I have the privilege of speaking with hundreds of partners every year about what is working in their business…and sometimes, what is not working. I often compare the feedback I receive against industry research to see if it represents either a trend or a one-off situation. One trend I am seeing from successful cloud partners is a new laser focus on Average Revenue per User (ARPU). Many did not think much about ARPU when selling traditional on premises solutions, but the cloud has elevated this metric for many business owners. Why the new focus on ARPU?
Hunting and farming in the cloud
First, let’s start by discussing what fundamentally makes cloud sales different from traditional on-premises deals. I like to use the farming versus hunting metaphor when describing the two. In the on-premises days, a partner would work on an account for months to land a very large deal. Once the deal was done and the project was executed, the engagement was over and the partner would be on the hunt for the next big deal. In contrast, the conclusion of a cloud sale is only the beginning of that client relationship. The partner then uses that engagement as an opportunity to grow and nurture the account, much like farming. One cannot just plant a seed, walk away and expect to yield great outcomes. Selling a cloud deal is similar to planting that seed, but it is the continual engagement and upsell opportunity that grows the seed into a revenue producing opportunity, thus driving ARPU.
IDC predicts that 70 percent of CIOs will embrace a “cloud first” strategy in 2016. Successful cloud partners are developing a “cloud first mentality” to open doors into new accounts and up-sell and cross-sell using the success of the first project. A great example of a company using the cloud to open doors is Perspicuity, a prominent UK IT provider. Ben Gower, the CEO of Perspicuity, has attributed the increasing interest in Office 365 among customers to the use of the cloud as a tool to build deeper customer relationships.
“Office 365 has so many services that it gives us reasons to go back to our customers more frequently,” he says. “We are building fuller, richer customer relationships. Maybe we start with Exchange Online and Lync, and then we go back to help the customer take advantage of SharePoint or Power BI. We’re delivering more value to our customers than we could before and they appreciate it.”
Perspicuity has achieved 25 percent revenue growth over the last year, all of which is related to Office 365. About 55 percent of the company’s revenue is now based on the Microsoft cloud service, with 40 percent coming from recurring services and 4 percent from subscriptions. Gower expects that Office 365-related revenue will accelerate, as will the share of revenue from Perspicuity’s own recurring services.
Back in May I wrote a blog post “Recurring revenue: the next killer metric.” In that post I cited an IDC statistic that stated cloud oriented partners have 1.8 times more recurring revenue compared to the bottom quartile. The recurring revenue and valuation that comes with the cloud can only be achieved if that client continues with renewals. It is the ongoing use and the engagement with the client that will ensure those continuing renewals.