Annual contract, monthly billing
Annual contract, annual billing
Monthly contract, monthly billing
Multi year contract, annual billing
Multi year contract, monthly billing
Metered billing and random bills every month
How are you supposed to incentivise the margins for new business vs upsell vs renewal when billing schedules and contracts are a stark difference to the traditional annual billing?
It used to be easy right? Give a margin for the new business and then a margin for the renewal and everyone was happy.
So you sell product A for 12 months for $10k at a margin of 15%, 20% or 25% and renew the following year at the exact same margin. Keeps it simple.
But what this doesn’t do is incentivise the acquisition of new business. Lets say that reseller 1 does 10 deals in 2018 at $10k on 25% margin because they are top tier, they come out with $25k in their pocket year after year after year as long as they keep renewing their existing customers.
Cut that renewal margin to 12.5% and they end up with $12.5k every year from renewals.
Keeping the 25% margin for new business incentivises the acquisition of new business but it can also wind up the reseller.
It is just as difficult to retain a customer than to acquire a new one after all. So is it really fair to do that?
We see it constantly. Granted, some vendors give a straight margin across the board for renewals, upsells and new business but some are reducing the margins vastly for renewals. We’ve even seen vendors doing 0% margin on renewals which puts us back in the realm of perpetual licensing with just more work!
The resale world is becoming a mess with the different billing schedules and contract lengths and no sustainable way for resellers to support themselves when it’s little bits here and there.
The introduction of SaaS billing
With SaaS style billing, we are opened up to monthly billing with monthly contracts that auto renew across the year every month. Does that mean that the reseller of a SaaS product should only be paid on the first month? This becomes completely unsustainable in a resale scenario.
MSP’s can get away with it so why shouldn’t resale?
An MSP’s pricing gets cheaper and cheaper the more they sell typically so they make more money the more licences they have under management.
The model can work on resale too if the vendors keep the margins consistent for the auto renewal and upsell.
Why not give the reseller a monthly recurring revenue from the sale of SaaS licences and give them the added function of first line support for the customer?
It might never be used. There may be no support requirements from the customer but what this does is incentivises the partners to manage, maintain and support the customer to earn that recurring revenue.
The actions of the reseller used to be over at the first sale up until the renewal but if we introduced first line support from the resellers as well they can offer the whole service.
Handing the first line support to the partners reduces the support team requirements at the vendor, promotes customer success and encourages scale.
Customer success the responsibility of the reseller to earn their recurring margin?
In recent years, customer success has become the mainstay of SaaS customer maintenance. Ensuring the customer gets the complete use of the product and experiences its full benefits whilst being a holder of that product. It promotes usage and directly effects the possibility of the renewal.
Closely tied to retention rates, vendors are investing heavily in customer success internally but should they have to?
Why not train the partners in customer success and semi pass the baton to them for this too?
Again promoting adoption, scale and support levels, it seems like a no brainer to me.
Additional services are the key to recurring revenue models
The traditional reseller will always be there. They are going nowhere fast. The ones who just fulfill an order with the customer. They will continue to get their pass through margins like they always have. Their 5% – 10%’s on new business and renewals.
The ones that will thrive will be the resellers that incorporate services into their offerings. Whether that’s implementation, first line support, training, customer success or something similar and they will subsequently retain the high margins across the contract lengths and billing cycles for their extra efforts.
It’s not as simple as it used to be with the flat margin for new business and reduced margin for renewal. There should be new tiers introduced for partners who are able to add these additional services and thus give them the higher incentive.
Everyone talks about ecosystems right now and there is an alternative to putting all of the onus on the reseller to give these additional services and that’s to have separate partner types for offering customer success, training and support but that spreads the revenue too thinly.
If the reseller is to transform into a sustainable business whilst maintaining their original model, they are going to have to incorporate the new services before someone else does.
Training and support companies springing up
If the resellers don’t transform to offer the extra services, other companies will start springing up that are just involved in the training, onboarding and success of the customer and they will be the ones that take the renewal margins.
Process:
1. Reseller fulfills the initial order getting only margin from the first months sale
2. Training company given the lead by the vendor for every new customer
3. Training company reaches out to the customer and onboarded them and trains them (flat fee)
4. Same company is given the responsibility of first line support (recurring monthly revenue retainer)
5. Renewal is handled by the company responsible for training and support as they are essentially also customer success.
In this scenario, the reseller loses out on recurring revenue but they get the full margin on the initial deal. Whether that’s monthly or annual.
The training company is the one that can build a sustainable business by taking a share of the monthly recurring revenues for the benefit of them being the first line support for their customer.
They also have the one off training fee which the business can be sustained on.
The alternative being that the reseller transforms into both types of company. A resale company and a training company. It’s recurring revenue along with added extras that can be billed by the reseller.
Getting the vendors to agree to it
Is a vendor going to agree to giving away monthly recurring revenue on a retainer to a company that isn’t always going to do something every month?
Why not?
Taking the pressure away from the vendor for support and training is a huge burden removed whilst enabling the possibility of scale.
It adds to the ecosystem mentality where additional services are spread around the channel and supported by 3rd party companies which encourages growth across partner organisations and vendors alike.
A constant flow of business would be maintained and supported with each organisation having a clear process on how customers are managed.
Concluding
Resellers are going nowhere. Some have to transform, others don’t. The ones that do are going to start providing training, support and customer success for SaaS products to allow them to continue getting recurring revenue streams.
The traditional resellers will stick with annual billing, annual contracts because it’s just easier for them and they don’t need to adapt.
There are plenty of products in the market that are billed like this… Especially in cybersecurity.
The monthly billing, monthly contract stuff is going to be taken by the “new style reseller” who is going to be reseller 2.0 with their additional services.
If the product is a managed service product, it makes sense to keep this on the managed services model with the MSP’s.
If it’s an end user consumed product, it will go to the reseller 2.0.
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