The VAR's goldmine: Software-as-a-Service

| By: Craig Fulton

Offering Software-as-a-Service (SaaS) is not just for MSPs anymore—and product-centric organizations that don’t explore this option could be leaving money on the table. If approached strategically, SaaS could be a goldmine for your company.

What is Software-as-a-Service and what does it mean for you?

Simply put, SaaS is a web-based software model that allows people to access data from any device with a connection to the internet. As more apps move to the cloud, SaaS models are increasingly necessary.

Although SaaS involves a smaller initial sale in terms of hardware, SaaS sellers can create lucrative recurring revenue opportunities for themselves. Once they sell the software, they are responsible for all maintenance and troubleshooting surrounding its use. And when this expertise is paired with exceptional service, customers may continue using the service indefinitely, meaning the money will keep rolling in.

But what does all this mean for VARs? As a product-centric business, this may not seem relevant to you—after all, you’re not going to stop selling hardware altogether.

The good news is you don’t have to. In fact, you can create even more value for your customers—and more revenue for your business—by bundling your existing products with SaaS services. It’s the sweet spot between being a VAR and an MSP, allowing you to tap into two revenue streams and appeal to a broader audience.

As applications move to the cloud at record speed, now is the perfect time for VARs to make the leap and start selling SaaS. Unlike one-time sales, where the sale itself represents the entirety of a transaction with a customer, a SaaS sale is just the beginning.

Should VARs seriously consider offering SaaS?

In this day and age, product cannot be the whole picture. Gartner predicts that 40% of product-centric VARs will go out of business if they fail to adopt a recurring revenue model. That helps explain why only 11% of businesses are planning to rely on one-off sales as a major point of revenue moving forward.

The truth is, while hardware will never become obsolete, it will also never be the most profitable stream of revenue. In a survey of VARs and MSPs, CompTIA found that hardware only accounted for 15% of these businesses’ overall revenue. So where was the most revenue coming from? Software sales accounted for 43%, with managed services (14%) and consulting (28%) making up the rest.

Exploring SaaS offerings just makes sense. Not only will they allow you to stay ahead of the rapidly evolving technological landscape, but they will also provide a recurring stream of revenue that can help your business move forward and grow.

Why do VARs need recurring revenue?

Hardware sales can be unpredictable. You never know when the next customer is going to walk through the door. But when your business has recurring monthly revenue, it’s more stable, helping assure your success in the long run.

Recurring revenue gained from SaaS sales has the potential to alleviate a lot of the stress that comes with needing to make big sales in small pushes. Having a steady, predictable stream of recurring income can allow you to take stock of your company’s financial standing with greater ease. It’s hard to assess what a fiscal year will look like when sporadic sales punctuate your company’s bottom line. But when your service is an asset to your customers and their businesses, you can enter into each quarter with a greater sense of confidence and security.

What other benefits can VARs enjoy by embracing SaaS?

Predictable revenue isn’t the only benefit of adopting a combined product and service business model. The service you provide over time can make your company essential to your consumers, not just the hardware you provide them with. Essentially, offering SaaS can help you maintain the value in value-added reseller by making it easier to align your offerings with their needs.

Since you’re offering a service rather than a one-off sale, you can determine your pricing based on the ongoing value you’re providing—meaning you won’t have to keep lowering your prices to survive increasingly brutal pricing wars. And by delivering customization and integration with the hardware you sell, you can provide even more value—and earn customers’ loyalty.

This doesn’t just make you more attractive to customers. Businesses with recurring revenue have an estimated worth of 16 times greater than ones with a one-time revenue model—upping your value when a merger or acquisition is on the horizon.

Thinking long-term with SaaS

It’s unsustainable for a business’ growth—and survival—to depend on making large, up-front monthly sales. By focusing on long-term customers instead of quick sales, VARs can determine what makes an ideal customer, helping them hone their offering to attract more of the business they want.

Of course, making the move from gross upfront capital to recurring revenue can be tricky. But with the right strategy, you can transition to this model smoothly—and reap the benefits for years to come.