Becoming Your Own Financing Engine
As a pioneer and proponent in the hardware as a Service (HaaS) game for many years, one thing that was very apparent to me was the sheer profitability and revenue that can be generated from financing. In HaaS, the biggest problem is the amount of capitol it takes to provide that financing and the risks can be quite high.
The expectation in the model is to have a high enough percentage of interest to offset any potential failures, while still providing a hefty amount of profit. This model worked well as the HaaS vendor, but sometimes left very little, if any profit for the MSP if a deal went south. This could often times leave MSP’s holding the bag and responsible for the debt created.
Since the peak and slow decline of hardware sales, the MSP landscape has changed quite a bit. With cloud, services, installation, and support becoming more prevalent, the opportunity to revisit in-house financing has never been more apparent.
No different than the way we sold solutions in the HaaS game, the real value for the customer is bundling all needed components into a single payment option. This should include needed cloud products, services, all installation, as well as future support. By bundling the entire solution into a manageable payment, customers are more willing to sign termed or multiyear contracts, providing you a stream of recurring revenue to the business.
Most cloud solutions are subscription models, which takes much of the burden off the solution provider where financing is concerned. This leaves installation and support as the responsibility of the MSP. A good rule of thumb in calculating what to add to your bundled price is to take any costs you have a dividing them by a number. First determine your term, 12 months, 24months, or 36 months. Once you have this determine your comfortable payback, this can be anywhere between 6 and 24months depending on your contract term and comfort level. The equation should look something like this…
Add this determined number to any marked up subscriptions to determine your total customer monthly payment. In the above example you will break even at month 10. From there it is all profit. The same equation can be used for any hardware needs such as firewalls or BDR devices. It is a good idea to get a down payment at the time of signing a deal. Many MSP’s ask for a down payment equal to one month’s total payment but this can be anything you would like.
Becoming your own financing engine can be highly profitable and can help you close more deals. Make sure to consult with your accountant about any tax implications or requirements before providing any in-house financing.
Frank Gurnee
VP, Channel Services, ExchangeDefender
(877) 546-0316 x4777
frank@ownwebnow.com
