One of the most common objections VARs run into when they’re starting to sell managed services can be summed up in this scenario: After evaluating the client’s computers and servers, the VAR informs the client that it will need to make several IT upgrades before it can put the client on a managed services program. (After all, who wants to offer flat-fee support on hardware that’s near the end of its life cycle?)
Larger customers may not flinch when presented with such an ultimatum, but many SMBs will respond with ultimatums of their own, which go something like this: “I can pay for the new IT equipment, or I can pay for your managed services program, but I can’t afford both.”
If you find yourself in this predicament too often, selling HaaS (hardware as a service) is a good way to overcome this objection. HaaS replaces large, upfront capital expenses with monthly payments, which are often rolled into your monthly managed services fees.
While HaaS can be a lifesaver in some situations, it can kill a deal, if you make one of these two mistakes:
1. You fail to find out whether your customer prefers capital expenses (CapEx) or operating expenses (OpEx).
2. Your price is so high your customer feels taken advantage of.
The first part is very straightforward, but the second requires some careful consideration. What’s the maximum price you can charge, such that you earn a healthy profit margin and your customer feels like they’re better off than if they paid for the hardware outright? Like any complex matter, it’s hard to choose an exact percentage that works for every situation, but here’s a tip I picked up from Chris Rumpf, owner of Rumpf Computer Solutions, a VAR-turned-MSP that turned around his failing business three years ago and now is projecting a second year of triple-digit revenue growth. Learning how to sell HaaS wasn’t the only thing that Rumpf attributed to his dramatic business change, but it was a major factor.
Rumpf sells point of sale (POS) solutions to customers in the hospitality space. Nearly three years ago, he decided to purchase his own hardware bundles and sell them to clients as a monthly subscription. The formula that works for him is to divide his total cost by 16, and that’s what he charges per month for his HaaS offerings.
So, he basically spends 16 months recouping his investment on the hardware and then everything after that becomes a profit. He shared with me that if you amortize the HaaS payment over a three-year period, he earns a 30% higher profit margin than if he had sold the hardware outright. And when you look at a five-year period, the profitability becomes much higher. He admits that he has to watch that he doesn’t sell too many new HaaS solutions at once, and he never sells a HaaS solution to a customer with poor credit, but his price model has been a hit with his clients. After offering this solution for more than two years, Rumpf is starting to reap the benefits. “We’re not about instant gratification,” he says. “We’re about building long-term relationships with people we care about.”