Financial implications of moving to cloud services – recap from Hui Cheng Tan
In last week’s Cloud Champions webinar Hui Cheng Tan, Senior Financial Controller at Microsoft Australia talked to us about the financial implications of building a cloud practice. Hui Cheng has summarised the session and resources below.
POSTED ON BEHALF OF HUI CHENG TAN, SENIOR FINANCIAL CONTROLLER, MICROSOFT AUSTRALIA.
Thank you for attending the webinar on Financial Implications of Cloud Services in Cloud Champions last week. As I mentioned in the webinar, the market demand for Cloud and associated services is huge. In order to monetise those opportunities, Partners need to think about potential changes to various aspects of their business from sales and marketing to operations and financial management. Given how new this market is and the size of the market, there are significant upsides for Partners who are able to accelerate the speed of transformation. Through the Cloud Champions series, we aspire to share some of our own learnings or learnings from our interactions with Partners, hoping this will help to accelerate your transformation.
During my webinar, I shared a high level macro-economic view of the Cloud market opportunities at a worldwide level. I also talked to some of the internal change requirements that are needed for a Partner looking to capture some of these market opportunities. As we engage with successful cloud Partners to understand the ingredients of their success, a few key factors stand out.
First and foremost, Partners that are focused on creating an annuity stream of revenue through value-added services to their customers start to build a snowball effect of recurring revenue and customers. This in turn creates future revenue predictability, which helps in the valuation of their business.
Creating the ongoing stream of annuity revenue then requires our Partners to think of innovative ways to drive upsell of managed services into their businesses. This in turn creates a higher Average Revenue Per User ("ARPU" concept). Starting to measure and analyse ARPU becomes an important internal financial metric. This metric allows you to assess relative performance of the business and team over a period of time. As you continue to deliver value to your customers, you will see an upward trend in ARPU. Any ARPU change will signify a shift in purchasing pattern amongst your customers and insights gained from deep diving into such ARPU changes can be valuable.
There is huge potential in the SMB market for Cloud services. If SMBs are your target customers, creating a high volume sales engine is important to achieving a critical mass of customers that will drive profitability. In creating that high volume sales engine, we have seen innovative Partners do a few things differently. We have seen Partners recruit a different profile of sellers who are hunters for new customers or recruit within the verticals that the Partner specialises in. The drive for innovation is an even more important criteria for the seller in this market. To motivate this new breed of sellers, changing their compensation plans to pay more for new first year revenue and for selling your own IP is a consideration. This inspires sellers to continue hunting. I will also recommend paying sellers a monthly commission with monthly targets in order to normalise the flow of revenues (and cash) into the business.
As you continue to grow sales into the cloud, you now need to ensure your customers are deploying and consuming those solutions that you have sold to them. This helps them realise the benefits of your solutions and they will come back to you as a trusted advisor. To drive a high level of customer satisfaction, you will need to be delivering cloud solutions as a rapid pace. The rapid pace of delivery will require you to think about your resource utilisation in a different manner. The concept of resource sharing amongst teams within your organisation and driving efficiency in resource utilisation becomes even more critical. In working with some of our Partners, we have faced situations where Partners have transformed to the cloud, yet they are grounded in an expensive resourcing structure. This has certainly impacted their profitability.
During the webinar, I covered some of the financial metrics to watch out for against these key ingredients of success. There are various resources that you can use in our Cloud Surestep site to help you think about these. There is a recorded version of my webinar on the Cloud Champions website, along with an Excel model that Microsoft has developed to help partners think through and model out their Cloud business. This model is intended to be illustrative and to help guide your thinking process. The webinar content and slides will provide guidance on the inputs into the model. This model is not intended to be used for your detailed budgeting and you will need to build out more details on your own.
I am excited to see the innovation that is out in the market and how Partners are actively connecting up with each other to drive and deliver value to their customers. I look forward to hearing your stories of how Cloud is opening up opportunities for you and improving your bottomline. If there is something you will like to share with us, please reach out via auscloud@microsoft.com .