We’ve talked about the impact that resold cloud services such as Office 365 have on MSPs’ gross profit targets, as well as the need to ensure this revenue stream is separated from the traditional revenue streams of products and services.
But once you’ve made that separation, how can we find a way to make our resold cloud services more profitable? How can we manage our pricing to ensure this third revenue stream doesn’t become a growing drag on the overall gross profit margin target?
The Evolution of Pricing Methods for IT Products and the Pressure on Sellers Today
If we look back at the history of selling this product, the most common pricing method from 2005 to 2015 was dominated by fear of the MSRP as published on vendors’ websites and the knowledge that clients could see it at any time. This obviously led to pricing constraints, because as an industry, we became afraid that our clients were constantly price-checking products—and price-checking us.
Fast forward and we’re still facing a similar issue today. Buyers of IT services are infinitely more sophisticated than they were in 2010, or even 2015. Even the most basic laptop purchases are accompanied by questions about memory storage and processor speed. This isn’t a bad thing—it’s the way we should evolve. However, it puts unique pressure on IT sellers.
Why MSPs Should Sell Resold Cloud Services at a Higher Price Than MSRP
When we think about selling resold cloud services, the MSP isn’t wrong to say, for example, that an Office 365 E3 license is ‘x’ dollars per month based on the MSRP. After all, it’s front and center on Microsoft’s website. And, of course, Microsoft markets directly to end users in an effort to get them to buy direct. It’s understandable to wonder how you should go about selling these at a higher price to make any margin.
But that is exactly what MSPs should be doing.
Why? Because like it or not, you are still a value-added reseller (VAR). When you sell Office 365 and similar products to your clients, you’re selling them much more than just the license. You add value that buying a license directly from the manufacturer simply doesn’t offer.
Along with the license, you’re providing your expertise, your experience, your team, your skills, answers to their questions, your availability when things go wrong, and so much more. These are the very reasons that people still use MSPs for resold cloud services. As an industry, we have find the courage to say, “I don’t care what the MSRP is on Microsoft’s website. I’m going to sell it at the price that I need to to be profitable.”
This can seem like a daunting process, especially with a product as universal as Office 365. But what about the cloud backups you’re selling? The storage? Other cloud services where your client can see the manufacturing pricing? Both as individual service providers and as an industry, it’s essential to begin building some margin here to illustrate the value an MSP truly provides and obtain the profits your business needs.
This may not be an easy process. You may have an uncomfortable moment here and there while pitching higher prices to your client. You may even get shot down and told no. But be resolute and confident in the value you’re offering. Figure out your talk track until you’re not afraid of it anymore.
This may come more easily to some. For more mature players with a solid client base, adding value-pricing to resold cloud services will often feel like a more natural step. Although for smaller players fearing client loss from a potentially already-narrow pool, this may seem risky.
And it may well be risky, but it’s a risk worth taking. Resold cloud services are only going to continue evolving over the coming years and decades. They’re likely to become a larger portion of every MSPs’ gross profit. Would you rather take this risk now, or risk spending the coming years operating a business on razor-thin margins? The choice is yours!
Our Community Is for You
You don’t have to navigate these decisions alone. We’re constantly discussing industry-specific challenges just like this inside BMK Community, our peer team for MSP leaders. Inquire about joining our team today to gain clarity on your business metrics, community with other MSP owners and executives walking in your shoes, and mentorship from highly experienced coaches.
And be sure to check out the first blog in this series, Office 365 and gross profit shrinkage – how to tackle it (part 1), detailing how to separate your resold cloud services revenue stream from your product and services revenue streams.