Cloud billing models: Building your cloud go-to-market strategy


Tech Data Value
02 Jan 19 Author: Laura Vanassche

Before you can successfully scale your business as a cloud solution provider, you need control monthly recurring revenue processes. Some vendors offer an annual pre-pay for cloud-based services. But this isn’t necessarily recognised as a cloud model. Apart from invoice-frequency, there are two common methods for billing cloud products to resellers and/or clients: subscription and consumption.

Subscription cloud services
This approach is usually applied to products that fall within the Software-as-a-Service (SaaS) category, like Salesforce or Office 365. Subscriptions are usually calculated on a “per user per month” basis. Depending on the vendor, this is typically for the next following month, similar to a cable or internet provider.

This is undoubtedly the simpler of the two models. However, SaaS can throw up some invoicing complexities. In an ideal world, clients would only add or remove licenses at the start of each monthly billing period. But in practice, businesses don’t operate this way and this can make managing invoices complicated.

Consumption cloud services
Consumption-based models are often associated with Infrastructure-as-a-Service (IaaS). These billing structures don’t offer quoted prices because of the nature of the product (but often quoting tools are available to help predict costs). Much like an electricity bill, they’re billed based on usage.

Popular consumption-based models include Amazon Web Services (AWS), Microsoft Azure, or Oracle Cloud. There are many benefits to choosing IaaS offerings over on-premise data centres. Understanding the 0ften subtle competitive advantages can help you and your customers realise their full potential.

A cloud-first market strategy
It’s likely that your complete cloud offering will include both subscription and consumption products across multiple vendors. It’s vital to have the proper solutions aggregation partner, program details, and billing system to enable you to successfully piece the vastly different billing models together.

Streamlined invoicing
A solutions aggregator can simplify the consumption model across various tenants with a management console. The management console predicts future usage, and supports budget setting for tenants. This allows you to manage costs and reduce financial risk for you and your client. The system generates a simple invoice at the end of the billing period, which clearly displays total usage without further analysis.

Your solutions aggregator can also simplify managing invoices within a SaaS model. When purchasing multiple cloud services and bundling together, clear invoices help you determine true costs by each client to ensure your pricing is profitable. So invoices should clearly detail any true-ups (additions or reductions in seat count), plus full month subscriptions.

Essential vendor program details
The success of these models depends on a clear understanding of the billing nuances across all vendors. Different vendors take different approaches to billing periods. Some offer a free first month while others only charge half their normal cost if you purchase after a certain date. You can set the billing policies that are most profitable for your business. Keep in mind you don’t have to bill your customer when you receive your invoice from a solutions aggregator. If you’re on a service provider business model, you charge per user regardless of date billed. Why wait to bill your customer when you know what it will cost anyway?

By taking advantage of any free periods available, you can have more cash days in the month, boosting profitability. Checks and balances are important to ensure you maintain margins – the difference between your total costs and customer price.

Best billing system options
The most challenging part of the puzzle is actually billing your clients every month. The difficulty lies in determining what billing system to move forward with and integrating into your organisation’s accounting workflow.

There are a few options in the market today that bring the different models together with any other services you may offer.

Automation tool: Provides you complete control by leveraging a professional service automation (PSA) tool, like Connectwise, to run your business. This also automates other business processes and requires more time to implement.

Billing platform: Using a billing platform such as OneBill is a quick option. It’s a cloud-based application that manages SKUs/services, generates invoices, and runs reporting. This allows you to customise invoicing, adding your own service bundles, while connecting with your established payment gateways.

Bill-on-behalf: Working with a third-party to bill your client directly and you as the partner of record receives a commission check each month. Easy to implement, this hands-off model also introduces different rules of engagement.

  • You don’t recognise top-line revenue. If you provide additional services not purchased through a Solutions Aggregator and notincluded on a single invoice. Your client would have different points of contact for billing, sales and support.
  • You only receive the commission check in arrears. This could be issued monthly or quarterly, depending on the program and partner, and affect how you compensate your sales representatives and schedule your cash flow.

Leverage Tech Data’s comprehensive Cloud and Next-Generation technology portfolio, with the Cloud Solutions team. By gaining access to our commercial and technical enablement, end-to-end services and multi-cloud management, we’re putting you in control.

If you’re an existing partner and want to learn more about Tech Data, or if you’re looking for a valued partner to help accelerate your business, get in contact with your local team today.