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7 Steps to MRR Success

George MellorBy George Mellor

Your business model is unsettled, and you’re blaming the cloud or the Internet of Things or technical complexity. Stop. It’s your customers and prospects who are disruptive. The cold, hard truth is that our culture is getting used to paying monthly. What was once an annual support contract has gone to a quarterly agreement and will move to a monthly arrangement or the customer will be gone. That fantastic data center build with a refresh three years later is now a $4,800 monthly bill to the customer that includes design, integration and managed services. You’ll earn it out over 36 months.{ad}  

Most of us are not seeing a cataclysmic shift just yet, but be assured, it’s happening, and it’s going to accelerate at a tremendous rate through 2016. 

The good news is, it’s not too late to adjust and take advantage of customers’ newly acquired taste for laying out cash on a monthly basis. I’d argue that with all of the fantastic offerings that are now available from major vendors including Cisco, Microsoft Azure, Dell and others, there are no technical barriers to MRR entry. Rather I see three main sticking points to recognize and four high-level prescriptions.

First, accept that:

  1. Some channel partners can’t see how they’ll negotiate revenue drops and squeezed cash flow while they transition. Systems and processes are geared to product procurement and professional services.
  2. Business models are overwhelmingly deal-centric and can’t accommodate monthly recurring revenue shifts.
  3. Sales models are crafted for the big bang. Your sales professionals can’t see how they’ll earn the income they’ve become accustomed to. They’re making bank now — why would they change voluntarily?

These problems are real. They also need to be cleared away. Your competitors, especially born-in-the-cloud rivals, are more than happy to grab the MRR if you’re not.

Begin the journey today by:

  1. Understanding your existing and future profit pools: How can I maintain or increase margins in the cloud and ensure I survive the journey?
  2. Calculating the revenue, gross margin and cash flow ramifications of moving from transactions to MRR. Move, but not at a rate that will be harmful to the business.
  3. Accepting that your sales professionals won’t be interested in driving MRR, at least at first. Create a dedicated MRR/cloud services selling team, then review your sales plan and ensure it rewards these sales pros for driving MRR. Show those willing folks how to grow their earnings and become stars.
  4. Revamping your systems and processes to ensure you can collect and account for recurring revenue and reward your sales team. Don’t get yourself trapped in Excel hell.

Only once you get your business into a position to manage monthly recurring revenues is it time to craft solutions based on your vendor relationships. Investing precious resources before fundamental business readiness is a waste of both your and your vendors’ time. Even the best sales…

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…and technical enablement programs will not create value if you’re not prepped.

Speaking of vendors, companies from AutoTask (file sync and share) to Veeam (backup, replication and disaster recovery) have profitable platforms you can use in crafting MRR solutions that will differentiate you in the marketplace and allow you to create margin-rich services. Ask questions; you may be surprised.{ad}

Look, just eight years ago, Amazon Web Services was little more than a twinkle in Jeff Bezos’ eye. Now it’s tracking to hit about $6 billion in annual sales. Imagine if we all just took a little nibble of that pie. How good would it taste? Take a look at the revenue gains from big vendors like Microsoft, Cisco and others that are reporting on a quarterly basis, and it’s clear the world is beating a path towards consuming IT services on a monthly recurring basis instead of the big bang transaction model we all know and love. Get used to it.

George Mellor is the founder & CEO of KloudReadiness LLC

LinkedIn: linkedin.com/in/george-mellor-079288
Twitter: @kloudreadiness


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