3 Ways to get ahead in the Race toward Annual Recurring Revenue (ARR)
It is widely agreed and increasingly evident that to thrive in the 21st century you need to digitalize.
Customers now demand solutions not products and they want simplicity. They are looking for a one-stop-shop and require usage- or user-based monthly billing that gives them the ability to up- and down- size according to market fluctuations. According to channelfutures.com: 20% of Lenovo’s device as a service (DaaS) customers are on a flexible term due to the past year’s hiring fluctuation; they expect it to stabilize this year and Lenovo is able to manage that using their subscription billing model.
Managed Service providers (MSPs) have emerged as key players in this anything as a service (XaaS) era and have the potential to offer a vast range of bundled hardware and software such as (DaaS), workplace as a service and now even WIFI as a service.
Of course, others have seen this opportunity and now everyone is a services company. Organizations that previously only sold hardware, for example Xerox, have evolved to offer services on top of their original equipment and now, 77% of their revenue comes from after-sales recurring revenue.
Grow SaaS revenue based on informed decisions
When running any business, it is crucial to offer the right solutions to the customers’ problems, even if the customer does not know what they are. It is the role of the MSP to identify those challenges and solve them. If you understand their business and have visibility of your customers’ usage, not only can you bill them accordingly, but you can also anticipate their future needs and cross- and up-sell them other solutions.
Furthermore, by supplying the right solutions they can help the customer reduce or avoid shadow IT scenarios. Shadow IT is a loss of potential revenue for the MSP not to mention a headache to manage for the customer.
Strategic expansion of your catalog means you can proactively offer usage-based, higher-margin services and bundles as opposed to reacting to ad-hoc requests from customers, which are often more costly, and margins suffer.
Once billing is monthly or usage- based and your customers are committed to one- or two-year contracts, you have a predictable annual recurring revenue. The customer lifetime value (CLV) goes up and you can look at expanding your reach and offerings even further.
Populate your portfolio strategically and reduce time to revenue
In a market that is growing exponentially, and where competition is intensifying, you have limited time to create these cloud solution bundles. It is, therefore, vital to have an environment that enables a fast turnaround from idea to market, and essential to manage and expand your catalog strategically. Once your procurement processes are fully automated and centralized, time-to-revenue reduces dramatically.
Choreograph your network of subsidiaries to consolidate growth
Mergers and acquisitions in the MSP ecosphere are on the rise, the main reasons for this are the need to increase margin by providing services and software on top of hardware; geographical expansion and the ability to shore up technical skills in areas such as cloud computing.
An MSP which now finds itself with subsidiaries across different regions has several competitive advantages. Not least, the possibility to use its group-level power in negotiations with vendors and distributors. This means that subsidiaries, while maintaining their independence, can benefit from better pricing and the group as a whole achieves higher margins and lower total cost of ownership (TCO).
By centralizing procurement, analyzing customer usage, and unifying operations at a group level to strategically manage your solution catalog, the path opens up to cross- and up-selling solutions, and drives innovation in the XaaS arena to increase revenue through ARR.
Contact CloudBlue to learn how we are helping managed service providers build a wider array of bundled solutions and services, offer device as a service models, and optimize their end-to-end procurement, fulfillment, and delivery operations in a multi-cloud world. For more information, read how managed service providers are growing with new ARR lines of business. You can also read our whitepaper: “A relentless race toward recurring revenue”.