The following sections will provide an overview of the core areas that are affected by the transition from selling on-premise solutions to cloud solutions.
Marketing That Educates Customers
The customer journey begins right now, not once the customer has decided to purchase an article. It is the marketing team’s responsibility to reach out to clients long before a purchasing decision is even in view. This responsibility includes educating customers about products and creating a buzz on social media in order to actively influence the opinions of potential customers. The primary goal is to inform a critical mass of the target audience about both the provider and the products it is offering. In the event that a company is considering purchasing a cloud solution, this marketing outreach will help to ensure that the provider is considered as a contender. Often the educational marketing goes so far as to teach potential customers the basics of using the software before any direct contact has taken place. The increased workload for marketers can be offset by automating certain tasks, an aspect of efficiency made possible as a result of digitalization. Posts on social media can be managed and posted on multiple channels at once via tools such as Hootsuite or Buffer.
Products and Services in Modules
With the increase in digitalization, it’s unavoidable that products and services will need to be restructured. Successful cloud providers break down their portfolios into easy-to-understand modules of products and services that can be sold on an individual basis. Ideally this provides the customer with a clear oversight of the product portfolio that avoids the opaque costs and license models that are a mainstay of the traditional on-premise business model. The customers of today are also more demanding and want transparent price models without hidden fees. By offering contracts that can be easily annulled, a solution provider actively assists the customer with risk management and gains a competitive advantage over competitors whose cancellation conditions are more complicated. As a result the costs of adding new users are relatively low when the price, the duration of implementation and trainings are considered. At the same time the product portfolio should be framed such that add-ons and similar products can be sold to existing customers over a course of years. In this way the lifetime value of the customer can be increased in a sustainable fashion and the time to break-even reduced.
Sales Teams with a Focus
The radical shift in pricing and purchasing that results from the switch to providing cloud solutions can also be strongly felt in the sales team. It is often inevitable that at some point during the transition two fundamentally different sales strategies will exist: one for cloud and one for on-premise. However, although these two strategies will coexist it is essential that they operate independently of one another. While experienced sales personnel will continue to sell profitable on-premise solutions, the younger digital natives can gain traction selling subscriptions to cloud services. Ideally the two sales teams would use the opportunity to learn from one another and ensure that their tactics remain on the cutting edge—after all, according to one study from Forrester, up to 1 million B2B sales personnel will lose their positions due to e-commerce automation. Nonetheless, the operations of the teams should be kept separate due to the very different bonus structures used to incentivize the two sides. While the on-premise team generally receives large one-time bonuses for deals closed, in the cloud team the number of customers retained over the long term is what is rewarded. Furthermore cloud sales efforts increasingly target the heads of individual departments within companies, where the subscription fee comes out of the operating budget, while on-premise sales generally focus on c-level executives, in which case the solution is recorded as a purchased asset that depreciates over time. Due to these differences in the way the end customer records the purchase, the cloud sales team needs a significantly different strategy from that of on-premise team.
Implementation will also undergo a massive change as new solutions become less complex, lending the implementation process to more automation. Customers should be able to explore demos and test a desired software solution independent of direct support from the provider. Such hands-on experiences turn prospects into active users and massively influence the purchasing decision. To this end cloud providers need to ensure that they provide demo offers that can quickly be expanded into full-on solutions once the customer decides to purchase. The initial investment in configuring such offers is quickly dwarfed by the returns as the number of customers increases. Consulting also benefits from a division similar to that seen in the sales department: one part of the consulting team should continue to focus on on-premise solutions while another part specializes on cloud implementations. While the latter are significantly more standardized and automated, a limited range of specialization offers should nonetheless be made available for customers that meet specific criteria. In this way the time-consuming and error-prone programming of additional functions can be avoided, paving the way for improvements in both profitability and customer satisfaction.
Focus on the Customer
All of the points discussed above have a common denominator: they put the customer at the center of the business model. It is not surprising therefore that the associated KPIs are also strongly focused on the customer. The management of the IT solutions provider should therefore check on the following indicators on a regular basis: customer acquisition costs, customer churn rate, customer lifetime value and, of course, monthly as well as yearly recurring revenues. Together these KPIs provide an accurate image of the current and future health of the company. A sustained focus on improving these KPIs over time as well as a strong customer service culture are essential for the success of any cloud business. The costs that accrue as a result of the acquisition of a customer should be fully recovered by the associated subscription fees over a period of two to three years. If the customer churn rate is too high and too many customers back out of their contracts before these costs can be recovered, the results for the business model can be disastrous. This fact makes the maintenance of high levels of customer satisfaction all the more important for ensuring long-term success.
Quick Wins to Get Things Moving
Reorganizing the sales team and creating a new pricing model only scratches the surface of what is necessary to establish a successful cloud solutions provider. At the beginning it is essential to lay the foundation for the future with a series of quick cloud wins as long as the on-premise business is still profitable. The expansion of a customer base with an adequate monthly recurring revenue takes time—the first successes should be openly celebrated to motivate employees about the direction the company is taking. The transformation from providing on-premise solutions to providing cloud solutions is, after all, a difficult one, and management will need all hands on deck to make sure the ship sails smoothly. We look forward to hearing your comments about the ideas and concepts expressed in this article. This article was written by Nicolai Barth, MA and Prof. Dr. Dietmar Kilian.
Nicolai Barth is a Strategy & Analytics Consultant for PDAgroup GmbH for over 5 years, working with over 100 different value added resellers in the SAP Ecosystem to grow and build their business by translating insights into actions.
Dietmar Kilian is a professor of Business Process Management and Networks at the Management Center Innsbruck. He is also the managing partner of PDAgroup GmbH and Chairman of the Supervisory Board of Academy Cube gGmbH.