Evolving Your MSP towards Cloud

Every MSP CEO that has aspirations of evolving their MSP towards cloud should develop a business model that supports their cloud strategy. If you haven’t, then this blog will give you some guidance and ideas on how best to accomplish this vital step.

We discussed this topic recently in a webinar hosted by The Channel Company and Axcient, titled Build Your Cloud in 8 Steps. This blog dives deeper into the initial steps that every MSP should undertake to build a successful cloud practice.

This effort of developing the Cloud Business Model is significant and requires the MSP CEO to thoroughly design a plan for this initiative, involving key executives and best engineers to be successful.

Steps to Build Your Cloud Business Model

To begin with, review and determine how your current client base is trending with cloud solutions.

  • Are you having conversations with a segment of clients about cloud?
  • What is the size and complexity of these clients’ technology?
  • Are there regulatory issues to be considered (i.e. HIPAA, PCI, SOX, etc.)?

By looking for pockets of opportunity within your own client base, you will find a common cloud solution that can be implemented across this segment.

Starting with your existing clients is a good idea since you know their business and technology. This allows you to ramp up your internal efforts and processes before engaging new prospects. You typically have more ‘goodwill’ with existing clients for the times when you need a little forgiveness as you develop this new cloud offering.

With this in mind, develop a strategy that defines the target client demographic and their key business needs as it pertains to cloud. The resulting strategy will frame all other decisions you make regarding your Cloud Business Model.

For example, a common cloud offering for many MSPs today is Infrastructure-as-a-Service, commonly referred to as IaaS. The MSP may decide to build out their own IaaS infrastructure or partner with a vendor that specializes in IaaS—each choice representing a different financial model.

Understanding the cost of the proposed cloud solution is just the beginning. You also need to understand the metrics for generating sales revenue and targeting your gross margin production.

Developing Metrics and KPIs

The costs for developing a cloud offering will vary, but the approach is the same, relying on the MSP to identify specific metrics and key performance indicators (KPIs) associated with this solution.

Developing effective metrics and KPIs requires a breakdown of goals, tasks, events, resources, staffing, and other matters required for a successful cloud practice. Common KPIs include metrics such as:

  • Leads per month
  • Conversion rate
  • Cost per lead
  • Cost per associate

A well-defined Cloud Business Model will help the MSP CEO make better business decisions and produce better results. Jason Bystrak, VP of the Cloud Business Unit at D&H Distributing, states: “If the plan does not produce the expected ROI, do not adjust the results, adjust the KPIs that create the results.”

This perspective keeps the MSP focused on generating the ROI required to sustain a cloud practice. A proper cloud solution costs what it costs. The MSP CEO must be focused on driving revenue to be successful.

Estimating Sales Efforts

By modeling out the variable KPIs, you will have a framework for establishing your sales effort. The MSP should predictably know what activities generate leads for cloud sales and the resources required to do so.

For instance, a webinar is a common marketing event intended to attract qualified leads. The MSP will identify the cost of producing the webinar and the expected number of qualified leads generated as a result, anticipating revenue based on the conversion rate of these leads.

Pricing of cloud services is a key component of the Cloud Business Model. The most successful approach is ‘value-based’ pricing, which focuses on business outcomes rather than competitive price.

Value-based pricing is driven by bundling the MSP’s offerings into a single package based on the client’s need to solve a business problem. This avoids directing conversations towards pricing versus business value.

Staffing is another crucial part of the Cloud Business Model that the MSP CEO should consider, including roles for sales, marketing, pre-sales engineers, support engineers, and others. Each role should have an approximated cost to ensure accurate ROI determination.

Understanding Cash Flow Requirements

Given the significant expenses associated with building a cloud practice, the Cloud Business Model should also include an understanding of the MSP’s cash flow requirements. The MSP may have to invest in training, startup costs, staffing, marketing, and sometimes infrastructure before becoming cash flow positive. It's essential to have sufficient working capital while ramping up sales.

Overall, the Cloud Business Model is vital for today’s NextGen MSPs. Conducting due diligence in understanding costs, margins, ROI, KPIs, and efforts for generating cloud revenue will enhance the success rate of an MSP’s cloud practice.

For a sample spreadsheet model of this Cloud Business Model, visit www.mspceo.com/resources.