Here’s what a service-oriented VAR model can cost you. First, the client needs to wait until the product is fully activated and set up. Then you have to wait until they find they need help with a particular component of the product.
You have no way to know when this will happen and exactly how much revenue you can expect in advance, as the one-time service cost depends on the type of service they require at the point of purchase.
This is a very disorienting, unstable way to run a business because there’s no stable income or predictability down the road. On top of the inherently volatile nature of this business model, VARs are at the mercy of software manufacturers when it comes to the pricing of the software itself.
That’s why more and more VARs today are looking for ways to set up a recurring revenue. But if recurring revenue is good for business, why isn’t it already the norm across the board?
The transition to a recurring revenue model isn’t always easy due to this major point––it goes against conventional sales training.
For one thing, sales teams are trained to land big one-off contracts that earn them large commissions. Going after a monthly, as-a-service contract means smaller payments over a longer period of time, which may not be as attractive for both the sales team and the company as a whole, especially if there are cash flow problems.
Another problem is the vastly different approach to managing customer relationships. A single point-of-sale doesn’t require ongoing communication with the client. The nature of the relationship between the VAR and the customer is transactional and doesn’t require long-term commitment or partnership. By contrast, retaining customers that make monthly payments requires a higher level of customer satisfaction with more time devoted to customer success. The skillset that goes into this differs from what makes great salespeople, which means additional training is needed.
This difference requires a shift in mindset in order for the recurring revenue model to work.
Despite the challenges, the benefits of recurring revenue outweigh the cons in the long run. In addition to the predictable monthly revenue, it creates opportunities for strong relationships with returning clients and adds value to your business.
Rather than being the company that gets sought out only when something goes wrong, a recurring model enables VARs to position themselves as valuable partners that consistently help out businesses long-term. They can offer managed services that have more inherent value for businesses, such as ongoing upgrades and maintenance or SaaS (software-as-a-service) solutions. In essence, they become a fundamental part of the business.
When it comes to profit, there’s evidence to show that recurring revenue plays a major, if not the most important role for VARs and MSPs. According to the State of North America Managed Services study sponsored by The 2112 Group, 64% of those surveyed named recurring revenue services were the key drivers of business growth.
A majority of respondents also reported that both managed services prices and profits were increasing, suggesting that VARs moving in the direction of recurring revenue stand to benefit more than those relying solely on reselling.
Finally, winning over a customer year-over-year can generate more revenue in the long run than a single hefty contract. Not only that, the barrier to entry for customers decreases with a monthly subscription model as the initial sales price tends to be lower. Different payment options and contract lengths can also offer more flexibility for the customer while solidifying income predictability for the service provider. All these factors lead to both parties viewing the relationship as a long-term investment rather than a one-time engagement.
So you’re considering moving to a recurring revenue stream. But where do you start? You’ll want to make sure your cash flow remains sustainable during the transition, so you need to find a way to reduce the hit on your sales while you convert or attain customers with the new model.
One effective way to do that is through product activation. Typically, a company might consider purchasing your services as they set up a new system. But that means you’ll have to wait until the onboarding process is complete, during which time you aren’t generating any revenue. By getting involved in the beginning stages of software implementation, VARs can generate additional sources of income while reducing time-to-revenue.
Let’s take a look at how VAR technology activation would work in practice.
Product activation-as-a-service is a major opportunity area for VARs looking to transition to a subscription model because it drastically reduces the time it takes to see revenue. By optimizing the onboarding process, VARs benefit from accelerated payments and higher customer satisfaction.
Here are some strategies to implement for an optimized product activation process.
A significant advantage of product activation-as-a-service is that it works in conjunction with any other services you might offer. Whether your contract specifies ongoing maintenance or product support and updates, providing that initial product activation along with the other service can make your proposition more attractive to businesses looking to set up new technology. Whether you package the service into the whole or offer it as an add-on service, work out a pricing plan that makes the most sense for your business and can generate immediate revenue.
To increase profit margins with a recurring revenue model, it’s essential to examine your team setup and how the distribution of your skilled technicians affects the bottom line. For example, product activations can be performed by lower-tier technicians who command lower per-hour rates than top-level engineers whose skills are best suited for more difficult tasks. Once the product has been activated and the payment has been made, VARs will have more cash reserves to provide the skilled support the customer will rely on long-term.
In today’s cloud environment, there are numerous SaaS vendors with white-labeled products that streamline software implementation and support. This provides an opportunity for VARs to expand the scope of their service or otherwise facilitate their existing services through automation and cloud access. Customer activation is a big area where the help of a SaaS provider can make the entire process faster and smoother.
Boomtown is a product support platform that provides easy on-site activations for its VAR partners. VARs looking to transition from the single-sale model to a recurring revenue model can use Boomtown’s solution for a seamless conversion process, as the SaaS provider handles all the challenges of deploying a team that can set up and activate technology on-site, in addition to facilitating ongoing support.
Get in touch with Boomtown today to schedule a demo.