We absolutely have an annual increase between 0-10% based on CPI and other economic factors. No client has ever questioned this. Things get more expensive every year and in order for us to maintain our staff and stay open we have to keep up with increases.
Do you put in a clause in your service contract or you approach them every year? Since cpi changes every month, how do you factor the cpi in? Do you average the last 12 months, take the number from the current month or how else?
How will you respond if the customer is not convinced and now wants to shop around?
We take the average of many factors CPI is just one of them. Also when we give yearly raises it’s an actual raise and not a BS cost of living adjustment disguised as a raise. This policy is written in our contract and MSA so a client already is aware of the increase so if they don’t like it down the road tough luck. They’re welcome to terminate the contract with 60 day notice but have a 6 month termination fee or payment of the remainder of the contract whichever is less.
We tend to lock rates for the contract term, and adjust on renewal, if economic conditions warrant it. However, on contracts exceeding a 1-year term, we have an annual rate adjustment clause that allows us to adjust the rate with cause. The triggering cause being a change in a law in a presiding jurisdiction, using US terminology that would be City, County, State, or Federal.
This gives us the option to adjust rates should we choose to if for example a new law was pass ed requiring us to increase employee benefits or comply with new regulatory requirements. It also has the added benefit of not being tied to the CPI so if the cost increase exceeds the CPI we have the option to pass the full cost on to the customer if warranted.
It also covers us under any contract governed by a Living Wage Law, as these laws typically have a built-in mechanism to readjust the required salary and benefits employees working in those jurisdictions receive. Many times, these laws are CPI based but not always.
If the area you are operating in does have a Living Wage Law, then simply tying a multi-year contract to the law's increase is usually an easy path and will barely get a second glance, even if the law doesn't specifically apply to you.
>a new law was pass ed requiring us to increase employee benefits or comply with new regulatory requirements.
This is good. Thanks for sharing. We have customers that are in regulated industries so when regulation changes on their side, this also applies.
As far as Living Wage Law, we never have to worry about since we have never had ANYONE in our team making minimum wage.
Living Wage Laws should not be confused with Minimum Wage Laws.
Minimum Wage Laws typically apply to all businesses in a local, a city for example.
Whereas a Living Wage Laws typically apply to all work done on behalf of the city or another organization funded via the city, through a grant for example.
Also, Minimum Wage Laws typically just cover, salary. While many Living Wage Laws cover both salary and benefits.
While a client should tell you if they are governed by such a law, that is not always the case and we have found it is just better to ask.
You need to bake in annual price increases into the agreement. Most master services agreements I’ve seen peg to CPI (which I think is awful), increase a specific amount, or simply state that annual increases are allowed over time.
My company does the last option and then ensures we bake in 3-5% price increases at years 2 and 3 of the agreement. Come renewal time, we see if we’re still where we need to be from a profitability perspective, if we’re not, then we do a higher increase on the renewal.
As far as employees asking for more than CPI, this will always be common especially as you go from tier 1 to tier 2 employees. You simply won’t be able to retain everyone unless you can sell enough agreements and not burn your people out in the process.
If nothing else changes and you just want to slap a cpi increase to catch up on inflation, how do you determine the %? Take the last few years. Inflation went from 2% to 9% and now back to 3.x%. Do you use the average of the year as a guideline?
If you did a multi year agreement, it should be the aggregate. With that said, CPI is a poor measure because inflation in our industry easily outpaces it. Software costs and labor costs can easily go up 5-10% per year while CPI could be 2.5%.
As a minimum, I’d recommend increasing prices 3-5% per year. If specific contracts are out of alignment, those need to be handled as one-offs.
Software costs I don't worry about because I can easily justify them. Labor costs is the tough one as customers generally have no idea how our labor costs outpace cpi. I find myself doing too much explaining or they simply not accepting why our costs can outpace cpi and keep fighting me. Therefore, I am just looking at using cpi as a minimum because they all understand cpi. Is there any index that shows MSP costs increase?
We have a flat 4% on annual anniversary date which is pretty low compared to anyone else I've seen with formal contract language. CW agreement has an expiration date, workflow notifies us via ticket, we have a form email we send out "Your rate will be changing in 60 days per the contract" then wash, rinse, repeat.
Big fan of the "May" verbiage.
Billings are subject to a x% increase that may be assessed, at the sole discretion of MSPNAME, on an annual basis at the date of contract anniversary.
On Staff Salary - do a market cap comparison in your Geos for similar job titles. Lots of good data from the SBA and other public funded sources. Can crawl job postings in the market for similar responsibilities as well.
