For IT financing, 2020 was a transformative year. We saw more companies looking to conserve capital due to uncertainty. We also saw the as-a-service and software defined concepts grow more than ever as a result.
The shift to software defined solutions has had a dramatic effect on the IT financing industry. Years ago, it was difficult to find a funding source that could finance an IT solution that had more than 20% or 30% soft cost, like software and services, included. Fast forward to today where we now see most solutions with 50% or more in soft costs. Financing of those has become vital for business owners. Offering a monthly, quarterly or annual payment structure for software only solutions is now a standard finance program. It allows an end user the flexibility to stretch their dollar, getting a decent upfront discount on a multi-year agreement, but paying for it over time.
Results From 2020
As businesses were forced to close and shift to work from home, we’ve seen a surge in security needs that are different than in years past. It has been great for those vendors and resellers in the industry, but very tough financially for a lot of businesses. Business owners have become more forward thinking and concerned about how they are spending their capital funds. In April alone, Tech Data saw an increase of over 150% in requests for financing options. Since then, we have seen increases each month between 50% and 100% of what we saw in 2019.
So here we are, finally, the as-a-service concept has taken hold! We’ve been talking about these types of payment structures for years, but it’s really only been recently that subscription-type financing has become mainstream. The ability for a partner to offer a solution that contains hardware, software, services, and maintenance in a single monthly subscription price to their customer is crucial to sustainable IT growth. These programs allow an end user to conserve that upfront capital outlay, move to supportable monthly payments, and get what they need today without causing interruption or strain to their business. As-a-Service models enhance the partner’s ability to manage their own cash flow as well; no large outlay upfront to acquire hardware. Instead, they can offer a subscription program to their end user, with the benefit of treating the deal as a sale and get full revenue upfront. It’s definitely a win-win.
For Example: 5 Year software ELA
Total deal size = Approx. $4M
If a customer requested 5 annual payments, the first payment is due in Net 30 days. They had average credit, so their rate was a bit higher. However, the savings for a 5-year agreement, versus one year at a time, was enough to more than offset any interest charges. This enabled the customer to lock in their cost and budget for the next five years very easily.
Each annual payment = $871,820.00
In this model, the partner was paid upfront and has no recourse if the customer were to default. This really is the ideal situation for any partner looking to keep a customer long-term, but not have to take the risk on annual payments themselves.
We have several security suppliers that have come to Tech Data asking us to build out Hardware-as-a-Service programs for them. They want to be able to support the partner’s desire for a simple monthly payment that includes their security appliance as well as multiple years of support. Partners look to then build this monthly cost into their SOW to the customer. These programs are subsidized by the security supplier and allow the partner to pay over a longer period of time and generate their own monthly recurring revenue with their customer. Ask your security sales team about these programs to see if they are a fit for your business.
The world of financing may seem daunting, but at Tech Data we can bring you a team of experts that you can trust to guide you through the right finance structure for each individual opportunity. You are an expert in your own security business. Let Tech Data be your experts in financing.
Reach out to us today at email@example.com to discuss our programs and how we can help your sales team lead the financing conversation.