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Monthly recurring revenue and the MSP sales cycle

By Howard M. Cohen  |  Print this article Print
 
 
 
 
 
 
 

MRR. Monthly recurring revenue. To hear most MSP coaches and gurus tell it, this is the holy grail of being a managed service provider (MSP). The ultimate goal.

Yeah, not so much.

I don’t know about you, but I’m not sure getting a fraction of the fee every month for the next few years is really enough for me.  

Don’t get me wrong, I realize that if you keep selling more and more contracts, that fraction of the fee mounts up and mounts up. I’ve seen the same chart you’ve seen — with the bars growing up and to the right, paying you more and more MRR with every passing month. I’m not denying that happens, but has anyone ever shown you how long it takes for that to become meaningful? Do you really want to wait and see?

Oversimplified solutions

Several MSP gurus have told us the solution is simple!! Since you’re only going to make about half as much money on each deal, simply find twice as many customers and sell twice as many deals! Easy! No problem!

Stepping back into the realm of reality, there’s a better way to look at this: as an immediate opportunity as well as a long-term payback!

They call you “the wrapper”

When a customer buys a cloud subscription from you, they’re going to need other services before, during and after they start that subscription. It almost doesn’t matter what service the subscription is for

Before

Before they even buy the cloud subscription, they will need your help selecting that service, figuring out which is best from competing offerings and determining how it will fit into their organization.  Here’s a quick checklist of pre-sales consulting services you should be selling to your cloud customers:

Initial consulting
— Application inventory and evaluation
— Solution architecture/cloud service selection
— Information architecture/capacity planning
— Security planning with cloud integration design
— Application transition planning
— Environment transition planning

What? You say you don’t charge for consulting services like that? There is just no excuse for that!  Free consulting went out with Y2K. It’s simply not done. It reduces the value proposition for the entire industry. Are you really ready to say that your advice is worth nothing? Zero? Seriously??

Quick exercise: put an estimate next to each of the services listed above. Total that up and stare for a while at the amount you are passing up by giving it away for free.

During

Some customers may want to provision and deploy their own services. For those who are ready to send their own people out for training on how to do that, ask why they’d want to spend so much on something their people will do once. Compare their cost of training to your fee for the same services and be sure to include the payroll and other costs of lost time while their people train.

Once the clock starts running on a cloud service, your customer will want to be putting it to productive use. Your provisioning, deployment and training services will get them the most rapid start possible. These services include:

User transition training
— Cloud service provisioning
— Email system migration
— Email archiving
— Data migration
— User deployment and rollout

If the customer has office-based personnel, there may be additional services and sales for upgrading their on-premise network too! Mobile management opportunities as well!

After

Okay, so this section is a little unfair, since most of these are MRR opportunities, not upfront only.  But the big difference is that all the revenue goes to you!

Like any IT environment, your customer’s new cloud environment will require ongoing support services. Those will take the shape of a classic managed services engagement in which they’ll pay you for that support on a monthly or quarterly basis. Beyond maintaining their client devices, if you are still in that business, some of your opportunities include:

Day zero transition support
— User support program
— Network and cloud service QoS monitoring and management program
— Capacity management

Only that last one may be unfamiliar to you. One of the key characteristics of cloud computing is its elasticity. Customers can throttle storage, memory or processor power up and down as needed, and they only pay for what they use.

So who’s going to tell them when they can throttle down and save money? You are — that’s who — and you should get paid for that effort.

This last thought brings us to the thought I’d like to leave you with.

Innovation has been the constant in our channel. It has always been “innovate or die,” and now is no different from any time before. You need to apply your creativity and keep coming up with more new services to introduce. We’ve come to a time where we don’t sell much product and will need to keep innovating new services to continue winning more revenue from existing customers. Cloud computing doesn’t reduce your revenue opportunity. If you keep innovating new services to wrap around those subscriptions, you’ll find yourself making far more than ever — and without the credit headaches!