How do you build a profitable practice in the cloud?
I’ve posed this question to partners all over the world, and the answers have helped me understand both partners’ best practices for building successful cloud businesses, and what help you still need to make your cloud businesses profitable.
The most common request I get from partners is for help understanding the financial models for building a profitable cloud practice. A few months back, we launched several profitability financial models that help address this need and provide insight into how you can use them.
Whether you’re just mapping out your cloud offerings, planning future staffing needs, or wondering how quickly you’ll be cash-flow positive in the cloud, the models can help put your organization on the path to profitability.
You will find Office 365, Azure, and CRM Online standalone models and a combination model which includes Office 365, Azure, CRM Online, and Windows and Devices. Now that you have downloaded the models, allow me to do a bit of a run through of the structure:
- Services Overview: Explore what Project Services, Managed Services and Intellectual Property other leading partners are bringing to market surrounding each scenario. This data was pulled together based on a survey of over 1,260 partners worldwide last spring! Use this list to help think through what you want your cloud offering to include and what to charge for it. You can find more detail on the partner opportunity associated with each of the 20 scenarios at http://aka.ms/profitabilityscenarios.
- Definitions: Understand the key terms and assumptions that are built into the model.
- Key Variables: This is the tab in which you will enter all of the variables specific to your business. Enter your data into the cells with red text. Hover over the cells for tips on what information to enter into each field and refer to the definitions tab for additional information. As you begin to enter your data, you will see the revenue composition and valuation impact calculations automatically adjust.
- P&L Detail: Once you have finished entering all of your data into the Key Variables tab, you can click on the P&L Detail tab for a four-year P&L for your business. You can use this data to help make a business case to your board or to investment firms to help build support for and investment in your business case.
- Users: See a four-year overview of the growth in the number of users you will be supporting across your offerings.
- Cash flow: Use this tab to understand when you will be cash flow positive based on the assumptions you enter into the key variables tab. You will need to determine how long you can afford to sustain the cash flow trough, and as a result of what you see in this tab, you may need to make adjustments to the key variable tab. On average partners experience a cash flow trough of 18-24 months as they are getting their cloud business up and running.
- Resourcing: The profitability of project and managed services business is closely tied to the ability of a partner to ensure they have just the right number of people resources to support their business. The resourcing tab will help you to calculate how many resources you need to support your growing business based on the assumptions you enter into the model.
I hope this overview has been helpful. I would love to hear your feedback on the financial models and scenario content and would also be happy to answer any questions you might have. Please feel free to reach out to me via email, Twitter, or LinkedIn.
Until next time,