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From managing overhead to building value-added services, how to maximize income.
March 7, 2016
By Brian Singer
Enterprise demand for cloud solutions – both infrastructure and applications – presents a tremendous opportunity for managed service providers and value-added resellers. But, as an MSP or a VAR entering this brave new world, you must beware: There are pitfalls that can diminish margins, negatively impact efficiency and make the cloud an unprofitable business venture.
Reselling cloud solutions is not just a simple technology transition. It requires a fundamental retooling of the business model — from an understanding of consumption-based billing and how to price offerings to a new platform that supports greater automation and hiring employees with the skill sets to support cloud offerings.
There is very little margin or differentiation if you simply pass through cloud solutions on a resale basis. Instead, where the opportunity – and profit – lie is in understanding how to add value to that cloud offering. Successful cloud resellers are the ones who excel at identifying and delivering what doesn’t come out of the box.
But even offering these types of value-added services may not be enough. You also need to drive excessive costs out of your operations wherever you can. If your company is not operationally efficient, the costs related to activities, such as provisioning and billing, could overwhelm you.
As your company adds cloud solutions to your mix of offerings, there are three best practices to employ. With these, you can ensure you’re delivering what your customers need without losing profitability to operational challenges:
1. Manage overhead wisely: For a classic reseller, cloud solutions, by nature, are not very sticky. Your company could do all the work to build and sell a solution, but, because of the flexible nature of the cloud, a customer could easily take its business to another provider to manage the service delivery. To be successful, you need to make investments to provide end-to-end service excellence. It’s at this step where automation is critical. Consumption-based models, monthly billing requirements and repetitive tasks related to provisioning services need to be streamlined and automated before they become a huge burden on your organization and eat into profit margins.
For example, CorpInfo, a premier AWS consulting partner, faced a difficult process involving considerable time and effort to produce bills for its clients, many of which spend in the high six-figures for AWS-related deliverables. CorpInfo implemented a streamlined cloud-billing solution, which enabled it to reduce billing overhead by 90 percent. By eliminating billing delays, human error and administrative processing time, CorpInfo has been able to focus on increasing its customer base and delivering excellent service to those customers.
2. Accurately calculate volume discounts: As a reseller purchasing cloud services, you will get discounts for buying in bulk and be able to serve many customers with the capacity you purchase. The challenge is understanding the right level of discount to pass onto each customer, when to recommend that the customer prepay for services and when to prepay for services yourself. You will have to adopt the same type of billing methodologies that cloud providers use to ensure you understand the complexities of consumption-based usage and how to appropriately apply discounts for customers without sabotaging your margins.
In a typical example, a reseller can cut their customer’s bill and double or triple margins by effectively optimizing their billing with a cloud provider.
3. Make cloud just a portion of your overall offering: Even though businesses are moving many applications to the cloud, plenty of others still remain in private data centers, whether because of security concerns or because it’s more economical. With businesses taking this hybrid approach, it’s important that you don’t limit yourself with cloud-only offerings. You also need to add value to your offering by delivering solutions for security or compliance that can go hand-in-hand with cloud services, or by assembling all the various IT pieces into an efficient system for your customers.
In addition, avoid offering one-off services for each and every customer; instead, build a set of homogenous services that can apply across your customer base, and automate these as much as possible to leverage efficiencies. In our experience, the margin from selling and configuring these standardized services is often greater than the cloud services themselves, and organizations that do this well are able to offer better service at lower cost to their customers.
By implementing these secrets to success, you can take advantage of the opportunities that the cloud presents to your business and deliver them to your customers in a way that increases revenues and gives you an advantage in today’s hyper-competitive environment.
Brian Singer is co-founder and senior vice president, products and marketing, for Orbitera, a leader in cloud commerce. Prior to Orbitera, Singer held key roles in business development and product marketing at BMC and Novell. He earned a Master’s in Business Administration from the MIT Sloan School and a Bachelor of Science in Computer Engineering from Brown University. Follow him on Twitter @Orbitera.
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