Three Reasons You Need a Service-Focused Business Model
While many VARs (value added resellers) may still reject or hesitate at the idea of a transition from a resale and break/fix business model to a monthly recurring revenue model, plenty of VARs have made this move successfully.
It’s not an easy switch. The business models are different. Compensating sales people is different. The way you do your accounting is different. It almost seems like one of those instances of “can’t get there from here.” Yet one of the most common questions from partners continues to be, “How do I move to a monthly recurring revenue model?”
Why is that? Resellers and break/fix IT service providers rely on deals for their revenues. Those deals are paid for upfront so that businesses can recognize the revenue immediately. When you move to monthly recurring revenue, your organization won’t realize that big payday upfront. Customers will consume and pay for services on a monthly basis. Revenue is more predictable, but there are no big bumps to push your cash flow.
So why have some VARs elected to make the change in spite of these challenges?
Even though the switch may be a tricky one, it’s not without huge benefits, particularly for IT solutions providers that specialize in security. Here are three reasons why adding a MRR to your business is a smart move.
- Customers want utility-based computing. More organizations, including SMBs, are looking to fortify their IT security but don’t have large capex budgets. By offering these customers a subscription-based consumption and payment model, VARs and managed service providers (MSPs) open their security services to a whole new set of customers.
- Higher margins. Reselling hardware and software has been the foundation of IT solution provider businesses for decades. However, the initial margins enjoyed by those early resellers have shrunk. So where are the big margins today? They are in offering monthly IT services. By offering value-added services in an opex model instead of a capex model, solution providers are in an emerging space that still offers high margins.
- Customers are more loyal. This may seem counterintuitive at first. After all, if your company is billing a customer on a monthly basis, doesn’t that make it easier for the customer to leave? However, the opposite is true. Customers will actually “auto renew” each month without going through a formal re-negotiation. If you are bundling your security service along with other valuable managed and IT services, your customers will be more loyal. They cannot get exactly the same offer from your competitor or from another vendor. You are selling your value add.
McAfee, part of Intel Security, is committed to helping you make the transition, and we’ve expanded our pricing options for service providers to include monthly, pay-as-you-go pricing–helping to substantially reduce the risks in switching to recurring revenue and on-demand models.
Richard Bowman is the Senior Director of Managed Services and SaaS at McAfee. Monthly guest blogs such as this one are part of MSPmentor’s annual platinum sponsorship.