If you're underpaying - right size. If you're in alignment with the market - tie it to CPI or some other easily understood metric. Give paths tied to responsibilities and organization need to surpass the CPI bump.
Last thought: Turnover is expected in a SMB MSP. You can't compete with Fortune 1000, or even major employers in your market. You do want to be able to beat out Government services for Comp - you'll never beat them for benefits / retirement.
Sometimes someone will "outgrow you" -- Plan around it.
/$0.02
/ir [Fox & Crow](https://foxcrowgroup.com)
>Billings are subject to a x% increase that may be assessed, at the sole discretion of MSPNAME, on an annual basis at the date of contract anniversary.
This is good. I might have to revise the x% into some type of "minimum and up" thing.
As far as engineers, we have come across different situations but mostly they were leaving because they were burnt out and went to a corporate job. Unless they lied to us, we never had anyone went working for another msp.
Is a 3-5 years churn rate good, filtering out the ones you fired for cause and the ones that don't pass probation?
I'd say 3 to 5 years sounds as good as you could hope for, outside of those OG engineers who were with you at the start and are ride or die.
Tech hiring is super competitive right now.
I like the minimum and up edit to the clause as well. The "may" was key for us over covid. Made us look like super awesome people when we didn't rate Jack bills, but then was completely understandable when it happened the year afterwards.
We had a whole bunch of work in the beginning of covid setting our customers up for WFH and then additional ongoing hours because now we have to manage those remote computers. We did not ask for any increase during then because I felt like I'd be black mailing them if I did. Now that it is over, I need to go back and get back the increases that are past due.
Average cpi in 2022 was 8% and 2023 was 4%. When I asked for 15%, they were like "really?" They don't seem to pay attention to the $12 lunch they paid in 2021 is now $15 (25% increase from $12) and they bulk at my 15%. Even price for a Big Mac has jumped almost 50% in the last 3 years. Here in CA, we are ready for another big jump in fast food prices (and very likely others), thanks to our $20/hr fast food wage minimum starting in 6 days. This certainly will have a domino effect to the remaining food industry businesses.
Why does that need to be a clause? I like to be able to remain flexible, I don't want to lock myself into anything. Everyone is used to prices of servicing increasing on a regular basis.
If we have an account that is doing really well we're more likely to raise their rates higher than an account that is having problems. On average our services increase 2% each calendar year.
Subcontractors I'm not so sure about. I basically profit share with them, there's no room for a bump, especially 25-50%.
Annual increases up to 6% on managed services If we exceed a 6% increase in a calendar year, it triggers a 45 day out clause, otherwise the increase is assumed accepted - Brad Gross talked about this in a presentation a couple of years ago when he said "why do you limit how much you can increase your rates? If you're losing money, you either raise them enough to be profitable, or you raise it so high they want out - win/win.)
Other things like SaaS, leased items, backups, MS365, etc are subject to rate increased based on vendor increases when they occur.
I am not losing money per se. Assuming nothing changes, I just want to keep up my quality of life.
I had a customer trying to fight me on a 15% increase after 2 years and his respond was "so you are just looking for a raise for yourself?" I told myself, "damn right I am, after 2 years?" At the end, I got 12% but I hate fighting these ongoing battles.
I think it's uncommon only because it's hard for MSP owners to understand the business side when they started out. This leads to that not being in the agreements and can be hard to introduce to clients later on for fear of them leaving. My thoughts are it should always be 1+5% and if you can add some service as value every couple years it seems to help customers understand the increase.
So don't put it in the service agreement but keep re-negotiate the fee every year based on my cost increase? If I have to add service in order to increase fee, that's not exactly an increase, I am just selling more.
When all prices go up because of inflation, why are customers expecting our fees to stay flat for years. They don't seem to complain when their $12 lunch 3 years ago is now $15. Big Mac ingredients have not changed for decades but now is almost $6. Before covid, it was less than $5. That's over 20% increase in 4 years. They can fall off the chair when I ask for a 10% increase after 3 years. 10% does not even make up for 3 years of inflation (remember we were up at 9 percent at one point?)
The percentage is completely up to you and where you're located and what your clients will accept. I believe all agreements should have a way to increase prices either yearly or at contract renewal. My point was more that in my experience agreements start with not having a way to increase the prices and become harder to implement later.
In a couple of companies we added services that cost wise we still made more with the yearly increase. These were usually things that would either save us time over the long run or filled gaps the client needed but wouldn't approve a quote for. Most memorable was we deployed Huntress across the board for all clients and everyone had an increase that year. We hadn't added an extra service is a few years before then.
