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Resale-only revenue tends to be cyclical, with high peaks, but also valleys that can sometimes be hard to endure.
October 10, 2017
One-time sales of VoIP hardware can be great. You get paid right away, the check looks big, and once you are paid you can move on to your next project. But the business model isn’t without its downsides.
For starters, one-time sales can make it hard to predict your business, staffing and cash flow needs. Revenue tends to be cyclical, with high peaks, but also valleys that can sometimes be hard to endure. Often, while you wait on the next sale, your payroll still has very expensive, talented people waiting on the bench for the next project.
Market changes, like the introduction of cloud VoIP, are also making the traditional, hardware-first way of doing business more difficult. Many customers no longer like the idea of buying a PBX and living with that piece of equipment for 15 years; it no longer fits how they want to do business. They want VoIP to be like their other technology investments—flexible enough to accommodate rapidly changing technology, business, financial and support needs.
These changes are causing many VoIP resellers to rethink how they go to market. In particular, many want to shed themselves of the hardware-only sales model and move towards a VoIP managed services provider model.
As a reseller, if you’ve been weighing the options of adapting your business for cloud services and moving to a managed service provider model, here are a couple of approaches that are successful.
The first consideration is the type of platform with which you want to go to market. Determine the amount of responsibility you want for both installing and supporting your customers’ VoIP solutions.
Option one: Simply sell a hosted UC solution, which the customer pays for on a monthly basis, usually based on the number of users on the system. In this scenario, the customer pays the hosted solutions provider, who in turn pays a commission to the company that sold the customer.
This will allow for a steady stream of monthly revenue for as long as the customer is under contract with the cloud provider. Also, it’s low touch and does not require a highly skilled VoIP engineer. Both installation and support can be done by the cloud vendor, relieving you of this burden and cost. This is particularly useful if you don’t have—or don’t want—voice expertise, but merely want the benefit of capturing this business and the profit.
The problem is, that cloud is not always a fit for every customer. Some don’t want this type of service or it is not technically possible to deliver this with a high level of assured quality. In the case of a slightly larger customer, cloud generally costs more than buying and owning a UC system.
Additionally, some VARs don’t like to turn this role over to their provider. They prefer to be the primary point of contact for the customer, and to get paid for that service. This is especially true for companies whose primary business is managed services. For many of those companies, they prefer to support all of their customer’ technology and would include voice as an additional item on a larger managed services contract.
Option two: Sell either a hardware-based system, or a software-based one. This is a scenario that will allow you to maintain the relationship with your customer while also having more technical flexibility. Often, this means buying the equipment and leasing it back to the customer for the term of the agreement. This means you either need to have the cash flow to accommodate the purchase, or you need financing. For many VARs this is not an option that they want to, or can, pursue.
Alternatively, the customer can buy the equipment and the service provider arrange to support it, usually on a contract that gets billed monthly. This requires no upfront capital on the part of the managed service provider.
Take caution: Hardware, like traditional PBXs or digital systems, can often be more burdensome to manage and require technicians with a very unique skillset. This means that even basic support can only be handled by a few, higher cost voice technicians that are familiar with that manufacturer’s products.
A better approach is to look for a more flexible solution that is less hardware dependent, such as a system that runs on a server at the customer’s site, a datacenter or in the cloud. This will provide more technical flexibility that allows the customer to better meet ever changing business continuity, technical strategy and business needs.
As a service provider, this can also greatly reduce your cost and complexity to support customers, if you choose the right system. That’s because support can be done remotely, and when treated as another application running somewhere on the customer’s network, a lower level NOC technician can support much of the day-to-day needs of the customer, leaving more technical issues to a voice engineer.
A software-based solution also might offer the customer more flexible pricing options. For example, sometimes vendors make available software lease options specifically tailored for the managed services provider.
In fact, picking the right vendor may be key to making the transition from hardware to services. A vendor that is able to accommodate a wide variety of customer needs will allow you to maximize your sales and ensure that you have an offering for just about every customer.
To further streamline operations and ensure you keep support costs low, it is also best to work with a vendor that offers the same solution across multiple platform types (cloud, on-premise, software). This means your techs need to only know and support one system across your entire customer base.
The biggest challenge that most resellers have in making the transition to a recurring revenue model is no longer getting money upfront. This has obvious implications on your business’s cash flow.
Here are two tips to ease the transition from up-front payments to recurring revenue:
Take it slow. Slowly transition customers to the new model. Pick and choose which customers you want to roll this new model out to. It’s best to start with customers that have lower communications requirements, but who you may already have an existing managed services agreement with for their other IT needs. This will allow you to easily slide the new UC managed services into an already existing contract.
Charge for some up front services. Despite some customers’ interest in a “pay as you go” model, there are things that customers will pay for upfront because they see value in those services, like network assessments to ensure quality, training for their employees, and custom configurations to match their business needs. These services can help ease the financial burden and give you some upfront cash, while you wait for your monthly payments to accrue.
A managed services approach with monthly revenue can benefit both VARs and customers. While the transition is not an easy one for companies who primarily sell equipment today, with a little planning the transition becomes much easier. The long term benefit to the business is more predictable revenue, increased ability to plan and better labor utilization.
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