Generating a profit is the goal of every cloud business. Yet for many, achieving it remains elusive. As companies walk the path toward creating a profitable cloud-based business – or transitioning from a product-based to a service-based business – many challenges exist in this still-emerging market. And those challenges are amplified when operating through an indirect channel sales model.
Challenges to Growing Revenue Streams with a Cloud Business Model
Before we tell you how to leap over these challenges on your way to profitability, let’s first examine what some of these stumbling blocks can be.
- Selling the value of cloud through your channel: XaaS typically represents a smaller value than traditional products or annual sales renewals. With smaller value transactions, it is difficult to establish and maintain attention and motivation from channel partners. It is critical for channel partners to clearly understand the value and revenue potential that your business offers to them
- High administrative costs: With monthly recurring transactions replacing the annual renewals of the past, businesses face processing 12-times as many transactions as they had in the past. This puts an administrative strain on billing processes, customer success, and data collection, requiring either additional staff or new systems and processes to manage the influx.
- Complexities of usage visibility and accuracy: With billings (and revenues) based on actual consumption, it becomes increasingly complex to take cloud usage data and convert that into accurate billing through multiple layers of a channel.
- Expanding revenue streams beyond monthly cloud charges: So you have your cloud business up and running. What next? Many companies struggle to expand their business beyond the monthly usage fees.
To overcome these challenges, cloud businesses need new strategies to make the most of the indirect sales channel and establish new and profitable revenue streams.
4 Killer Strategies to Overcome the Challenges of XaaS to Build, Grow and Maintain Profitable Revenue Streams
Whether you are new to working with an indirect sales channel or this business model is old hat, a few new strategies can go a long way toward helping to establish and expand your revenue streams.
#1 Work with Existing Behaviors to Get Channel Partners on Board
The high frequency and size of cloud transactions are inherently less attractive to channel partners, who tend to prioritize the larger, infrequent transactions both for their more minimal administrative needs as well as an (often inaccurate) assumption that larger transactions result in greater overall revenues. Comprehensive onboarding processes can help channel partners to understand the significant revenue potential of many smaller transactions, and offer them ways to more easily manage the resulting administrative work.
The onboarding process can help drive adoption by channel partners. For example, if you require partners to submit monthly cloud usage data reports, the onboarding process can expand on current or past reporting procedures to make the new processes easier to adopt. Leverage rebates early on to drive motivation to adopt the new processes. Once processes are well established, these rebates could be converted into penalties.
#2 Introduce Automation to Minimize Administrative Costs and Increase Productivity
It is not scalable to process monthly transactions by relying solely on human input. Introducing automation into the process – from the initial collection of data through to billing – will help channel partners move toward a touchless ordering process. This approach can help the channel drive toward a goal of hyper-productivity, resulting in greater revenues, less administrative costs and a more consistent, reliable customer experience.
#3 Establish a Culture of Transparency
While most resellers or service providers will act in good faith, vendors also need to establish a system of compliance to mitigate fraud in an honesty-based cloud reporting system and identify the minority of channel partners who may try to buck the system.
To establish a culture of transparency, vendors can build in compliance checks to cross-reference usage with billing/reporting systems. This process can be automated with some early upfront effort that looks at identifying unusual or inconsistent reporting. When errors are picked up, an automated compliance workflow can be built to run against suspicious or dubious reporting.
To streamline compliance for primary product sales, vendors should standardize their terms and conditions. However, it is important to also be flexible enough to support custom opportunities. By establishing business rules and criteria, it is possible to identify these non-standard sales and highlight them for further review.
#4 Expand Your Revenue Streams
The essence of a profitable cloud business is its ability to expand on the minimum coverage level. One highly successful strategy to take your program to the next level is to leverage sales data to identify new opportunities, such as upsell campaigns. To do this, consider whether there are products or services that are not being as readily adopted. Can you structure a new marketing program or campaign to promote sales?
Once you have identified these lesser consumed product lines, introduce incentives (rebates) that reward channel partners for sales. Space out these types of campaigns on a monthly or quarterly basis to avoid information overload. Running too many at once can kill momentum as partners and end-customers become overwhelmed.
These kinds of program can create long-lasting impact, as they often continue to drive ongoing demand even after the campaign has ended.
People + Technology = a Profitable Cloud-Based Business
Building a profitable cloud business requires the right combination of strategy, automation, systems and processes, and creativity.