Whenever IT solution providers (ITSPs) do a serious revenue comparison of an on-premise IT solution vs. a cloud IT solution, the latter business model eventually supersedes the former by a long shot. Just because business owners recognize this fact, however, doesn’t mean their salespeople will.
I know an MSP who invested tens of thousands of dollars to start a private cloud company with several MSP peers. His thinking was that he wasn’t able to sell cloud solutions because he couldn’t overcome customers’ insecurities about the cloud unless he actually owned the cloud data center himself. I caught up with him a year later to ask him how things were going, and he confessed to me that he’s still not selling very many cloud solutions or services.
There are multiple possibilities why cloud sales can flounder, but if that’s happening with your business, I’d highly recommend focusing on this likely culprit first: Your salespeople aren’t being properly incentivized to sell cloud.
Consider this example that Jason Bystrak, Executive Director of Ingram Micro Cloud for the Americas, shared with me, using the comparison of selling a 100-seat on-site Exchange server to a 100-seat hosted Exchange server. “When most salespeople contrast the lump-sum commission they could earn from an on-premise Exchange server sale, which in this example would be about $200, with a $40 monthly- recurring commission they would earn selling Exchange in the cloud, they’re going to select the immediate payoff every time.”
You can invest time trying to convince salespeople that after five months their commissions will actually start to surpass what they would have earned on the old model, but that usually won’t move the motivation needle very much. What Bystrak suggests you need to do is change your sales compensation model.
Heeding this advice requires business owners to focus on the long-term benefits of recurring revenue. With that in mind, here’s what you should do: When a salesperson sells a subscription-based cloud solution, pay that salesperson 12 months’ worth of monthly recurring revenue commissions upfront, but don’t pay them on the annuity.
Going back to the 100-seat hosted Exchange example shared earlier, that would mean paying your salesperson $480 ($40 times 12 months) after the contract was signed. As you can see, the salesperson now earns more than twice the commission compared with selling an on-premise solution, which is plenty of incentive to get excited about selling cloud.
And, over a three-year period you’ll earn more than six times as much profit than you would selling on-premises Exchange servers. If that’s not a win-win, I’m not sure what is.