Talkin Cloud Blog

Transitioning Your Business to the Cloud, Part 1: Financial Planning

Tips from Ingram Micro on making the decision to sell cloud services—and how to get there.

Although making the move to cloud services is significant, it can be simplified. Every month we engage with hundreds of channel partners who are looking to sell cloud services or want to expand their existing portfolio of services to include cloud technologies. Either way, there are a handful of considerations and actions to take before you start selling. At Ingram Micro, we’ve broken them up in five phases:

  1. Financial Plan
  2. Solution Plan
  3. Operational Plan
  4. Marketing Plan
  5. Sales Training Plan

Right now, let’s focus on the Financial Plan and the Solutions Plan. These areas tend to be the most challenging aspects of cloud services for channel partners.  We’ll cover the other phases in future blogs.

Which Cloud Services Should You Sell?

Why would we include “what to sell?” under the financial plan? Remember: cloud is simply another way to consume IT, and not necessarily a new solution. Most of the partners we work with are selling on-premise solutions that can be converted to cloud, but before we recommend shifting the solution to the cloud, we need to make sure it does not damage their overall profitability due to the deferred revenue and profit in a cloud subscription model compared with an on-premise model with upfront payments.

To do this, we review their current technology practices at the solution level and ask the following questions:

  1. What profit margins do you currently see in this solution?
  2. How fast is this business growing?
  3. What is your win rate on sales proposals for this solution?
  4. Are you seeing demand for a cloud version for this solution?

The answers to these questions will place the solution into one of three categories:

  1. Stay the Course. If the current on-premise practice is driving high margins and growing fast, has a high win rate and there has been little customer demand for something different, we recommend the channel partner “stay the course” and keep doing what it's doing. Why change a good thing? We can revisit in the future to see if anything has changed.
  2. Move to the Cloud. If the current on-premise practice is less profitable than other parts of their business, is not growing and creating long sales cycles due to low win rates and customers are asking about a cloud option, we recommend they “move to the cloud”—stop selling the on-premise version and focus on the cloud for this solution. The current business is unhealthy, so even though there is deferred revenue and profit, the cloud model will yield better financial benefits.  
  3. Build in the Cloud. In this discussion, we often uncover cloud solutions that are complementary to the channel partner's existing on-premise practices. There is no risk of deferred revenue and profit since the partner is not selling an on-premise version today—it is all incremental. Why not “build in the cloud” and start enjoying a new profit stream?

When we take this approach, it helps the C-level executives (and especially the CFO who was formerly afraid of the cloud!) to become comfortable with building and executing a go-to-market plan for the agreed-upon cloud solutions, knowing they are building a healthier business with a brighter future.

Should You Be a CSB or CSP?

Once we help VARs or MSPs choose a cloud-based service, the next step is to help them define their relationship with the cloud. In other words, is it better for them to be a cloud services broker (CSB) or a cloud services provider (CSP) for the specific solution they plan to sell?  

Being a CSP requires significant capital investments around building and maintaining a data center, keeping the hardware and software current and developing intellectual property and processes to deliver the service profitably. If they choose to go this route, we offer a number of tools and services with monthly costs to use in a CSP practice to help them optimize cash flow and profitability.

In the CSB model, we partner them with a well-vetted service provider to deliver the service. The value proposition for the CSB is around consulting to solve business problems, developing bundled solutions, customizing and integrating the cloud services, providing consolidated monthly invoicing (adding margin of course!) and managing the overall customer experience in the cloud.

Each model has pros and cons, and we help partners understand the financial model to make the best decision for their business.

Don’t Forget the Fries!

Cloud offers the perfect opportunity to wrap in professional and managed services—the specific services depend on the solution. For example, when you sell a hosted email solution, someone has to migrate the old data and set up the mailboxes—these are professional services that can be attached to the cloud solutions and billed up front. Perhaps the customer would benefit from a help desk to answer user questions, or an administrator to manage the directory—these are managed services that enhance customer value and add recurring monthly revenue. We encourage partners to make these add-on services part of the planning process to see the full financial picture and make them part of the sales and marketing plan.

Put Numbers and Accountability to Your Services Plan

Next, we’ll help the partner build a bottoms-up financial plan based on actionable KPIs (key performance indicators). We input goals such as number of marketing leads, lead conversion rates, win rates, average contract value and gross margin to produce a monthly financial plan for the solution that can be reviewed regularly to make sure we’re on track to meet our objectives. Since it is tied to KPIs, we can quickly understand why we’re on or off the plan, and take the appropriate actions to change course.

Don’t Forget To Change Your Sales Compensation Model

When resellers make the decision to start selling managed/cloud services but don’t adjust their sales compensation model, what usually happens is that the new service program never gets off the ground. Why? Because the majority of salespeople would rather earn a large, one-time commission up front rather than earning a little bit of commission each month. I recently wrote an article on this topic, titled “Change Your Cloud Compensation Model Now, or Regret It Later.” Here’s a spoiler alert if you haven’t read that article yet: The best way I’ve seen to incentivize salespeople to sell subscription-based IT services is to pay them 12 months’ worth of commissions up front. You may need to leverage cash flow from your on-premises sales and services, but, as I explain in the article, you’ll still come out much further ahead in the long run.

Consider the Investments Required To Sell Cloud Services

A final financial consideration to keep in mind is the investments channel partners need to make in vendor partnerships and sales training. With regard to vendor partnerships, it’s important to do due diligence to ensure potential partners are financially sound and that they have profitable channel programs in place. Of course, if you’re working through a value-added distributor partner like Ingram Micro, we take that burden away because we thoroughly check each vendor financially and technically before bringing them on as a partner.

Making the time and financial investment in your salespeople is critical to the success of your new cloud service offering as well because there are key differences to the sales process they will need to learn. Be sure to select a company that has proven experience selling cloud services, so your salespeople can get the proper training they’ll need.

One other thing that’s critical at this point in the process is that the C-level executives within the partner’s company need to be involved and on board each step of the way. I’ve seen too many instances in which a well-meaning salesperson had big plans to start selling a new service, but things quickly fizzled out because he or she didn’t have the support of top-level management within his or her organization. By following these tips, and resisting the temptation to take shortcuts, you’ll build a better foundation for your business that will help you make the transition into selling cloud services—or simply selling additional cloud services—much smoother.

Jason Bystrak is director of Sales for the Services division of Ingram Micro North America. Guest blogs such as this one are published monthly, and are part of Talkin' Cloud's annual platinum sponsorship.

Discuss this Blog Entry 1

on Sep 20, 2013

Wow. Thank you for the article. It's really very useful. Thank you for breaking it down to parts, it seems for people who are transitioning their business to the cloud, there's really so much to learn.

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