No industry was left untouched by Covid pandemic, even though many sectors struggled to survive during pandemic. MSPs have found it more difficult to meet customers and prospect for new business, and while many have received a COVID19 dividend, their ability to foresee and predict longer-term revenue has been harmed as working patterns change.
Many software-as-a-service (SaaS) companies adopted recurring revenue business model which is one of the best ways of sustaining businesses and growing.
Many MSPs have already changed their offerings to match their customers' needs, making the migration to a recurring income plan successful. These companies have noticed the advantages and seek to shift more of their revenue to a recurring basis.
The SaaS industry was growing even before pandemic. The subscription-based economy benefited businesses, and a Gartner estimate predicted that SaaS revenues will reach $140 billion this year, up from $102 billion in 2019 before the arrival of covid pandemic.
Here's how a recurring revenue model might help an MSP in developing their business.
- 1Profitable Expansion: Earlier, gross margins were often too high due to growing an MSP business was no less than a challenge. It also increased the expense of increasing human and technical resources, lowering the profits. One thing we can do while growing SaaS business is to scale without the costs of increasing staff through the use of automation. Service providers can assist several customers with a minimal number of personnel using MSP business management software and various automated solutions, allowing them to increase earnings.
- 2Predicting Profits and Cashflows Beforehand: Financial predictability and cashflow is easy with the recurring revenue model. You can forecast your cash requirements based on a regular income stream and known margins if you have more reliable data on revenue and associated costs for each subscription you sell. It's simple to show how additional subscribers or services will scale up your profitability without destroying your cash flow using SaaS-style metrics and reporting. For this, you need to provide the best level of customer service to keep your customers in during the sign-up or other related processes. However, with a more consistent income stream, you will have the confidence to invest in expanding and developing your business.
- 3Customer Retention: Usually, customers are less likely to cancel the services that are subscription based. But MSPs have to invest in an appropriate contractual framework. Adding a contractual service agreement lets customers have greater revenue without sign-offs. Moving to a transaction model ensures that the business relationship's foundation changes, resulting in increased stickiness and a frictionless, non-touch renewal procedure. Lack of customer self-service should be avoided for better customer retention. Retaining customers on an on-going basis can implement regular communications. This opens up more options for upselling and cross-selling, allowing you to increase your revenue and expand your business. If you introduce new products later, you'll already have a dedicated and responsive consumer base, so you won't have to start from scratch.
- 4Better Investment Opportunities: The recurring revenue business model provides improved investments for bankers and investors. The recurring revenue model provides accurate financial forecasts, predictability, and increased growth potential. As a result, investors and financiers are far more comfortable financing a well-known growth plan based on their tried-and-true SaaS criteria.
Conclusion:
The recurring revenue business model is also a recession-proof approach since it establishes a stable base of revenue that will help the company weather the storm. Twenty-one percent of respondents in a study of SaaS company leaders stated COVID-19's challenges had caused no impact or had actually delivered them favorable benefits. The recurring revenue provides the opportunity for growth for MSPs, which didn't let the pandemic affect the MSP businesses. The business that gets generated by recurring revenue model is mostly unaffected because it supports vital services for the clients.
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