In the cloud and SaaS business the key expense drivers are account acquisition costs and account retention and support costs. Although these types of expenses occur in your on premise business they are crucial to get under management and control in a cloud or SaaS business and should be the focus of some deep thinking in the business planning process.
Account acquisition costs have marketing and sales components. In order to keep the marketing0related account acquisition cost in the ranges indicated in the business planning models of resellers and a number of vendors and distributors, it is necessary to make investments in the type of infrastructure that will manufacture the required numbers of leads, of the appropriate level of quality, to drive the transaction sizes and close rate to make the business go. For many traditional resellers, those new to the recurring revenue business, this client acquisition expense management capability will likely require a rethinking and refunding of the marketing function in your organization. The sales expense component of account acquisition costs are impacted by the cost and the productivity of your sales force. The cost of your sales force is driven by the type of people you have selling, and the system you use to pay them. The productivity of your sales force is related to the number and quality of leads that your marketing operation generates, the rate at which your sales force closes transactions and the average or median size of contract that is sold on closing.
Account retention and support costs are essentially blocks of fixed costs driven by the model that you decide to engage in. If you decide to simply resell the offerings of your vendors or distributors your account retention and support costs may be restricted to the costs associated with the employment of sales personnel. If, on the other hand, you decide to host the Cloud or SaaS solution yourself your cost structures and financial dynamics will be different. Again, early and informed financial modeling and business planning will be crucial to success.
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Margaret and Bruce Stuart founded Channelcorp in 1989. The firm is a global leader in the assistance of reseller, distributor and vendor clients. Channelcorp specializes in the business model transformation that is required in the face of the structural changes to recurring revenue driven business models in the worldwide IT business (www.channelcorp.com/services.php). Channelcorp publishes and sells four industry- leading books and 12 white papers (www.channelcorp.com/publications.php).