Hardware as a Service – or HaaS – is a proven business model for MSPs and technology Solution Providers. It is a simple concept. You sell a total solution to the customer. They get the hardware, software, installation, training, consulting and of course it all comes fully managed for a single monthly payment.
This model gives Solution Providers the ability to increase margins on hardware and service, standardize their customer base and improve recurring revenue. HaaS also has the unique ability to cripple the cash flow of a Managed Service Provider.
Traditional Hardware as a Service
The traditional model of creating a Hardware as a Service program is to use the business’ operating cash to purchase the equipment needed for a customer project. Then they would rent it to the customer along with their managed services fees. Many times the MSP would make up the cost over a 12 – 18 month period of time, and it would be all income to the bottom line after that point.
The Trouble with Traditional HaaS
A Solution Provider doing a HaaS model works for a while, but at some point you could potentially run out of cash to keep buying the equipment.
“HaaS was helping us gain more deals…and bigger deals, but we were burning cash to keep up with the demand,” said Paul Sponcia, Owner of The IT Company. “The model was working from a sales and service perspective, but it had the potential to crash the system if we didn’t come up with a viable alternative.”
In addition, many MSPs aren’t skilled at looking at the credit of clients to best determine who will be low and high risk customers to do a HaaS program with.
Alternatives to Traditional HaaS
Today, Solution Providers are finding creative ways to get around the issues Sponcia saw with his HaaS program. Below are a few of them and the pros and cons of each.
HaaS Backed by a Bank or Credit Card
Some Solution Providers partner with a bank to better enable them to purchase the inventory needed to rent to customers. This is typically more scalable for a Managed Service Provider who doesn’t have the cash on hand to buy and rent the equipment. You can run into issues with scaling if the bank or credit card places a cap on what they’ll lend you.
You also have to remember in this scenario, you still bear all the risk. If a customer goes out of business, you could be stuck holding the bag on the equipment payments.
Manufacturer-Based Hardware as a Service
Some manufacturers have As-A-Service programs specifically for the MSP market. These provide a limited way to offer Hardware as a Service. For many of these programs, you – the Managed Service Provider – pays the manufacturer monthly for however many pieces of equipment you need. Then you mark-up the cost on each unit and rent it to the customer.
A challenge you might have with a program like this is there will still be hardware and software elements of your total solution that may not be part of the monthly payment.
Lease the Hardware
A lease is the perfect way to lower your up-front costs; but there are a few trade-offs. If you use a third party leasing company, consider the fact your customer will still have to pay two separate invoices for the total solution. Also in a traditional lease, you typically don’t have as much control over what happens at the end of the agreement; the customer can pay off the lease with the finance company and dump you for a competitor.
One upside with a lease is the finance company takes the risk on and you are protected if your customer goes out of business.
Hardware as a Rental®
This final alternative to Hardware as a Service came about because of the challenges with some of the options above. Hardware as a Rental or HaaR® incorporates some of the best elements of HaaS and removes some of the worst elements. Similar to a traditional lease, GreatAmerica pays you for the hardware, software and installation upfront; making you cash-flow positive from day one.
The nuance here is we will also bill your Managed Services and cloud monthly fees along with the equipment payment. Your branding is on the invoice so they know who it is coming from.
Finally, with HaaR, you have full control over what happens at the end of the agreement and customers on this program tend to upgrade after 3 years to updated equipment – many times without significantly changing their monthly IT spending.
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