This blog was originally published in The VAR Guy on March 19, 2012.
You’re a VAR, trying to crack into the cloud solutions market. You understand why the opportunity is hot but you’re not exactly sure how to make your first monthly recurring revenue (MRR) sale. After meeting with hundreds of VARs at the HP/Axcient Cloud Roadshowthis past month, I can tell you that you are not alone – about 75% of attendees were looking to make their very first Software-as-a-Service (SaaS) or managed service sale. In case you missed the Roadshow, here’s a summary of the five steps we presented for how to align your business model to leverage the cloud.
1. Assign an Internal Business Owner.
If you are serious about selling cloud solutions and starting to build a high-margin recurring revenue stream, you’ve got to put someone in charge of the task. An initiative without an owner is not going anywhere. The owner needs to be involved in each step to keep the rollout moving forward and ensure success.
2. Write a Business Plan.
Create a plan with project goals, milestones, and specific, measurable steps needed to achieve them. Remember that you can’t manage what you can’t measure! Make sure each step is SMART – Specific, Measurable, Actionable, Relevant, and Timely – and don’t forget to outline the metrics you’ll use to determine whether the milestone has been achieved.
3. Create a Motivating Sales Compensation Plan.
VAR salespeople are used to selling IT products or big projects that reward them with a lump sum payment based on a set percentage as commission. They might sell a $50k virtualization project and pocket 20 percent of the gross profit – a nice, immediate reward for closing the deal. But how do you convince them to sell $1,000 of MRR when it’s going to deliver a smaller commission check? While MRR is positive for your company, it’s uninteresting to a good salesperson unless you change the compensation structure to provide the proper incentive. Here are some motivating ways to compensate for MRR sales:
- Pay the salesperson the amount equal to the first 1-2 months of MRR – the full amount, not just the profit – and then your company keeps all of month 3 and beyond of the recurring revenue (as discussed in my blog Sales Strategies for Cloud-based Service Companies)
- Pay an accelerator, an amount based on the gross profit of the total MRR over a 12-month period, only which is paid up-front
- Pay commission based on achievement against specific objectives (MBO bonus plan) rather than on a set quota (as discussed in my blog Sales Incentive Strategies for SMBs)
4. Develop Your Branding Strategy.
Identify what core strength or value makes your business truly unique, then focus on it in your marketing to differentiate yourself from other resellers. Channel sales/marketing strategist Robin Robins provides a compelling blog about this, To Market Your Business, Start with the Right Premise. Also make sure you target your marketing communications (emails, web site, collateral, etc.) to speak to those who are most willing to buy.
5. Focus on Building Your MRR Base.
Track your efforts and progress against your plan, making sure to put enough resources toward winning those first few MRR customers. Once you do, you’ll have case studies and reference accounts that will help shorten your sales cycle for future deals. And remember – boosting your cloud/SaaS revenue doesn’t mean abandoning your other product or project-based sales. MRR sales can be a great add-on to virtualization projects and server refresh deals, too!
Those five steps, combined with choosing the right cloud services vendors and identifying the best prospects (which I’ll discuss in future blogs), are the keys to unlocking the high-margin MRR that you’re looking for in cloud-based solutions.
Read all of Axcient’s guest blogs for The VAR Guy here.