Red-Bucket

In a cloud services model, partners are deferring revenue and profit and invoicing customers in a monthly subscription model instead of receiving full payment in 30 days – that makes partners nervous and with good reason. This kind of revenue switch as has a dramatic impact on your profit and loss statements. After all, your operating expenses stay the same but it takes time to realize the same monthly gross profit, which can easily drive your operating income into the red until you build some annuity.

So, how do you plan the shift to cloud in a way that ensures you are seeing more green than red? I’d suggest building your cloud bucket list. To get started, first analyze key metrics for your current business at the solution level. These include gross margin, growth rate, win rate for proposals, competitive risk, customer demand, and skill sets for your team. Benchmark these metrics against industry trends and personal expectations for your business, and classify each solution into one of three buckets:

Bucket 1: Stay the Course

When you identify particular solutions on your line card that 1) have high gross margins, 2) enable you win a fair amount of proposals, 3) enable you beat your competition, and 4) are foundational to a practice within your business that is growing at a higher rate than the industry average, keep doing what you’re doing. Don’t defer the revenue, but review your analysis every few months to make sure you’re monitoring shifting trends.

Bucket 2: Shift to the Cloud

If you can identify a solution that has 1) lower gross margins than desired, 2) a low win rate, 3) leaves the door open to your competition, and 4) has a low growth rate, then you know you’ve found a solution you should shift into the cloud. This is clearly an unhealthy practice so the financial risk to your business is minimal – defer the revenue in exchange for a more competitive model with higher profitability.

Bucket 3: Build in the Cloud

As you conduct this analysis, you will no doubt uncover compelling solutions that are not part of your portfolio today. They may be in high demand from your customers, have high industry growth rates, or are a complement to other solutions you deliver. There is nothing to defer – it is all incremental so start offering those solutions via the cloud from day one.

Once you have your solution portfolio categorized in these buckets, you can easily select the right vendors to support your practice, accelerate your business with high demand offerings, and shed unhealthy practices in exchange for profitable recurring revenue streams. You’ll also find yourself more comfortable with the cloud experience overall.

Bystrak