Considerations When Launching Your Cloud Practice
Value-added resellers (VARs) and Managed Service Providers (MSPs) need to offer cloud-based options to compete for and retain business, but many VARs recoil at the daunting thought of building cloud infrastructure that quickly scales. Cloud requires a substantial up-front capital investment. That financial burden seems to grow when VARs contemplate the transition from capital sales revenues to Monthly Recurring Revenues (MRRs). The impact on the VAR’s business model becomes multifaceted and a little intimidating.
This way of thinking doesn’t jibe with reality. VARs don’t manufacture the hardware or code the systems they resell to customers. Why would they need to build their cloud infrastructure to deliver cloud services? They need to resell cloud services and focus on the value they can add in the process. To effectively resell the offerings of a Cloud Service Provider (CSP), VARs need to consider specific criteria. Some are visible to customers – others are not. Here is a quick checklist.
Don’t build – label
CSPs can offer “white-label” cloud services that VARs can incorporate into their brands. These services should look and work like something the VARs made and maintain, even if it belongs to a third party.
Create a “cloud suite” of IT products
Few customers move their entire IT infrastructure, all their applications, and data, to the cloud in one fell swoop. That’s why VARs need to offer a gentler migration path that’s easier for customers to embark upon. CSPs that offer a suite of products, like backup, disaster recovery, cloud servers and so forth, help VARs create a “cloud strategy” their customers can use to move IT operations and assets to the cloud at a comfortable pace. VARs benefit by setting up their cloud suites and roll them out using their brands.
Add value to current customers
Customers may already have all the services they need. VARs who want to convert customers to the cloud (and its MRRs) must do more than simply replace traditional offerings with cloud IT. They need to differentiate the cloud. If they don’t, the cloud looks like a commodity approach in which cost is the only difference. VARs must design and build cloud practices that create value unavailable elsewhere. That extra value, whatever form it takes, can result in incremental revenue streams that supplement MRR.
Remember what prospective customers want
Differentiation and added value can help VARs and MSPs move existing customers to the cloud. Prospective customers may notice differentiators, but they initially shop for “bread and butter” services and features like backup, uninterrupted access to business data, disaster recovery, security, support and so forth. VARs and MSPs that offer highly demanded services via the cloud effectively expand their product portfolios.
Plan for revised cash flows
Cloud-based services lead to MRR, which stabilizes cash flow in the long run. Cloud is typically more profitable than on-premise technology sales and makes it easier to nurture ongoing relationships with clients.But these cash flow, profitability and customer engagement improvements can take time to materialize. That’s why VARs need to effectively launch cloud service sales and minimize foreseeable cash flow issues. VARs can use tactics like the following to balance these concerns:
- VARs can sell cloud services as part of their capital sales. For instance, selling a server gives a VAR the opportunity to incorporate cloud backup for the applications and data that are on the server.
- VARs can also promote the positive effects cloud has on a client’s financial statements when they replace large capital investments that are difficult to forecast accurately with more manageable monthly operating expenditures.
Modify sales compensation plans to reflect MRR
VARs need to re-evaluate not only their cash flows but also those of their salespeople. Sales compensation plans must reflect the value of winning long-term contracts while helping the VAR evolve into a cloud-based MRR. Paying large commissions up front to encourage salespeople to close long-term contracts creates an immediate culture change but can harm short-term cash flow. To minimize this harm, VARs can pay commissions each month on recurring margins and otherwise restructure compensation plans.
Choose the right partner
The right CSP contributes significantly to the initial and ongoing success of a VAR’s cloud services. The right CSP helps the VAR launch the right services for customers. The right CSP offers services that the VAR can brand as its own. The right CSP effectively supports the VAR’s cloud business with marketing, technical, and business support and advice.
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