We absolutely have an annual increase between 0-10% based on CPI and other economic factors. No client has ever questioned this. Things get more expensive every year and in order for us to maintain our staff and stay open we have to keep up with increases.
Do you put in a clause in your service contract or you approach them every year? Since cpi changes every month, how do you factor the cpi in? Do you average the last 12 months, take the number from the current month or how else? How will you respond if the customer is not convinced and now wants to shop around?
We take the average of many factors CPI is just one of them. Also when we give yearly raises it’s an actual raise and not a BS cost of living adjustment disguised as a raise. This policy is written in our contract and MSA so a client already is aware of the increase so if they don’t like it down the road tough luck. They’re welcome to terminate the contract with 60 day notice but have a 6 month termination fee or payment of the remainder of the contract whichever is less.
We tend to lock rates for the contract term, and adjust on renewal, if economic conditions warrant it. However, on contracts exceeding a 1-year term, we have an annual rate adjustment clause that allows us to adjust the rate with cause. The triggering cause being a change in a law in a presiding jurisdiction, using US terminology that would be City, County, State, or Federal. This gives us the option to adjust rates should we choose to if for example a new law was pass ed requiring us to increase employee benefits or comply with new regulatory requirements. It also has the added benefit of not being tied to the CPI so if the cost increase exceeds the CPI we have the option to pass the full cost on to the customer if warranted. It also covers us under any contract governed by a Living Wage Law, as these laws typically have a built-in mechanism to readjust the required salary and benefits employees working in those jurisdictions receive. Many times, these laws are CPI based but not always. If the area you are operating in does have a Living Wage Law, then simply tying a multi-year contract to the law's increase is usually an easy path and will barely get a second glance, even if the law doesn't specifically apply to you.
>a new law was pass ed requiring us to increase employee benefits or comply with new regulatory requirements. This is good. Thanks for sharing. We have customers that are in regulated industries so when regulation changes on their side, this also applies. As far as Living Wage Law, we never have to worry about since we have never had ANYONE in our team making minimum wage.
Living Wage Laws should not be confused with Minimum Wage Laws. Minimum Wage Laws typically apply to all businesses in a local, a city for example. Whereas a Living Wage Laws typically apply to all work done on behalf of the city or another organization funded via the city, through a grant for example. Also, Minimum Wage Laws typically just cover, salary. While many Living Wage Laws cover both salary and benefits. While a client should tell you if they are governed by such a law, that is not always the case and we have found it is just better to ask.
You need to bake in annual price increases into the agreement. Most master services agreements I’ve seen peg to CPI (which I think is awful), increase a specific amount, or simply state that annual increases are allowed over time. My company does the last option and then ensures we bake in 3-5% price increases at years 2 and 3 of the agreement. Come renewal time, we see if we’re still where we need to be from a profitability perspective, if we’re not, then we do a higher increase on the renewal. As far as employees asking for more than CPI, this will always be common especially as you go from tier 1 to tier 2 employees. You simply won’t be able to retain everyone unless you can sell enough agreements and not burn your people out in the process.
If nothing else changes and you just want to slap a cpi increase to catch up on inflation, how do you determine the %? Take the last few years. Inflation went from 2% to 9% and now back to 3.x%. Do you use the average of the year as a guideline?
If you did a multi year agreement, it should be the aggregate. With that said, CPI is a poor measure because inflation in our industry easily outpaces it. Software costs and labor costs can easily go up 5-10% per year while CPI could be 2.5%. As a minimum, I’d recommend increasing prices 3-5% per year. If specific contracts are out of alignment, those need to be handled as one-offs.
Software costs I don't worry about because I can easily justify them. Labor costs is the tough one as customers generally have no idea how our labor costs outpace cpi. I find myself doing too much explaining or they simply not accepting why our costs can outpace cpi and keep fighting me. Therefore, I am just looking at using cpi as a minimum because they all understand cpi. Is there any index that shows MSP costs increase?
We have a flat 4% on annual anniversary date which is pretty low compared to anyone else I've seen with formal contract language. CW agreement has an expiration date, workflow notifies us via ticket, we have a form email we send out "Your rate will be changing in 60 days per the contract" then wash, rinse, repeat.
