Selling solutions “as a service” can be an excellent move for your VAR or MSP business. It can be the basis for a healthy recurring revenue stream that takes some pressure off attempting to cover your expenses with projects and one-time monthly sales. Providing solutions under this model can also help you build stronger relationships with your customers, giving you a reason to check in with them regularly as you manage and maintain their IT systems. You can also use SaaS and HaaS as an opportunity to position yourself as a trusted advisor, helping your clients get the most value from their systems and advising them on how to overcome business challenges by leveraging or expanding their IT systems’ capabilities.
Although there are multiple benefits associated with selling solutions as a service, Lee Rozeboom, VP of strategic relationships for GreatAmerica Financial Services, points out there are also some common mistakes that VARs or MSPs can make, especially when they’re first transitioning their businesses to this model:
1 Trying to Make the Transition to As a Service All At Once
Migrating your clients to as a Service is a worthy goal, but trying to transition all your customers simultaneously can create problems. Instead, Rozeboom suggests starting with one defined service offering, clearly understanding margin and recurring revenue, and carefully planning how you will provide the service and support your clients that use that solution. “Pick one or two things you want to layer in the product,” he says. “Don’t start with the full gamut.”
2 Not Training Your Sales Team
Your management team may be ready to transition to selling services, but is your sales team prepared? Rozeboom says MSPs “may be more excited about the technology than how to get a salesperson to make the change.” In addition, MSPs need to remember that sales reps will need time and training to shift from selling solutions that are a CAPEX for their customers versus selling solutions that are a monthly OPEX.
3 Not Incentivizing Sales People to Sell Services
Not only do you have to train your team on your new offerings, but you also need to incentivize sales reps to sell them. “That’s where many businesses fall down,” Rozeboom says. “They still plan to compensate their sales team similarly.”
You probably won’t sell services exclusively, especially when you first offer them. So, your sales reps can still sell systems via the traditional model. The temptation to sell solutions outright instead of as a Service may be strong since it’s more familiar. Rozeboom says businesses may find success by offering a fair commission to sell as a Service solutions but a little less, comparatively, for traditional sales. “It’s both a carrot and a stick,” he explains.
4 Funding Offerings that Limits Cash Flow or Increases Debt
When you sell IT solutions outright, the client pays for the hardware and software, and you may sell a service contract that covers the costs of replacement hardware and parts you need to keep on hand. But with as a Service, that money isn’t coming in upfront from the customer – you need to find another way to fund the solution initially. Rozeboom says you have three options:
1. Self-fund: You can use your resources to buy the hardware and software your client needs, compensate your sales rep, and then collect monthly payments from the customer, understanding that you’ll have a negative cash flow until your break-even point. He explains, however, “The better you get, the more you sell, and the more cash you’re tying up. So you can be held hostage by cash flow, hindering your business growth.”
2. Use bank lines of credit: Similarly, you can borrow from your bank, but this can lead to heavy debt, especially as you become more successful at transitioning clients and providing managed services – the more Services you sell, the more you have to borrow. “If you’re trying to build value in your business, this will work against you,” Rozeboom says.
3. Work with a Financial Services Company: Some companies have programs specifically designed for IT solution providers with as a Service offerings. GreatAmerica Financial Services, for example, offers Hardware as a Rental, which covers costs for hardware, software, installation, training, support, and services and bills customers every month. In addition, it pays the VAR or MSP upfront to cover expenses, significantly reducing risk, and forwards monthly recurring revenue, if applicable.
5 Not Having a Plan for the End of the Contract
Rozeboom says as a Service contracts are written for a specific term, whether 24 or 36 months – or more. So it’s essential to have a strategy for the end of the term, whether continuing the service, updating the technology, or changing the services you will provide.
The end of the contract term is a prime opportunity for a refresh or selling deeper into the customer. Have a plan to make the most of it.
Make a Strategic Transition
There’s a lot to think about and many questions to answer before you sell your first as a Service contract. The planning you do upfront will help you avoid mistakes that can slow your transition to this new model and overall business growth. Making changes at a reasonable pace for your team and your clients, laying the groundwork for your sales team’s success, and funding hardware and software in a way that makes the most sense for your business will help you find ways to optimize this new part of your business.