Any IT solutions provider who’s ever done a serious revenue comparison of an on-premise IT solution vs. a subscription-based cloud IT solution knows that the recurring revenue model trumps the old business model in several ways. Yet, selling cloud-based IT solutions continues to be a serious challenge for many solution providers.
I know an MSP who invested tens of thousands of dollars to start a private cloud company with several MSP peers. His thinking was that he wasn’t able to sell cloud solutions because he couldn’t overcome customers’ insecurities about the cloud unless he actually owned the cloud data center himself. I caught up with him a year later to ask him how things were going, and he confessed to me that he’s still not selling very many cloud solutions or services.
There are several factors behind why MSPs run into this problem, but here’s one key reason I’d like to suggest could be happening to you: Your salespeople don’t see the incentive to sell it.
Consider this example that Jason Bystrak, Ingram Micro’s director of sales shared with me recently, using the comparison of selling a 100-seat on-site Exchange server to a 100-seat hosted Exchange server . “When most salespeople contrast the lump-sum commission they could earn from an on-premise Exchange server sale, which in this example would be about $200, with a $40-per-monthly recurring commission they would earn selling Exchange in the cloud, they’re going to select the immediate payoff every time.”
You can invest time trying to convince salespeople that after five months their commissions will actually start to surpass what they would have earned on the old model, but that usually won’t move the motivation needle very much. What Bystrak suggests you need to do — and I can’t disagree with — is change your sales compensation model.
Here’s where you the business owner need to be focused on the long-term benefits of recurring revenue. If you’re really committed to capturing recurring revenue in the cloud, here’s what you do: When your salesperson sells a subscription-based cloud solution, pay your salesperson 12 months’ worth of monthly recurring revenue commissions upfront, but don’t pay them on the annuity. They’ll earn more than twice the commission than they would have earned selling an on-premise solution, and you’ll earn more than six times as much profit over a three year period. Now, that’s a reward you and your salespeople should feel very motivated to strive for.