Per-User or Per-Device: Which MSP Pricing Model Makes Money?

What each model costs to deliver, line by line

The price follows one unit. The costs follow three: people, endpoints and hours.

Microsoft 365 is licensed mostly by the person. Microsoft’s documentation calls subscription user-based licensing “the default licensing mode” for Microsoft 365 Apps: “With a single license, users can install and activate Microsoft 365 Apps on up to 5 desktops/laptops, 5 tablets, and 5 mobile devices.” Its shared computer mode, for one PC several people use, still involves “multiple licensed users connecting to the same device”; a separate device-based license exists for Microsoft 365 Apps for Enterprise on shared devices. Microsoft Defender for Business covers “up to five client devices per user license,” and its FAQ adds that “Servers require extra licenses,” priced per server instance. So a per-device agreement on the default mode still buys its Microsoft 365 licenses per user, and a per-user agreement that includes Defender for Business still buys server protection per server. Other tools may be bought per endpoint, per user or per gigabyte; the vendor bills say which.

Labor is the line no bill shows. Help-desk tickets come from people, patching and alerts from endpoints, and vendor calls from neither. Matt Rose of Tech Rage IT, on the same panel, said that “often if you run the numbers on per device, it’s roughly the same,” and added: “Some industries have a lot of IoT or BYOD devices…so if you specialize in supporting those industries, per-device pricing might make more sense. Just stay consistent.”

Illustrative example: a hypothetical wholesale distributor has 25 office staff, 25 laptops, 10 shared terminals in the warehouse and 2 servers. Billed per user, the invoice counts 25 while anything bought per endpoint counts 37. Billed per device, the invoice counts 37 while Microsoft still bills 25 user licenses. Neither unit is wrong; each leaves one cost moving on a count the invoice does not follow, so the agreement needs a second line, such as servers or shared terminals priced on their own, or a rate set for this client’s ratio of devices to people.

How to find which managed services clients lose money

The test is the effective hourly rate per agreement: monthly revenue, minus what the firm pays out to deliver it other than labor, divided by the hours logged to it. A firm-wide margin figure cannot show this, because a flat fee hides its cost in time. Rose named the risk on the panel, speaking of service delivery costs: “If those are creeping up but your prices aren’t, you’re cutting into your margins.”

It needs time logged on flat-fee tickets, so check that first. Then build one row per agreement, averaged over three to six months:

• Monthly recurring revenue on the agreement, from the invoices, not the quote.
• Pass-through cost: licenses, security and backup bought for this client, from the distributor bills. Licenses invoiced on their own lines stay out, with their cost.
• Hours logged to the agreement, every billing status included. Separately billed projects stay out; onboarding months get their own row.
• Effective hourly rate: revenue minus pass-through cost, divided by hours.
• The counts behind it: users, devices, servers and tickets, with hours split by user, device and work type where the ticket data allows.

Set two lines against the rate. The first is the loaded cost of a technician hour: the service team’s wages, payroll taxes and benefits, divided by the hours it logged to clients. The second is the firm’s time-and-materials rate. Below the first line, an agreement loses money on labor alone. Illustrative example: a hypothetical firm charges $140 per user, with a $55 loaded cost and a $150 time-and-materials rate. Client A: 40 users, $5,600 a month, $1,600 pass-through, 25 hours, so $160 an hour. Client B: 30 users, $4,200, $1,200, 50 hours, so $60. Client C: 20 users, $2,800, $1,100, 34 hours, so $50. Same price, same unit. If Client C’s hours come from its servers and one app, the unit is wrong. If Client B’s come from 30 people calling the help desk, the rate is low.

Should an MSP charge an onboarding fee?

Yes, when onboarding is defined work with an end, priced from the firm’s own hours. Buchianico put the case on the panel: “Onboarding is one of the most labor-intensive parts of the MSP-client relationship,” and a fee “sets the tone. They should have skin in the game.”

