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MSPs: Are You Clear on Your Cloud Costs and Margins?

by Karen Turtle, on 09-Dec-2019 15:48:46

The customer relationship is changing rapidly across the IT channel as the demand for public cloud computing and SaaS subscriptions overtakes the demand for hardware and software licensing. As a result, more than 80% of MSPs now drive a portion of their revenue from recurring services, reports Datto.

However, as MSPs begin to increase recurring revenue sales, many find that their existing business systems and manual processes struggle to cope with the complexity of cloud commerce. 

Here, we look at the disconnect between business systems and processes that can make it hard for MSPs to identify their cost and sales prices, which are, of course, essential for maintaining and increasing profit margins. 

Reconciling Costs the Old Versus the New Way

Traditionally, MSPs could sell software licenses for one upfront fee, and the accounting department would match the purchase and sales invoices to view the profit margin. If customers needed to adjust the number of licenses they required during their contract, the accounting department could true the balance up or down, correcting sales and cost prices accordingly. Processing billing was, therefore, comparatively straightforward.

Then came cloud computing. 

Now customers have a much wider choice of options within the services that they use. They can often flex quantities and resources as and when they need, sometimes on a pay for use basis. Consequently, many MSPs are contending with:

  1. Very complicated vendor reconciliation and usage files which are exported by accounting to untangle the detail of every customer’s buying and consumption activity. 
  2. Active customer requests to add, take away, upgrade, downgrade, suspend, renew and cancel services and subscriptions, which most conventional ERP solutions find difficult to process in a good way. 
  3. Updated vendor pricelists that require MSPs to revise their sales prices time and time again. 

Without a direct digital connection between the changing vendor price lists, sales prices, and customer requests to flex their services, MSPs don’t have a unified view of the order management lifecycle, and their costs and margins. This disconnect may also mean that revenue is leaking across systems and processes without the MSP knowing.

What MSPs require instead is an automated solution that, 1. is designed to manage recurring revenue, and 2. can tie the three elements above together, do the complex calculations, and aggregate costs and sales prices accurately and clearly. 

Accurate Data and Quality Reporting Drives Profits and Growth

An all-in-one solution that can capably calculate and manage changes to vendor pricing, sales prices, and customer moves, adds, and changes is a critical way of ensuring that margins are well understood and managed.

The best cloud commerce solutions can collate and segment vast amounts of data into precise billing reports and useful business intelligence, not just for MSPs, but for their customers too—in real-time. Why not have the ability to log in and see exact sales figures, transparent billing and usage breakdowns, and billing changes over time? Why not get an accurate display of your costs and margins? Offering customers the tools to view their costs and usage is also a great differentiator.

By choosing a quality billing automation solution, there are no more complicated reconciliation files to process, no vendor price lists to review, no fears that customer changes won’t be accounted for, and you have a clear view of all of your costs, enabling you to protect your margins and unlock growth.

Would you like to get more detail on how Cloudmore helps MSPs with their billing? Check out our guide here.

Topics:Managed Service Provider

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