As I was paying bills last month, I realized just how prevalent the recurring revenue business model is. Once a month, I have a number of subscriptions and services I pay for. There’s the usual, like my mortgage, utility bills, car, and internet and cable. Then there are extras like Netflix, Amazon Prime, Sirius radio, car lease, cell phone bill (which includes my leased phone), Birchbox, and credit cards… some of which are to individual retail locations.
The reason recurring revenue is so appealing to so many businesses is because it adds stability and predictability. Those companies have reliable revenue coming in their door. With the high failure rate of small businesses, you should pay close attention to these five signs that you should invest in recurring revenue as a Managed Service Provider.
- The technology you support isn’t standardized. – With recurring revenue, you can have most of your clients on the same hardware stack. This is the key to keeping your system engineers and your clients happy. Putting together a 3 – 5 year plan for your clients and wrapping the hardware cost into your managed service offering is a wonderful way to standardize. I know there will always be some exceptions because of that one application that only runs on X, but this is a great start. Plus you are being very proactive by helping your client budget and keep up-to-date on technology. Did I mention this makes your most important asset (your people) happy?
- Your hardware margins are poor. - We all know how margins are continuing to dwindle. However, you can gain that margin back with recurring revenue. The MSP is showing the value of their services, which include the hardware. It is also difficult to price shop when the hardware is included with everything the service level agreement (SLA) spells out. It is a win-win situation.
- Customers are on month-to-month cancellable contracts. - If your managed service matches the warranty or life-cycle of the hardware, you are no longer looking at month-to-month contracts. That only makes sense because the clients want you to be there to support the hardware you install. You are much stickier when including hardware in your solution. Once a customer is in a recurring system, they don’t like to leave because that means finding and learning a new system which takes time and money.
- You don’t have a predictable sales and revenue cycle.– With recurring revenue, you have a predictable income that allows you to plan for long-term decision making. You can be confident when you make an investment that you’ll have the earnings to back it up… Something that is a lot tougher when income is unpredictable and liable to change.
- You look and sound like every other Solution Provider in your area. - Managed services are popping up everywhere and MSPs are always looking for ways to differentiate from their competitors. Imagine the scenario where an MSP says, “Our managed service fee is $2,000/month, but our SLA requires that your hardware must be under warranty to be covered under our program.” Then they drop the bomb that the customer needs to spend $15,000 or more in hardware upgrades to get everything up-to-date before they start the managed service. Now, imagine going into a sale instead saying, “For $2,700 a month we will upgrade all of your hardware and take care of it for you.” SOLD!
How many recurring revenue models are you personally – or as a business – a customer to? I’m willing to bet most didn’t exist 10 years ago, or you used to pay upfront for. Times change and so do we. Invest in recurring revenue for your company and you’ll start sowing all these benefits and more.
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- managed services
- recurring revenue