This article was written by Todd Hussey, Partner and Co-Founder at CSBexcellence. Todd is a veteran in the field of technology startup sales and marketing, specializing in the Managed Service Provider business since the mid 90s, and has since become a part of the Cloud Services Broker business.
Recently I wrote a post for Dyn titled “The Three Phases Of The IT Channel And Introducing The Cloud Services Broker” about how the IT channel has evolved over the years and how the Cloud Service Broker model is the next gen IT Channel. Today, I would like to take the next step and provide insight into what is going to make a successful Cloud Services Broker.
The business model of the Cloud Services Broker is dramatically different than that of the traditional VAR and even the Managed services Provider. What do I mean by that? Let’s look at the three most critical “legs of the stool” that makes a profitable Cloud Services Broker business.
What is the business financial model?
The VAR model was fairly straight forward with on-premise technology carrying a list price from the vendor, the VAR receiving a discount off list (i.e. their margin), man hours for implementation added up and priced with margin and then maintenance added to all of that, and voila, you have a profitable (if done correctly) deal. Get a deal, get paid, pay your rep, provide high margin recurring maintenance and then go get another deal.
In the Managed Services Provider model, it got a bit stickier. How do I price a remote managed service? How do I calculate my costs and margins etc and also how do create my back end efficiencies to give me a good margin and also how do I pay my sales rep? Over the past 10 or so years the Managed Services Provider has figured most of all this out. It also wasn’t a dramatic business financial model shift due to the fact that most Managed Services Providers also have a traditional VAR business.
So what are some of the key fundamentals to the Cloud Services Broker business model?
You’ll need to:
- Price recurring revenue services based on market acceptance and value (there is no list price here)
- Add on time revenue services (that’s where your margin will come from).
- Determine all your costs associated with service delivery
- Calculate margins for your one time and recurring revenue services
- Calculate and implement a low cost marketing and sales model (remember you now get paid over time)
- Calculate a customer acquisition rate and churn rate
Put all of this into a 3 year recurring revenue model showing the “power of recurring revenue”. That’s good for now.
High Customer Value Bundled Solutions
I also previously spoke about a restaurant analogy where the Cloud Services Broker needed to create high customer value bundled solutions (i.e. tasty meals). Do a thorough self-assessment of your core competencies and your market and create bundles of one time and monthly recurring revenue services into solutions that make business sense.
Again, customers are looking for business value solutions and not one-off technologies. The higher the business value your cloud solutions you provide the higher price and margin you’ll be able to command and the easier the sales process. Again, think restaurant. Tasty meals with your own “special sauce”, know your costs and margins to the penny and deliver quality service.
Last, but definitely not least, you’ll need to create a low-cost cloud marketing and sales engine. Days of the high base salary, high commission traditional outside sales rep are going away. The model and economics simply don’t make sense and also the customer is requiring less of a need for this type of sales model and person.
Customers are using the web and their network of peers to search out cloud solutions (exactly like when I recently bought a bike for my daughter) – the buyer goes through 3 stages: 1. Awareness 2. Consideration 3. Decision – all done on the web. You’ll need to match the customers’ buyer journey with your own model of “getting found” by them as they go through their journey.
This model is all about implementing an inbound sales model that economically aligns much better when selling recurring revenue cloud solutions and also aligns with how customers are buying today. Kind of a no-brainer as I see it.