invoices go out late or inconsistently
• Payments arrive unpredictably or not at all
  
  

From the client’s perspective, nothing is wrong, but this operational disconnect can signal underpricing to you because your cash feels tight.

This is where underpricing becomes operational, not theoretical. And it’s exactly why MSPs with “competitive pricing” still struggle with cash predictability as they scale.

MSPs can sometimes think they need to raise prices when the real issue is that billing, payments, and reconciliation aren’t tightly connected. When pricing, billing, and cash flow live in different systems (or different timelines) it creates the illusion of underpricing even when rates are sound.

If you need a system that automatically keeps billing aligned with reality, that’s exactly what FlexPoint was built to solve. Instead of wondering whether you’re undercharging, you can confidently bill what you’ve earned and keep cash predictable as you grow.

FAQs 

How do I know if my MSP is undercharging?

‍Check gross margin per client and compare it to benchmarks; if margins are low and you’re writing off work, you’re undercharging.

How often should I raise prices?

‍Review annually; consider partial increases every 6–12 months for tool pass-throughs or vendor hikes.

Can I backbill for missed charges?

‍Sometimes — handle sensitively with clear documentation and a willingness to negotiate; always fix the process afterward.

Is per-user better than per-device?

‍It depends on where the work comes from, choose the model that aligns with your cost drivers.

How do I handle client pushback?

‍Lead with value, give options, and use a disciplined, documented approach rather than ad-hoc concessions.

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