A Lesson from Microsoft WPC: All Revenue is Not Created Equal
In the time of IT M&A, the single question both buyers and sellers want to know before the transaction: What is your business worth?
That is the exact issue Dana Willmer with CloudSpeed addressed this week in his breakout at Microsoft World Partner Conference. During the presentation: What Will Your Business Be Worth in the Cloud Era? Willmner cited two tidbits that resonated with me.
- Recurring Revenue is most valuable.
First, this slide below titled The Hierarchy of Margin shows the stair-step increase in margin as it relates to the type of sale. You can see the higher margin sales are sold as recurring revenue – for example Managed Services and Packed IP have expected margins of 45% and 65% respectively. This is information most already know.
Image source: Dana Willmer with Cloudspeed
The real story here is when suitors are looking to buy companies like yours, the logical focus is how much of your revenues fall into each of the four buckets. Companies with Managed Services and Cloud sales are getting 45% and 65% additional margins respectively, and therefore are going to be valued much more favorably than their counterparts in the product resale or project services businesses.
- Not all Managed Services are valued the same.
Willmer asserts not all Managed Services are valued the same. Let’s assume MSP #1 and MSP #2 both had 100 customers. However, MSP #1 had month-to-month contracts and sold hardware to those customers for cash. Then, let’s assume MSP #2 sold every customer on a 36 month contract and all the hardware sold to the customers was included in the contract. MSP #2 has a predictable lifecycle on all the hardware.
Which would you pay more for?
It makes me think of many of our partners who sell an all-inclusive solution where hardware, software and Managed Services are billed to the customer on one monthly payment. When Solution Providers use GreatAmerica as the funding source, they remove their risk and reduce cash flow issues they could face with HaaS. Check out this case study to see if we can help you increase the value of your business by creating more VALUEABLE revenue.
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- managed services
- monthly payment
- recurring revenue