Why MSSP Cost Analysis is Non-Negotiable for Profitability

In the dynamic and demanding world of cybersecurity, underpricing services is a fast track to burnout and business failure. Guessing your pricing based on competitor rates or a simple hourly fee without understanding your internal expenses is incredibly risky. A thorough mssp cost analysis pricing process reveals the absolute minimum you must charge to cover your expenses for delivering a specific service.

This minimum is your pricing floor. Charging below this floor means losing money on that service or client. Knowing your floor empowers you to:

• Set profitable prices confidently.
• Understand which services are genuinely profitable and which are not.
• Make informed decisions about staffing, tools, and operational efficiency.
• Negotiate from a position of strength, knowing your cost baseline.
• Justify your pricing to clients by understanding the value tied to your actual delivery cost.

Calculating Direct Labor Costs for Your Security Services

Direct labor costs are the wages and benefits paid to the personnel who are directly involved in delivering a specific security service. For an MSSP, this includes your security analysts, engineers, SOC staff, and potentially dedicated project managers for onboarding or specific security projects.

To calculate direct labor cost per hour or per service unit, you need:

1. Total Compensation: This isn’t just salary. Include loaded costs like health insurance, payroll taxes (Social Security, Medicare, unemployment), retirement contributions, paid time off, and potentially training costs. A good rule of thumb is to add 20-30% to base salary for loaded costs.
   • Example: An analyst with a $70,000 annual salary might have loaded costs bringing their total compensation to $91,000 per year.
2. Billable Hours: Estimate the realistic number of hours that employee is actually available to work on client-specific, revenue-generating tasks after accounting for internal meetings, administrative work, training, holidays, etc. A standard assumption is often around 1600-1800 billable hours per year for a full-time employee.
   • Example: $91,000 total compensation / 1,800 billable hours = ~$50.56 per direct labor hour.

Once you have the direct labor cost per hour for different roles, you can estimate the direct labor cost for a specific service by multiplying the hours spent by each role by their respective hourly costs.

• Example: A monthly security monitoring service requires 5 hours of Level 1 Analyst time ($50/hr) and 1 hour of Level 2 Analyst time ($70/hr).
  • Direct Labor Cost = (5 hrs * $50/hr) + (1 hr * $70/hr) = $250 + $70 = $320 for direct labor.

Identifying and Allocating MSSP Overhead Costs

Overhead costs are the expenses necessary to keep your MSSP running but are not directly tied to delivering a single specific service. These are crucial for accurate mssp cost analysis pricing.

Common MSSP overhead categories include:

• Tools & Software: EDR/MDR platforms, SIEM licenses, threat intelligence feeds, ticketing systems, PSA software (like ConnectWise Manage or AutoTask), RMM tools (if combined), cybersecurity training platforms, compliance tools, vulnerability scanners, etc. This is often a significant MSSP overhead.
• Infrastructure: Data center costs (if self-hosted), cloud hosting fees (AWS, Azure, Google Cloud), networking equipment, security hardware (firewalls not billed direct).
• Facility Costs: Office rent, utilities, internet, physical security.
• Sales & Marketing: Salaries/commissions for sales staff, marketing campaigns, website, CRM software.
• Administrative: Salaries for administrative staff, HR, accounting, legal, insurance, general business software (Microsoft 365, Google Workspace), professional services fees.

Allocating overhead requires assigning a portion of these shared costs to each service or client. Common methods include:

• Per-Employee Allocation: Total monthly overhead / Number of employees.
• Per-Billable Hour Allocation: Total monthly overhead / Total billable hours across all direct labor.
• Percentage of Direct Labor: A percentage added to direct labor costs.
• Per-Client Allocation: Total monthly overhead / Number of active clients.

The Per-Billable Hour or Per-Client methods are often most practical for service businesses. Let’s use the Per-Billable Hour method as an example.

• Example: Your total monthly overhead is $50,000. Your team collectively has 1,800 total billable hours per month.
  • Overhead Allocation Rate = $50,000 / 1,800 hours = ~$27.78 per billable hour.

Now, add this allocated overhead to the direct labor cost per hour for each employee role. Using our previous direct labor examples:

• Level 1 Analyst: ~$50.56 (Direct Labor) + ~$27.78 (Overhead) = ~$78.34 fully burdened cost per hour.
• Level 2 Analyst: ~$70.00 (Direct Labor) + ~$27.78 (Overhead) = ~$97.78 fully burdened cost per hour.

Calculating the Total Cost Per Service or Client

Now that you have the fully burdened cost per hour for your team members, you can calculate the total cost to deliver a specific service or support a client.

Use the estimated time each role spends on a service and multiply by their fully burdened hourly cost. Then, if using a per-client overhead allocation, add that instead of the per-billable-hour allocation used in the previous step.

Let’s revisit the monthly security monitoring example, this time using the fully burdened hourly rates:

• Example: A monthly security monitoring service requires 5 hours of Level 1 Analyst time ($78.34/hr burdened) and 1 hour of Level 2 Analyst time ($97.78/hr burdened).
  • Total Cost to Deliver Service = (5 hrs * $78.34/hr) + (1 hr * $97.78/hr)
  • Total Cost = $391.70 + $97.78 = ~$489.48

This ~$489.48 represents your minimum cost to deliver this specific monthly security monitoring service once for one client, covering both direct labor and a portion of your overhead.

This calculation is fundamental for effective mssp cost analysis pricing.

Setting Your Pricing Floor: The Absolute Minimum

Your total cost to deliver a service is your pricing floor for that service. Based on our example above, the pricing floor for the monthly security monitoring service is approximately $489.48.

Any price charged below this amount will result in a loss on that specific service delivery. While you might choose to price a foundational service near its cost to acquire a client, you must ensure profitability comes from add-ons, higher-tier services, or the overall client relationship value.

Understanding this floor allows you to:

• Avoid Underpricing: You know exactly where you start losing money.
• Evaluate Service Profitability: You can quickly see if a potential price is above your floor.
• Build Profitable Packages: Ensure the sum of the costs of individual components within a package is less than the package price.

Remember, the pricing floor is your cost baseline. It is not your target price. Your actual price should be significantly higher than the floor to account for desired profit margins, perceived value, market rates, and strategic positioning.

Moving Beyond the Floor: Value-Based Pricing and Presenting Options

Calculating your costs is the essential foundation for mssp cost analysis pricing, but it’s only the first step. Your target price should be based primarily on the value you provide to the client – the risk reduction, peace of mind, compliance assurance, and business continuity your services enable.

Modern MSSP pricing often involves tiered service packages (e.g., Bronze, Silver, Gold), bundling core services with add-ons (like advanced threat hunting, security awareness training, specific compliance reporting), and recurring monthly fees (MRR) rather than purely hourly rates.

Presenting these options clearly and interactively to clients is key to demonstrating value and allowing them to select the right fit. Static spreadsheets or lengthy PDF proposals can be confusing and hide the value.

Tools exist to help you present your carefully calculated pricing.

• For comprehensive proposal generation that includes e-signatures and contract features, you might look at tools like PandaDoc (https://www.pandadoc.com) or Proposify (https://www.proposify.com).
• However, if your primary goal is to modernize how clients interact with and select your pricing options – allowing them to configure packages, see costs update live based on selections, and understand the value of different tiers or add-ons – a dedicated tool like PricingLink (https://pricinglink.com) offers a powerful and affordable solution. PricingLink is specifically designed for creating interactive pricing experiences shared via a simple link, capturing leads based on client selections, and helping you move beyond static quotes. It focuses purely on that crucial pricing presentation step.