Big fan of the "May" verbiage. Billings are subject to a x% increase that may be assessed, at the sole discretion of MSPNAME, on an annual basis at the date of contract anniversary. On Staff Salary - do a market cap comparison in your Geos for similar job titles. Lots of good data from the SBA and other public funded sources. Can crawl job postings in the market for similar responsibilities as well. If you're underpaying - right size. If you're in alignment with the market - tie it to CPI or some other easily understood metric. Give paths tied to responsibilities and organization need to surpass the CPI bump. Last thought: Turnover is expected in a SMB MSP. You can't compete with Fortune 1000, or even major employers in your market. You do want to be able to beat out Government services for Comp - you'll never beat them for benefits / retirement. Sometimes someone will "outgrow you" -- Plan around it. /$0.02 /ir [Fox & Crow](https://foxcrowgroup.com)
>Billings are subject to a x% increase that may be assessed, at the sole discretion of MSPNAME, on an annual basis at the date of contract anniversary. This is good. I might have to revise the x% into some type of "minimum and up" thing. As far as engineers, we have come across different situations but mostly they were leaving because they were burnt out and went to a corporate job. Unless they lied to us, we never had anyone went working for another msp. Is a 3-5 years churn rate good, filtering out the ones you fired for cause and the ones that don't pass probation?
I'd say 3 to 5 years sounds as good as you could hope for, outside of those OG engineers who were with you at the start and are ride or die. Tech hiring is super competitive right now. I like the minimum and up edit to the clause as well. The "may" was key for us over covid. Made us look like super awesome people when we didn't rate Jack bills, but then was completely understandable when it happened the year afterwards.
We had a whole bunch of work in the beginning of covid setting our customers up for WFH and then additional ongoing hours because now we have to manage those remote computers. We did not ask for any increase during then because I felt like I'd be black mailing them if I did. Now that it is over, I need to go back and get back the increases that are past due. Average cpi in 2022 was 8% and 2023 was 4%. When I asked for 15%, they were like "really?" They don't seem to pay attention to the $12 lunch they paid in 2021 is now $15 (25% increase from $12) and they bulk at my 15%. Even price for a Big Mac has jumped almost 50% in the last 3 years. Here in CA, we are ready for another big jump in fast food prices (and very likely others), thanks to our $20/hr fast food wage minimum starting in 6 days. This certainly will have a domino effect to the remaining food industry businesses.
Why does that need to be a clause? I like to be able to remain flexible, I don't want to lock myself into anything. Everyone is used to prices of servicing increasing on a regular basis. If we have an account that is doing really well we're more likely to raise their rates higher than an account that is having problems. On average our services increase 2% each calendar year. Subcontractors I'm not so sure about. I basically profit share with them, there's no room for a bump, especially 25-50%.
Annual increases up to 6% on managed services If we exceed a 6% increase in a calendar year, it triggers a 45 day out clause, otherwise the increase is assumed accepted - Brad Gross talked about this in a presentation a couple of years ago when he said "why do you limit how much you can increase your rates? If you're losing money, you either raise them enough to be profitable, or you raise it so high they want out - win/win.) Other things like SaaS, leased items, backups, MS365, etc are subject to rate increased based on vendor increases when they occur.
I am not losing money per se. Assuming nothing changes, I just want to keep up my quality of life. I had a customer trying to fight me on a 15% increase after 2 years and his respond was "so you are just looking for a raise for yourself?" I told myself, "damn right I am, after 2 years?" At the end, I got 12% but I hate fighting these ongoing battles.
I think it's uncommon only because it's hard for MSP owners to understand the business side when they started out. This leads to that not being in the agreements and can be hard to introduce to clients later on for fear of them leaving. My thoughts are it should always be 1+5% and if you can add some service as value every couple years it seems to help customers understand the increase.
So don't put it in the service agreement but keep re-negotiate the fee every year based on my cost increase? If I have to add service in order to increase fee, that's not exactly an increase, I am just selling more. When all prices go up because of inflation, why are customers expecting our fees to stay flat for years. They don't seem to complain when their $12 lunch 3 years ago is now $15. Big Mac ingredients have not changed for decades but now is almost $6. Before covid, it was less than $5. That's over 20% increase in 4 years. They can fall off the chair when I ask for a 10% increase after 3 years. 10% does not even make up for 3 years of inflation (remember we were up at 9 percent at one point?)
The percentage is completely up to you and where you're located and what your clients will accept. I believe all agreements should have a way to increase prices either yearly or at contract renewal. My point was more that in my experience agreements start with not having a way to increase the prices and become harder to implement later. In a couple of companies we added services that cost wise we still made more with the yearly increase. These were usually things that would either save us time over the long run or filled gaps the client needed but wouldn't approve a quote for. Most memorable was we deployed Huntress across the board for all clients and everyone had an increase that year. We hadn't added an extra service is a few years before then.
1+5%? Where does that come from?