Cloud BDR: The VAR’s Path to Managed Services
The cloud provides a natural, evolutionary path into managed services for IT resellers serving small and midsized businesses (SMBs). In particular, backup and disaster recovery is a great entrée into the cloud because it provides a predictable revenue stream, it offers higher margins than the traditional product sale, and there’s a growing need for SMBs’ data and application uptime.
Best of all, the cloud has a similar sales motion as that for IT products. In other words, think of the cloud as a product disguised as a service that can complement on-premise offerings.
The Cost of Downtime
In 2010, more than 8.8 million servers were sold with more than half going to SMBs for business-critical applications and data. In addition, 246 million laptops were sold, on which 60 percent of business data resides. Not surprisingly, SMB IT spending priorities are directed at data growth, especially on improving data protection and implementing a disaster recovery plan.
Now consider that IT downtime costs the average North American business more than $159,000 per year. This is attributable to lost revenue during downtime, the inability to comply with regulatory requirements, and customer defections due to brand damage. Most alarming is that 66 percent of businesses don’t have a business continuity or disaster recovery strategy in place to protect against this costly downtime.
An Evolutionary Transformation
The cloud model is predicated on monthly recurring revenue (MRR), which tends to offer much higher margins than the traditional product sale. It also provides a continual revenue stream that grows with each new customer. To illustrate, let’s compare $1,000 of new MRR with $100,000 of new hardware sales each month over a five-year period:
The addition of just $1,000 in new MRR every month yields more profit than the lower-margin hardware sale of $100,000 per month. Moreover, if all selling stopped after the fifth year, the cloud still would provide an ongoing revenue stream. MSPmentor talks about this in a recent article, How to Add $700,000 in Recurring Managed Services Revenue.
Since the reseller channel will continue to be the preferred route for delivering IT solutions to the SMB, a cloud-based backup, business continuity and disaster recovery solution enables the gradual addition of highly profitable MRR.
While the cloud has a similar sales motion as traditional IT products, there’s one fundamental difference: Managed services require the reseller to engage the customer on a regular basis as a trusted adviser. This means truly understanding the customer’s needs, recommending the level of service that’s most appropriate to meet those needs, and staying connected with the customer to identify when to dial services up or down to meet new needs. Examples include adjusting the amount of cloud storage for backups or granting access to additional data protection features.
Resellers should move into managed services only if they are committed to this shift in behavior. Doing so will ensure the customer remains committed to the reseller, which in turn will keep competitors at bay and uncover new selling opportunities.
Todd Scallan is VP of Products of Axcient, which works closely with MSPs and VARs to provide data and application uptime solutions for SMBs. Monthly guest blogs such as this one are part of MSPmentor’s annual platinum sponsorship. Read all of Axcient’s guest blogs here.