How to implement the MRR model into your VAR business
According to a recent Aria research study, only 11% of businesses are planning to rely on one-off sales as a major point of revenue moving into the future. Instead, adding a recurring revenue model is the key to staying ahead of technology and moving your value-added reseller business forward.
But first, what is the recurring revenue model (MRR)?
The recurring revenue model ensures products or services are paid for with regularly occurring, scheduled payments. This can be done in a variety of ways, including usage-based, user-based, or a tiered system. When looking to implement an MRR model, you want to focus on revenue that is stable, expected, and predictable.
Best in class services-led organizations are already outperforming the competition by 3x. Interested in trying a recurring revenue model? Keep reading to learn 2 major tips on how successfully use an MRR model to improve your VAR business, as well as how to communicate the shift to different audiences.
1. Save time and money with automation
Without automation, your team spends more time offering services to your customers, which will negatively impact your profitability. In other words, administrative work takes up more of your employees’ time, which could be better spent on profit-driving activities.
So, how can you keep the time drain of providing services to a minimum while still offering quality services? The best and most successful companies always:
- Design workflows and processes to make managed services an efficient profit center. These processes are enforced by automation that ensures accountability from all departments and individuals and dramatically reduces the time to onboard and support clients.
- Implement a system that not only helps you build out consistent processes for your company that can be taught to others but also gives you more efficiency. You can stop sinking time into day-to-day activities and focus on the big picture decisions that will help your business grow.
- Implement a system in which employees daily processes enable the business owner to review real-time information about what is occurring with the business.
- Have quick access to reports, metrics, and data that empower the decision-makers to make knowledgeable decisions on the direction and future of the company.
2. Move cautiously and reduce disruption
Start Small: As Jim Collins discusses in his book, Great by Choice, it’s important to “Fire bullets, then cannonballs.” It’s vital to perfect your process, service catalog, workflow, and even the products you sell before you dive headfirst into offering a full-blown as-a-service portfolio. It’s easier to focus on getting your profit margins where you want them (50% plus) with an efficient process, automated workflow, and continual service improvement with fewer customers. Then, once your margins are at a level you want them to be, expand the customer base.
Learn from Others: We strongly believe in the value of community and learning from those who have been there before us or are experiencing the same challenges. We call this community of IT industry experts, peers, and friends who are ready to help you learn and grow The IT Nation. This non-competitive community is focused on collaboration. We’re all working to push technology forward—and we’re working together to make that happen. As a member of The IT Nation, you’ll build meaningful, long-term connections with like-minded individuals looking to share expertise and help each other find success.
“If You Want to Go Fast, Go Alone. If You Want to Go Far, Go Together”
Be Agile: You probably won’t get it right the first time (and maybe not the second time, and so on). Configure feedback loops for both your employees and customers to ensure you’re taking into consideration the voice of those on the front lines. This will pay off when making improvements to your process. Be sure to make updates quick if data reinforces the feedback. This should be the first step in adopting a continual service improvement process within your as-a-service practice. Communicate, Communicate, Communicate: You’ll need to create buy-in across the organization and externally with your customers as well. Communicating—early and often—about the benefits to the entire business will help bring doubters on board faster.
How to communicate the benefits of recurring revenue
1. To your finance team
The transition to recurring revenue is going to be a bumpy time for your finance team, and you’ll want to take extra care of them while they’re slogging through it. But you can help ease the hassle by helping them understand more about what they’re working toward.
In the long run, recurring revenue will create a streamlined budget.
What finance team doesn’t want that?
Predictable streams of recurring revenue allow your team to budget time and expenses accordingly, letting them keep expenses and profitability in line. With upfront payments, it can be hard to maintain any consistency. One month might bring in the biggest deal on record, and the next might be lean as paid staff sits idle. Recurring revenue means knowing exactly what you’re earning (and what you can afford to pay) every month.
2. To your sales team
Not every salesperson is well suited for the recurring revenue approach. Identify the reps that can sell in this model early and reward them accordingly. Set up a commission system that pays based on monthly recurring revenue (MRR) to incentivize your team to add more recurring revenue and grow their commissions every month. You can also consider a higher commission rate for recurring revenue contracts, especially as you transition from one model to another, to incentivize your reps to make the switch faster.
3. To your customers
You’ll also want to aim for minimal churn to support your as-a-service success. Reducing client churn is a key foundation for future revenue growth, and it starts with a focus on upselling your current clients on these new cloud solutions. You’ll also want to make sure your sales team isn’t overselling product capabilities. Churn increases when customers see product performance falling short of what they were promised. Make sure you’re training your sales team on a deeper understanding of the products they’re offering. Otherwise, an increase in churn could sabotage your recurring revenue plans.
Take consistent small steps to reach your ultimate goal. Consider ‘The 20-Mile March’ concept by Jim Collins.
“Enterprises that prevail in turbulence self-impose a rigorous performance mark to hit with great consistency—like hiking across the United States by marching at least 20 miles a day, every day. The march imposes order amidst disorder, discipline amidst chaos, and consistency amidst uncertainty.”
Don’t forget that the journey is just as important as the destination. Rely on a software solution like ConnectWise to help you build out new processes for your company that scale with you as you grow. You can use this software for every step of interaction with your customer, from building out marketing campaigns to billing and collecting payments.