This post is part of a continuing series on hosted services work transition
a central aspect of a Workspace Service Provider (WSP) or desktop - as-a-service of becoming (DaaS) provider to a whole new financial mind-set shifts: a reference style services that generate recurring revenue.
This approach is good for all. Customers are an ever-up-to-date end DaaS style environment, ensuring a predictable operating costs and always available business partners. And service providers benefit from reduced customer churn, a smoother cash flow model than ever before, reducing business risk and higher / predictable reviews.
Why Hosted Services Recurring Revenue Rocks
most traditional service providers think about their business in the traditional way: transactionally. These usually include a technical "break-fix" companies, a per-project rate technical consultancy rate, maintenance fees, etc. The effects of these two objectives: (a) customers treat their suppliers transactionally, and not as a business partner and (b) the sales organization is constantly under pressure to "hunt" for more business
Compare this with a business that workplace service increasingly adopting. If there is more line-of-business relevance and where the ratio is more subscription-style. The results can be impressive:
- clients its suppliers as business partners of the treatment - where the price is not the only metric
- More touchpoints in the customer than just IT - up to the owner , and except for cash flow Line-of-Business Unit leader
- Smooth - based on subscription-type services
- less customer churn - because of the ongoing relationship
- Overall - where evaluation is more accurate, based on flow actual cash instead on customer lists and customer value-hoped
, you can not be what you can not measure
Moving to a model the company were measured on the sale of recurring services, necessarily requires different evaluation metrics - the health of the company, sales effectiveness measurement and evaluation. For example, core metrics apply are:
- MRR - monthly recurring revenue
- CMRR - Committed monthly recurring revenue
- ACV - Annualized customer value
- CLV - customer Lifetime value
- CAC - customer acquisition costs
- ARPU - average revenue per user
- churn - Customer churn
- AF - activation Funnel
- ARPS - Average revenue per seat (nee, ARPU)
The takeaways from these metrics are that you must now worry about monthly income as it grows (sales incentives) and when shrinking (churn). You want to compensate for net new streams within the existing customers, they net-new customers or footprint growth. And you want to get early warnings of potential churn customers, so you want to continuously measure the satisfaction, Net Promoter Score ™ and service / support request rates.
There are a number of excellent pieces written about how service providers use these "new" metrics; here are a few:
- For entrepreneurs: SaaS Metrics 2.0
- Cloud Strategies Blog: Do not simpleton a customer value be
- Bessemer venture Partners (blog): Get instrument rated, and the trust of cloud Finance 6C
- Bessemer venture Partners (pdf): measuring growth companies sales recurring
Finally ... What's all worth it to a Hosted provider Services?
As mentioned above, the impact of this shift may impact also vastly hosted the review of the work area business, if you just take into account only of capital or a form of exit. Demonstrate modest improvements in revenue per seat, CLV or even churn, the Appreciation have very significant positive impact on.
Skeptical? Check out an example of how box. In an excellent article on Business Insider box explained why a company with a relatively modest income should be so highly valued. In fact, as a box if the public, it was a perfect example of a billion dollar baby IPO
My next installment . differentiation and service definition
Further information:
- transition to a Hosted Workspace Service Provider: Introduction
- transition to a Hosted Workspace service provider, part 1: the right targets
- [Blog] How big is the DaaS market
- [Blog] Differentiate or die - Why MSPs need to change their game
- Citrix Service Provider Program
- Andreessen Horowitz: Understanding SaaS - Why the experts got it wrong
- Quora: Other than churn out what are the key figures in a subscription service
- Fusebill: the 4 key metrics for your subscription business
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