I've been on the procurement side of the technology industry for over 25 years, singing the praises of recurring revenue, trying to help integrators attain it. While many understand the concept of monthly recurring revenue (MRR) and believe in its value, most end up expressing hesitation about even attempting to make a recurring revenue sale, like a technology-as-a-service solution sale.
Integrators often falsely believe . ..
- They will have to wait to receive all of the revenue for the system portion of the sale.
- They will have to internalize all of their cost to suppliers and distributors.
- It will take too long to build meaningful, immediate revenue results.
I'm going to unpack these fallacies and put these common misconceptions to bed. Hopefully, those who have refrained from exploring recurring revenue opportunities because of these misconceptions will now better understand how attainable it actually is.
How Does MRR Really Work
To better understand, let’s use an integrator's technology-as-a-service sale as an example to show you how these concerns can be avoided.
Let's assume a customer prefers a technology-as-a-service solution that includes a $50,000 solution plus a $21,000 five-year maintenance and support contract. With the right financing partner, the integrator will be able to sell this solution for a payment of about $1,350 per month. The money flow will look like this:
→ The financing partner will bill the customer $1,350 for the next 60 months.
→ The financing partner will pay the integrator $50,000 upfront. So the integrator earns their full intended revenue and margin on the system, just as if it were a cash sale, and the integrator is able to pay their suppliers just as they normally would.
→ The financing partner pays the integrator $350 each month for the next 60 months representing the $21,000 maintenance commitment that was bundled into the technology-as-a-service solution format. (This should be a pass-through, no added fees attached.)
Integrators benefit from...
- The usual upfront revenue,
- the addition of recurring revenue,
- and a more engaged, longer-term customer relationship.
When structured properly, recurring revenue sales are actually superior to a cash sale in every way.
For a deeper dive into the numbers, functionality, and value check out our eBook, The System Integrator's Playbook: How to Make the Pivot to a Service Sales Model and Build Monthly Recurring Revenue.