How to Reduce Cloud Costs and Increase Margins for MSPs

Today’s managed service providers (MSPs) are racing to improve their cloud services to meet emerging end customer needs. But as they carve out their niche in a crowded marketplace, there’s a question they must ask: “How can we develop a business and operating model that attracts customers while increasing our profit margins?”

Our recent webinar, now available to watch on demand, shed some light on this dilemma and explain ways to increase margins for MSPs. This panel discussion covered three simple ways for MSPs to power profitable cloud services while driving customers’ growth in the cloud. Joining CloudCheckr’s resident cloud evangelist Todd Bernhard were guests Vince Black, Cloud Success Manager at Insight, and Marit Hughes, Senior Technical Consultant from Ingram Micro.

Key takeaways included proven strategies to help MSPs:

• Reduce cloud costs by taking advantage of volume-based savings plans and discounts
• Gain financial benefits through custom charges and re-rating options tailored to customer, segment, or service type
• Increase business efficiency through centralized, automated, and accurate billing at scale, leveraging tools and partners

By reducing cloud costs, improving manual billing processes, and automating operations, MSPs can increase their profit margins and optimize their businesses. Watch the webinar on-demand today, and keep reading for a summary of what our panelists had to say.

Reducing cloud costs through volume-based savings plans and discounts

Cloud providers often bill their services as “pay for what you need.” Yet as Todd Bernhard points out, it’s more like “pay for what you order.” Once you provision a service, you’re paying for it whether you use it or not.

To avoid incurring unexpected charges, MSPs should look for idle usage, unattached storage volumes, or other resources left unused. Commitments like reserved instances, Savings Plans, and spot instances can also help save money.

But there’s another aspect of reducing cloud costs to address. Oftentimes, certain teams may be the ones spinning up resources, but they’re not the ones dealing with the bill. MSPs and enterprises alike should shift their mindset to one where everyone is responsible for cloud costs.

This is where cross-team communication in the form of a FinOps coalition or a Cloud Center of Excellence is useful so that everyone knows what resources are in play and who is using what at all times. That strategy can also help clients move away from an “on-prem” mentality. They don’t need to pay for servers year-round, and they don’t need to leave resources on all the time, either. MSPs play a vital role in leading these conversations and providing insights in resource utilization, so that enterprise customers have clear visibility into their cloud.

Benefiting from custom charges and re-rating options

Margins are often thin for MSPs. There’s virtually no way to perform accurate end-customer billing and increase profitability at scale when relying solely on manual billing processes.

How MSPs price their services can make or break a business. “If I have 10 customers,” Marit Hughes explains, “I have 15 business models for how to handle those customers’ charges.” 

A cloud management platform can give MSPs several options for pricing their services. You can scale your business with a tool like CloudCheckr so that you’re not using Excel spreadsheets to track costs or have to set reminders in Outlook to end promotional discounts for certain customers. All of that, of course, can be done in CloudCheckr.

A few features include:

• Re-rating: Re-rating the bill lets the MSP charge a different rate for a service than the one they pay as the reseller, either as a markup or a markdown for promotional discounts.
• Custom charges: Setting custom charges helps the MSP factor in any additional charges for service, such as support or other surcharges. These custom charges can be dollar- or percentage-based, or a combination of the two.
• Bulk discounts: MSPs can configure cloud volume discounts and either share them by passing on savings to the customer or keep them all for themselves.
• Tagging: By tagging resources appropriately, MSPs can set up their customers’ cloud environments properly for chargebacks and create reports based on that information. 

Increasing business efficiency through automation, leveraging tools and partners

One thing that many MSPs don’t factor into the cost of doing business is that mistakes can be expensive. The cost of the average security breach topped $4 million in 2021, according to IBM. For cloud customers, 99% of these incidents result from preventable human error. That’s a good reason to look for some outside help.

Just because an MSP has the resources to keep up with business as usual doesn’t mean that they’re on their own. It’s easy for things to get lost in the shuffle, especially when juggling multiple projects. Vince Black suggests that a vendor or other technology partner can help an MSP “get someone else’s hands on the keyboard, provide workforce augmentation, or keep things running smoothly for you.”

That assistance could come in the form of a vendor, who can offer additional insights or training sessions on topics like FinOps. It could also come in the form of a cloud management platform that can automate manual tasks. This keeps staff well-informed, reducing turnover and overhead as the business retains helpful and productive employees.

Cloud cost optimization, billing, and automation to increase margins for MSPs

With the combined power of CloudCheckr and Spot Eco, MSPs can drive up to 30% in profit margins. The Spot Eco integration in CloudCheckr continually optimizes Reserved Instance (RI) and Savings Plan commitment portfolios to help MSPs achieve the best pricing for cloud services.