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Why is Shared Infrastructure Management Important?
One of the biggest decisions technology service companies have had to make in the last five years is whether to offer services through their own shared infrastructure or purchase from a third party or broker. The debate and change in this area will be one of the most disruptive shifts of this decade. Hardware sales have already been dramatically affected, and that’s not going to change anytime soon.
April 14, 2014
3 Min Read
By ConnectWise Guest Blog 1
One of the biggest decisions technology service companies have had to make in the last five years is whether to offer services through their own shared infrastructure or purchase from a third party or broker. The debate and change in this area will be one of the most disruptive shifts of this decade. Hardware sales have already been dramatically affected, and that’s not going to change anytime soon.
Deciding how to manage your shared infrastructure is a big decision. Carefully analyze the facts listed below to see which option best fits your business.
Build Yourself
There are a plethora of companies offering shared services in various forms today—with even more companies joining their ranks each year. Building a shared infrastructure is complex, risky, costly, and requires volume, but when done right, it can generate great margins in upwards of 25 percent to 60 percent. Below, we’ll explain how to analyze profit. Many companies only look at monthly gross margin and not the return on investment (ROI) on the total useful life of the infrastructure.
Most companies look at the earnings before interest and tax (EBIT) profit coming from the infrastructure when it becomes profitable.
It takes several months to recuperate the upfront procurement and installation costs to break even.
Make sure you fully recognize the staffing costs, overhead, insurance, management, assets and depreciation required to run the infrastructure.
You need to know the full ROI on the shared infrastructure and the monthly profit expected from it.
You may be better off investing your company’s money in other areas that earn interest immediately rather than investing into the infrastructure necessary to provide and maintain these services.
Broker, Buy, and Partner
The other option is to partner directly or through a broker to access and sell services. The fixed costs scale with the product. While the profitability is limited, the risk, cash requirement and responsibility are lower. However, this option is not without its challenges.
Choosing partners that are committed to your long-term success is one of the first challenges. The cost of change at the services’ end of life—or when it is time to upgrade all users to another platform—can be huge; this needs to be a key consideration in the partner-selection process.
The second challenge is choosing a product that scales and represents your brand to partners.
The partner you choose also needs to have support and service SLAs that meet or exceed your customer needs and expectations.
The last challenge is making sure margins are high enough so you can make a profit from the service. You should expect a 20 percent to 30 percent recurring margin. Even though you might get 100 percent or more during the first month of a one-off or referral deal, it doesn’t build recurring revenue.
Managing your shared infrastructure is tough enough, but trying to manage that along with all the disjointed processes in your business leads down a road that no business owner wants to travel. But no worries, ConnectWise can help. Speak to a ConnectWise representative today to learn why ConnectWise is the No. 1 business management platform for technology solution providers worldwide.
Craig Fulton is a Senior Business Consultant for ConnectWise. Made for companies that sell, service and support technology, ConnectWise is the No. 1 business management platform worldwide. Monthly guest blogs such as this one are part of The VAR Guy's annual platinum sponsorship.
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