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Cloud Billing Models: Options for Building Out Your Cloud Go-To-Market Strategy

Posted by Laura Vanassche on Jun 5, 2017 2:31:21 PM
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As a cloud solution provider, getting control of monthly recurring revenue processes is paramount to successfully scale your business. Some vendors offer cloud-based services in an annual pre-pay, but to cloud purists, this isn’t truly a cloud model. Outside of the frequency that invoices are received, there are two common ways a cloud product is billed to resellers and/or clients: subscription and consumption.

Subscription Cloud Services: This is typically found with products that fall within the Software-as-a-Service (SaaS) category, like Salesforce or Office 365. Words that hint at this typically are “per user per month.” Depending on the vendor, this is typically for the next (future) month, similar to a cable or internet provider.

While this is the easier of the two models, SaaS presents some invoicing complexities. In a perfect world, a client would only add or remove licenses at the start of their billing period every month. The reality is, businesses don’t operate this way and outliers need to be addressed. This is where pro-rating or true-ps come into the equation, making managing invoices complex.

Consumption Cloud Services: Consumption based models are often associated with Infrastructure-as-a-Service (IaaS). These offerings don’t have quoted prices because of the nature of the product (but often quoting tools are available to help predict costs). They’re metered or billed based on usage, like your electric bill.

Consumption based models you may recognize are Amazon Web Services (AWS), Microsoft Azure, or Oracle Cloud. There are many benefits to choosing IaaS offerings over on-premise data centers, and overcoming these nuances can help you and your customers realize the benefits.

A Cloud-First Go-to-Market Strategy

Your complete cloud offering most likely will include both subscription and consumption products across multiple vendors. With vastly different billing models, how do you piece it all together? It’s not difficult to accomplish when you have the proper solutions aggregation partner, program details, and billing system.

Streamlined Invoicing

A solutions aggregator can help simplify the consumption model across various tenants with a management console. The management console not only helps predict future usage, but can also set budgets for tenants to manage costs and reduce financial risk for you and your client. Furthermore, a simple invoice is generated at the end of the billing period clearly displaying how much is used without further analysis.

With a SaaS model, your solutions aggregator can make managing invoices easier as well. When you receive an invoice it should clearly detail any true-ups (additions or reductions in seat count), plus full month subscriptions. If you’re purchasing multiple cloud services and bundling together, clear invoices help you determine true costs by each client to ensure your pricing is profitable. 

Essential Vendor Program Details

With these models, it’s important to understand the billing nuances across all vendors that you buy and sell. Each vendor approaches billing periods differently. Some give a free first month while some only charge half their normal cost if you purchase after a certain date. You can set your billing policies based on what is most profitable for your business. Keep in mind you don’t have to bill your customer when you receive your invoice from a solutions aggregator. If you’re on a service provider business model, you charge per user regardless of date billed. Why wait to bill your customer when you know what it will cost anyway?

By taking advantage of any free periods available, you can have more cash days in the month, which gives a boost in profitability. Be sure to have checks and balances in place to ensure you maintain margins. Holistically, the difference between your total costs and customer price is your total margin.

Best Billing System Options

The next piece of the puzzle is actually billing your clients every month. This is the hardest part, determining what billing system to move forward with and integrating into your organization’s accounting workflow.

There are a few options in the market today to help bring these two models together, plus any other services you may offer.

Automation tool: The one that provides you complete control is leveraging a professional service automation (PSA) tool, like Connectwise, to run your business. This also automates other business processes and requires more time to implement.

Billing platform: Another quicker option is a billing platform such as OneBill. It’s a cloud-based application that manages SKUs/services, generates invoices, and runs reporting. This allows you to add your own services and custom bundles, customize invoicing, and connect with your established payment gateways.

Bill-on-behalf: This would be working with a third-party to bill your client directly and you as the partner of record receives a commission check each month. This hands-off model is the easiest to implement, and also introduces different rules of engagement.

  1. You don’t recognize top-line revenue. If you’re providing additional services not purchased through a Solutions Aggregator, which wouldn’t be included on a single invoice. Your client would have different points of contact for billing, sales and support.
  2. You only receive the commission check in arrears. This could be issued monthly or quarterly, depending on the program and partner, and affect how you compensate your sales representatives and timing of cash flows.

Are you looking for guidance when piecing together your cloud go-to-market offering? Tech Data Cloud has a team of cloud specialists dedicated to helping you understand and monetize cloud computing. Call 800-237-8931, ext. 82031 or email tdcloud@techdata.com to get started today.