The hours are in the PSA. Illustrative example: a hypothetical firm’s last five onboardings took 28, 33, 35, 41 and 60 hours. The median, 35 hours, is $1,925 of labor at a $55 loaded cost and $5,250 at a $150 rate. Now the firm knows what a fee covers, and the 60-hour project shows which client needs its own quote. Before the first recurring invoice, onboarding should finish:

• The count the agreement will bill, users, devices and servers, agreed in writing, with the RMM agent on every device on the list.
• Every Microsoft subscription listed with its term and renewal date.
• Admin accounts listed and unused ones disabled. CISA’s advisory starts with “Identify and disable accounts that are no longer in use” and “Enforce MFA on MSP accounts that access the customer environment.”
• A test restore. The same advisory asks organizations to “regularly update and test backups.”
• The scope in writing, including what is not covered, and a named client contact for hires and departures.

The first item decides money. If the first invoice bills the quote’s count and onboarding finds devices the quote never counted, the gap between managed and billed starts on day one. Check onboarding hours against the fee every week until the project closes.

New seats, departed users and true-ups under each model

The two models react differently to the same events, and the agreement should say what happens before it does:

• A new hire with a laptop and a phone: per user, one more; per device, one or two, depending on whether phones count.
• A laptop replaced: per user, no change; per device, two agents until the old one comes off.
• A user leaves and the laptop is kept for a future hire: per user, one fewer, while a Microsoft license on an annual term stays on the firm’s bill until renewal unless it is reassigned; per device, no change.
• A shared workstation for a second shift, or a new server: per user, a separate line if the agreement has one; per device, one more.
• Seasonal staff or contractors: per user, whatever the agreement’s definition of a user says, which is why it needs one.

Microsoft’s rule makes departures one-sided. Partner Center documentation says licenses on a new commerce subscription “can be increased at any time” but “decreased only within the first seven days of when the licenses were added,” then not “until the next cancellation window at renewal.” Additions run the other way: a user or device added through a ticket is managed that day and billed only when someone edits the agreement. The calendar: each week, the service coordinator lists additions and removals against each billed quantity; each month, billing updates the quantities; each quarter, the account owner shows the client the count.

How to move an existing client to a new model or a new price

Start from the effective-rate list. For each agreement below cost, the split of hours says what to change: the unit when hours follow something the invoice does not count, the rate when they follow what it does, the scope when they come from work no tier was meant to cover. It is the managed services version of deciding which clients to reprice first.

Then read each agreement: term, renewal date, the client’s notice deadline, any price-change clause, and whether a mid-term change is allowed. Some state laws attach notice rules to automatic renewals, and the firm’s attorney reads the clause before the price moves; this guide is not legal advice. Where a client sits in a state that taxes some IT services, the firm’s CPA sees the new invoice layout first.

Then show the client its own numbers. Carrie Richardson, also on the panel, said: “Pricing increases should never be a surprise,” and “If you’re adjusting pricing upwards based on usage, meet face to face with your client to show them the reasons you’re increasing pricing.” For a new MSP correcting its own error in setting rates, her advice was to “first identify which clients you really want to retain.”

• One page per client: today’s users, devices, servers and monthly hours, the invoice under each model, and the start date.
• Convert the unit at current counts, so the change of model alone costs the client nothing, and show any rate change as its own line.
• Start 90 days before the client’s deadline to give notice, not its renewal date.
• Put the next change in the paper. Richardson: “Annual increases should be built into the contract.”

If that clause ties increases to an index, the firm and its attorney choose which. The Bureau of Labor Statistics describes the Consumer Price Index as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services”; its Employment Cost Index “measures the change in the hourly labor cost to employers over time,” closer to the labor line in the count.

When not to change the model, and where the Review fits

Leave the model alone when every agreement clears the loaded cost, or the low ones are clients the firm chose to keep at that price. Changing units across a client base costs conversations, and Rose’s “Just stay consistent” fits that case. A firm with a handful of agreements can build the spreadsheet in an afternoon from three exports.

For an owner-led managed IT firm, the Revenue Review counts this under the Quote → Contract hand-off. From read-only exports of PSA agreements and time entries with notes removed, RMM agent counts, distributor bills and the books, it computes the effective hourly rate for every agreement, lists those below the firm’s labor cost, separates a wrong unit from a low rate, and sets onboarding hours against fees. It does not set a price list or give legal or tax advice. It takes two weeks and ends in a written report the firm keeps.

If the agreement list is the gap, the next step is a free 20-minute call, where we say whether the spreadsheet above covers it, which may well be the honest answer.