Cloud Profitability is the obvious pursuit of the modern Microsoft partner. There are only two ways to grow your bottom line – increase your sales and keep your costs constant or reduce your costs while maintaining sales.
Microsoft CSP Partner eco-system is large and there are partners who are transactional and work with high volumes and low margins. While some partners who work with a handful of end customers with kid gloves and specialized services.
Regardless they are doing one thing consistently, which is buying a service and reselling it to their end customer. Out of the thousands of MSPs, ISVs, VARs and SIs out there globally, the Microsoft partners will identify themselves as Microsoft partners.
For these partners being part of the Microsoft, the channel is an important part of their identity, whether they have their own services products, or sell other services and products or any combination. This huge ecosystem of companies whether big and small, worldwide generate revenue and service customers in countless ways.
It is rare for organizations which are selling Microsoft cloud services that the margin from their Microsoft Service Resale is the biggest contributor to their bottom line. Microsoft partners selling cloud services are looking to CSP as the way for them to capture or shape their financial future.
Cloud Profitability is what the ecosystem is striving for as CSP Partners. However, to measure profitability it is important to imagine the journey and identify costs and revenue opportunities.
In the below figure, I have an example of a typical customer journey. It starts with a simple interaction of a phone call, or email and the sales team are engaged, a customer is onboard, services are implemented. Then after that is where we have the longest duration of engagement with the customer takes place.
This is the realization phase where we grow the services, support the customer and manage all their service needs.
Through the five phases of Discover, Evaluation, Buy, Implement and Realize, we can group these stages into three main cost categories for us to measure and manage – the Customer Acquisition Costs (CAC), the Engineering costs and then the Cost of Service(COS).
Cost of Service is where most of the opportunity to reduce costs and incur costs are faced by most partners.
This is why Indirect Partners negotiate different margins with distributors on who will handle the service call, and why Microsoft is requiring direct partners to purchase the paid support plan like Advanced Support for Microsoft Partners Or Premiere Support.
This is where the accounting team spends their time Billing and Reconciling Invoices. This is also the area where most partners who don’t have a system or plan will struggle to scale their operations.
Costs associated with Customer Engagement and CSP:
We listed out the cost of items to benchmark and categorize the costs under the COS phase- some of which were labor, 3rd Party costs, system costs. Some of the costs are hidden and some are in plain sight, however, each one of these affects profitability.
- Credit Card Processing Charges: For recurring charges, it is just common practice to use the credit card processors and gateways through Intuit, Authorize.net or Stripe.com
- Service-related Labor Charges
- Technical Support – Incident management
- License Administration (Sales, Service, and Accounting)
- Monthly Accounting Functions: Generation of customer invoicing, tallying of vendor invoices from the distributors, Microsoft, and other 3rd Parties, calculating the Sales commissions and customer payment collections.
- Direct Costs: As re-sellers of the service we buy the service or product and pay for it with terms.
- Compliance: A lot of businesses accept credit cards, but if you are doing CSP you will need the ability to collect credit cards, and if you are using a 3rd party like Authorize.net you need to be PCI compliant.
- Cost of Sales: To incentivize your sales team you need to include Sales Commissions in their Sales compensation plans.
- Direct Billing Partners will now also have the Advanced Support for Microsoft (ASFP) or Premier Support Plans.
- Provisioning processes to manage customer license change requests. Some customers will want to make these changes regularly and some will just make the changes on their renewals.
- System Costs: There are a variety of tools that are deployed to support end customers
- Help Desk and Incident Management systems to track support tickets from customers.
- Self-Service and e-commerce portals to be able to manage licenses and invoices
- RMM tool to monitor and manage customers environments
- PSA and CRM systems to keep customer data in one place for your sales, service and accounting teams. Some partners have systems that do multiple functions and others have picked best of breed products.
Don’t forget to watch our Recorded Webinar, where you can get a complete idea on “How Work 365 can help you identify hidden costs and implement best practices for your CSP operations” Watch here.
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Related Blog Posts –
- Best Practices of Subscription and Recurring Billing for CSPs
- How Microsoft Partners and CSPs Can Use IURs to Increase Cloud Profitability
- Work 365 Provides More Efficient Processes for Indirect CSP Partners
- CSP Invoice and Bill Reconciliation is not such a Big Challenge?
- How does Microsoft’s Partner Program work?