Math behind it all Microsoft Performance Standard for Direct Bill Partners

Microsoft Performance Standard

In the final post of our 3-part series, detailing the new Microsoft Performance Standard for Managed Service Providers (MSPs) direct bill partners, we wanted to take a deeper look into the numbers

As part of this series we have covered the announcement and what it means along with the reaction and feedback from users through a survey:

1) Microsoft announced a performance standard for Microsoft direct bill partners

2) Partner Feedback: Takeaways from the Microsoft performance standard announcement

Performance Standard – Template

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The Math

Microsoft is indicating two things – they no longer want to manage the business risk associated with smaller transactions and the $300k threshold is what makes the most sense, financially.

In the analysis below, we have a listing of the application, systems, and operating components required to operate the subscription (recurring revenue) business. We have compared what a Direct Bill and Indirect Reseller Partners may need from an operating cost:

Operating Costs:	Direct Bill Partner	Indirect Reseller
Ticketing and Billing	25,000	25,000
Automated Provisioning	12,000	–
Customer Self-service Portal	2,000	–
Microsoft Advanced Support for Partners	15,000	–
Support Staffing	50,000	25,000
Additional Training	4,000	–
Total (Operating Expenses)	108,000	50,000

Table -1: Operating Cost

There are more up-front investments as MSP direct bill partners. The MSPs business requires an investment however, this doesn’t convey the full story. To go along with the costs we need to model the revenue and margins that are generated.

With the Direct Bill Model, partners enjoy a bigger margin, more automation, and a deeper relationship with Microsoft. below is an example of a profile of a partner servicing the SMB segment:

Revenue and Margin:	Direct Bill Partner	Indirect Reseller
Microsoft 365 Business Basic (per user per month)	$50	$50
Azure Consumption (per customer per month)	$500	$500
Partner Margin on Microsoft Elements	20%	15%
Additional Partner Support Fees (per user per month)	$30	$40
Partner Margin on Additional Support Fees	40%	30%

Table 2: Revenue and Margin

A quick example…

Assume you’re a direct bill partner and you have 25 users per account. Based on the charts above, your breakeven client number is 50 customers between the direct and indirect program.

That said, with 25 customers in your subscription business you could be very close to meeting the required revenue threshold. Although this number looks large, you may not be far off with the correct strategy.

The Microsoft CSP program has been around since 2015 and has been a high-growth area since launched. The number of customers moving to the cloud isn’t going to decrease. If this pandemic has taught us anything, it’s that digital transformation and moving to the cloud will accelerate in the coming months and years. Adding just one customer per month would result in over 50 customers in 5 years.

Although there is a greater operating cost associated with maintaining MSP direct bill partner status, there is also a larger recurring revenue opportunity, in the form of margin percentages. This structure incentivizes those who are motivated to scale their business quickly, enabling them to earn greater revenue as they add more clients. Those who think of the subscription business as an opportunity and invest in the infrastructure and systems can realize the scale and better margins to fuel growth.

As you can see from this chart, there is an initial upfront cost, but your breakeven is achieved when you reach about 25 clients. This calculation assumes about 25 users per client and the strategic investments outlined in the above Table 1: Operating Cost. What’s more, is this your revenue at this number of clients and users would generate $300,000 in revenue, fulfilling the requirement to maintain MSP direct bill partner status.