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Roundtable participants acknowledged a big issue solution providers face while transitioning to a recurring model: compensation. Because solution provider sales forces traditionally got paid up front when a big sale was made, changing that to getting paid a smaller amount up front but more over time is a difficult one for many companies to swallow from a cash-flow perspective.
Verizon has programs in place to help solution providers make that transition, Schijns said.
"We can help them to get their customers used to recurrence while they still get a cash flow," Schijns said. "I think you've got to make a fundamental decision with your sales force. So your sales force either has to be paid on volume or they've got to be paid on margin. As a business, you have to make that decision first."
A model that pays 50 percent up front and 50 percent over time should work for most companies, she added.
In addition, solution providers should look to compensate based on margin, not on revenue, Schijns said.
"If your salespeople are paid on volume, there's a totally different model because that's transactional versus they're paid on margin and maybe walking away from specific deals. Then they should be paid a percent of margin versus a percent of revenue," Schijns said.
Schlagbaum, vice president of indirect channel sales at Comcast Business Class, said every solution provider should be educated on the Rule of 78s, a term used to calculate annual interest or revenue based on aggregated monthly payments.
"I [recently] asked that question to a bunch of VARs in the room and not a single one raised their hand. They have no clue. That's how you have to build a business model around this," Schlagbaum said.
Schlagbaum explained it this way: If you sell a monthly $1,000 contract on Jan. 1, another on Feb. 1 and every month for the rest of the year, you would have accrued $78,000 in revenue.
"A lot of people would say $12,000 and that's completely wrong. Now, you have $12,000 as a jump-off point for the next year, but you actually build within the calendar year $78,000. That's the magic of recurring revenue. That fundamental premise is missed by virtually everyone," Schlagbaum said.
"So you have to build your business model around that accounting principle. You can look it up online, but it's something that's fundamental to a recurring revenue model," he added. "You've got to have the patience to endure what it takes in order to drive that kind of revenue over time. If you're building your own service, it's essentially in my opinion a three-year endeavor to build your own cloud offerings."