What is the 70/30 Rule and why does it matter to an MSP or Reseller?
Let’s break down the good the bad and the ugly first. Not everyone is destined to be business owners that fully own the account. Meaning, who will own the customer? The person who owns the customer is the person responsible for that customer. This includes being responsible for everything, billing, installation, support, and everything in between. For many, this is no problem at all. What is the difference? Let’s begin.
Selling in the channel & what to expect.
Less control over the process right from the start – selling via partners means that there will be someone between you and your client. Your company may not be part of the sales process and you will have little or no say to influence the outcome of the sales objectives.
Less control over recurring revenues – most of the time channel partners will not always share their pipeline with you. If they do it is still difficult to predict revenues when you don’t fully control the process.
Discounted profits – depending on how the structure is in place you may only receive 1x – 5x one month revenue as a one-time payout on the client. Some may have a 1x bonus with 30% profit share for 12 months, then nothing. The structure could change from vendor to vendor. Once the term cycle is over, the profits dry up unless you continue to feed the channel. Why settle for 30%?
Low marketing and sales up front cost – the channel partner usually has an established business model that your customer will recognize as a leader in the industry.
Easy to scale — if you have an established channel model the co-marketing, incentives, and other plans in place then scale is all on the vendor side. Nothing for you do worry about.
Low cost of expanding markets – typically the channel will have you covered with marketing in an area that the brands are already well known. This is easier for you to manage because the chosen vendor will do all the heavy lifting for customer service, technical support and billing.
Now let’s talk about Direct Sales and the 70/30 rule.
Direct sales is a method of selling directly to the end user with main objective of recurring revenue and owning the customer. Instead of selling in the channel and making an average of 30% of net, why not own the customer and keep 70% on the average margin?
Potentially higher cost – if you have more than one sales team member managing them can be expensive. Just like any other sales team they come with overhead like management and administrative costs related to payroll, bonuses and a multitude of personalities to manage and control. Perhaps think about a strategy of inbound and referral to build your business model.
Can be difficult to scale – building a large sales team requires hiring, training and on-boarding. Building experience in the telecommunications industry can be difficult and somewhat hard to do if the candidate is not a willing participant of the education process and a self-starter.
Support and Customer Service – owning the customer means owning the customers support requests, customer service and billing that goes along with it. Many have argued that this should not be in the cons category. Although you will support and manage the end user by owning the account that provides a perfect opportunity to make sure your customer sticks around for the long haul. It simply means that you are responsible to your client.
Full control during the sales process – you will be able to quote and offer services without a third party introducing interference of your sales process. Simply purchasing at wholesale from sources like QuestBlue allows you to build, manage and offer telecommunication services to your end user and you own the account. This is the start of the 70/30 rule. You should be keeping 70% of the revenue on the account and allocating about 30% on average to your costs. *These are typical results and results will vary based on your retail offering to the end user.
Direct communication – because you are the Managed Service Provider selling VoIP Services directly to the end user you will have direct feedback from your client. No one in the middle to damage your relationship or sour your hard work that you have put in. When a third party is responsible for the success of your business it can be dangerous. To build a long lasting recurring revenue model you and your associates should always be the direct line of customer services. This alleviates any confusion of how much you care about the customer. If they know you care, they will stay with you building a long lasting recurring revenue model that can last decades.
No discounts required by the channel – this is important because it puts you in the driver’s seat. No longer do you have to discount your service or share revenues with another reseller or channel partner. Keep and maintain full control of the client.
Full control of the future revenue generation – the recurring revenue model is what Managed Service Providers are longing for. With you controlling the sales process, pricing and agreements it means that you have better control of future revenue. When it comes to owning the customer and keeping 70% of the account verses 30% of the account as in the channel there should be no question on which is better for your future earnings.
Questions to think about when you own the customer
Having a solid work ethic – do you have what it takes? This is more than a one and done sale. Telecommunications has many ongoing questions and answers that will come from the end user. You need to be prepared to answer your customers questions and support them.
Building a proper accounting process – what good is having a recurring revenue business model of you neglect to charge your customer monthly and on time. It does not need to be complicated. You can easily start with an installation of QuickBooks. For the more savvy business owner you can incorporate your own monthly accounting platform for customers to view, pay and manage their account. QuestBlue offers a full API to allow you to query the customers usage and place the history in your own custom user portal. Your end user will never know who QuestBlue is.
In the end, the majority of Managed Service Providers prefer to own the client, keep a larger percentage of the monthly revenue and partner with a rock solid VoIP and Hosted PBX telecommunication partner.
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