4 Ways to Increase Income & Cut Expenses While Investing in Your Business
Creative tips to help you manage your cash flow as you make the shift to a managed services business model.
You’ve heard us say it before: it’s important for integrators to think about shifting from a traditional sales model to a managed services model. However, this is easier said than done.
Business software provider ConnectWise, which specifically targets companies that sell, service and support technology, knows that growing pains during this transition are almost unavoidable. That’s why it wants every integrator struggling with diminishing margins to read its online resource, The Ultimate Guide to As a Service.
CI editor-in-chief Tom LeBlanc looked at Part 1 of this guide and highlighted four ways the managed services model can result in better profitability for your company.
Tips, advice, and long-term solutions on how to transition your business to an as-a-service model, and why it's beneficial to do so.
Part 1: Why Change Your Business Model? -- analysis by CI editor Tom LeBlanc
Part 2: How to Plan for the Big Transition -- analysis by CI editor-at-large Craig MacCormack
Part 3: Managing Cash Flow
Part 4: Adapting Your Sales Strategy
Part 5: Transitioning Your Existing Clients
Part 6: Business Process Automation
Part 7: How to Retain Clients
Check back for analysis of each section of the Ultimate Guide to As-a-Service to be released on CEPro.com
Editor-at-large Craig MacCormack checked out Part 2 and underlined considerations you’ll need to make to launch the managed services model at your firm.
Part 3 of The Ultimate Guide to As a Service focuses on how to manage cash flow during this delicate transition. In order to achieve your managed services objectives, says ConnectWise, you will have to sacrifice some up front revenue in order to convert it into monthly recurring revenue.
In the long term you’ll wind up with much more cash flow every month, but it won’t happen immediately. That’s why it’s so important to carefully manage your cash flow when you first begin to offer managed services. Here are the major takeaways from Part 3 of this guide.
1.) Keep One Eye on Expenses
When making any big business transition, business owners tend to look closely at the revenue side of finances. But having extra money in the bank will help you during the more difficult stages of transition, so try to conserve cash and slash expenses where you can.
For example, service businesses spend more on labor than any other costs, so ConnectWise suggests reducing your staffing levels during this time. One question you could pose to yourself and your team: are there areas of your business that you could automate instead of using human capital?
You can also work with your vendors to reduce cost. Especially if you have a good record of payment with them, many vendors are willing to negotiate a discount for paying early. The bottom line here is that you won’t get anything if you don’t ask, and the worst thing that could happen is they say no, so why not ask?
2.) Don’t Be Afraid to Say “You’re Fired!” ... To Your Customers
Everyone has those few frustrating clients. Those high-maintenance, late-paying, expensive and non-responsive customers can cost you more than they’re worth. Now is the time to politely let them go.
This is part of reducing complexity in every aspect of your business. High-maintenance customers can cause extra labor hours and paperwork, and that time will be better spent catering to managed services customers in the future. And slow- or non-paying customers can quickly cause troubles in cash flow. You don’t need it. If they’re a pain in your side, fire your bad customers as soon as you can.
3.) Determine Pricing Strategy Early On
Why is it so important to create your pricing strategy right away? Because you will most likely be asking customers to sign three-year agreements, so any blunders in this area will shape your income for years to come. Not to make it sound too daunting! Luckily, there are steps you can take to make this process easier.
First, determine the level of profitability you want to achieve over the life of the agreement. Review what your competitors are offering and get feedback from clients to help shape your pricing strategy. You should also consider offering more than one service bundle with
different price levels to meet the budgets and needs of different clients.
Lastly, it’s all about metrics, metrics, metrics. Your pricing agreements are no shots in the dark. You have your entire business history to refer to, clients you’ve established relationships with to offer new managed services to, and others in the market to compare your strategy with. Write down the numbers and track the performance over time. This way you’ll know if it should be adjusted.
4.) Don’t Break the Bank; Work With It
If you still find yourself stretched for cash, it may help to explore financing options and support. You could lease the hardware you’ll provide as part of your managed services bundle, apply for a loan or use a business credit card with a low interest rate. Be ready to prove to banks and vendors that you’ve met initial objectives and made progress in your transition thus far.
You could also self-finance: readjust your transition strategy to keep your largest hardware deals open with a traditional sales model and use those large up-front payments to finance smaller managed services deals. Also consider charging your new services customers a setup fee and charging for the first month in advance. This will help ease your transition during the first couple of months.
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Chelsea Cafiero is Senior Web Editor of CE Pro. She also manages the corresponding websites of sister publications Commercial Integrator, Security Sales & Integration, Campus Safety and Electronic House. Chelsea has previously covered politics, local news and consumer electronics. She joined the CE Pro family in 2012. Have a suggestion or a topic you want to read more about? Email Chelsea at firstname.lastname@example.org
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