Blasphemy: MRR Is Not the Holy Grail

By Howard M. Cohen

Howard M. Cohen

They’re going to burn me at the stake for this one, but I’m here to tell you — contrary to what many others have told you, monthly recurring revenue (MRR) is not the Holy Grail of IT.

Don’t get me wrong; Monthly recurring revenue is terrific. You start each month out with sales already in the books, perhaps close to the point where you reach or exceed break-even on day one. That’s awesome. But not everyone gets there as quickly as others, and your monthly costs still need to be paid.

More and more I hear people asking members of our community whether they’re in the managed services business or the project services business. Nobody ever told me the two were mutually exclusive. And, in fact, I can imagine why you’d do one without the other.

The Mobius Loop of IT Services

To maximize your revenue, consider the “mobius loop” of IT services. A mobius loop is basically illustrated as a “figure-8,” which is endless and just continues going around and around.

In this case, start with a project. You’re engaged to install an ERP system for a client. You go in and assess their current state and identify their goals in installing this new system. Then you inventory their users, client devices and the rest of their resources. You review their financial structures and prepare to automate them. Then you install the software, build the chart of accounts, add the users and migrate the data. You complete the installation, perform the training — and your client is ready to go.

What next?

The right answer is for you to sell that client a managed services agreement to assure continuous performance of that ERP and support of the users.

What next?

Next you begin to review the reports coming out of your system, monitoring to identify areas that may require improvement. Perhaps you didn’t provision sufficient storage at the unanticipatedly high rate of growth they’re exhibiting. Time to go in and propose your next project, to increase that storage capacity.

Rinse.

Repeat.

When Do You Want to Make Money?

Yes. Your first response to that question was correct. Always. You always want to make money.

Answer this same question in the context of your next cloud subscription sale. You can wait for the first monthly payment to start making money, but why wait? Wouldn’t you prefer to make money before the subscription begins? During the deployment of the subscription? After the subscription goes live? Sure you do. Yet so many MSPs satisfy themselves with just the subscription commission.

Before entering the mobius loop where projects lead to contracts, which lead to more projects and so on and so on, you should still enjoy the rewards of the most profitable possible sales before, during and after the subscription sale. Here are some examples:

Before

Before they even buy the cloud subscription, they will need your help selecting that service, figuring out which is best from competing offerings and determining how it will fit into their organization. Here’s a quick checklist of presales consulting services you should …

… be selling to your cloud customers:

What? You say you don’t charge for consulting services like that? There is just no excuse for that! Free consulting went out with Y2K. It’s simply not done. It reduces the value proposition for the entire industry. Are you really ready to say that your advice is worth nothing? Zero? Seriously??

Quick exercise — put an estimate next to each of the services listed above. Total that up and stare for a while at the amount you are passing up by giving it away for free.

During

Some clients may want to provision and deploy their own services. For those who are ready to send their own people out for training on how to do that, ask why they’d want to spend so much on something their people will do once. Compare their cost of training to your fee for the same services and be sure to include the payroll and other costs of lost time while their people train.

Once the clock starts running on a cloud service, your client will want to put it to productive use. Your provisioning, deployment and training services will get them the most rapid start possible. These services include:

If the client has office-based personnel, there may be additional services and sales for upgrading their on-premises network, too!  Mobile management opportunities as well!

After

Here are some great monthly recurring revenue opportunities. The big difference with these is that all the revenue can go directly to you!

Like any IT environment, your client’s new cloud environment will require ongoing support services. Those will take the shape of a classic managed services engagement in which they’ll pay you for that support on a monthly or quarterly basis. Beyond maintaining their client devices, if you are still in that business, some of your opportunities include:

This last is particularly interesting. One of the key characteristics of cloud computing is its elasticity. Clients can throttle storage, memory or processor power up and down as needed and they only pay for what they use. So who’s going to tell them when they can throttle down and save money? You are, that’s who, and you should get paid for that effort.

This last thought brings us to what I’d like to leave you with.

Innovation has been the constant in our channel. It has always been “innovate or die,” and now is no different from anytime before. You need to apply your creativity and keep coming up with more new services to introduce. If you keep innovating new services to wrap around those subscriptions, you’ll find yourself driving far more revenue far more profitably than ever.

Howard M. Cohen is senior resultant for HMC Write Now and manager of the MSP 501er Communities on Facebook and LinkedIn.