14 Jul Still paying upfront for technology investments? Here’s why you shouldn’t be
Managed service providers (MSPs) and independent software vendors (ISVs) succeed by helping customers leverage the right technology to underpin their business. However, scaling up to provide that technology to many can put a financial strain on MSPs and ISVs. When upfront investments are required, most MSPs and ISVs are challenged as they rely on monthly recurring revenue to grow.
It is no surprise that according to McKinsey, IT procurement is moving away from large, upfront technology investments.¹ The push for more customer centric payment plans, such as monthly recurring arrangements, is now being requested by customers.
This leads us to question; who is covering this cost of technology for end customers? Currently, this burden usually falls on MSPs and ISVs.
Being able to access monthly recurring revenue upfront, and in advance, lets MSPs and ISVs grow while maintaining the desired customer centric monthly billing models. This contributes to increased market share for suppliers and lowers the cost of entry for their customers.
Running on razor thin margins and holding all the risk makes technology investments unsustainable for MSPs and ISVs in the long term. Without a significant financial buffer, it could become impossible to sign on and provision new customers.
And yet, traditional financing options can be expensive due to equity dilution, punitive interest rates, and get-out fees or it might simply be unattainable for these service-based businesses. Rather than solving the problem, these types of funding options simply delay it; putting additional financial pressure on MSPs and ISVs.
The solution: alternate technology funding.
This approach is developed specifically for the unique needs of the technology sector and includes options that serve MSPs and ISVs directly.
Funding models, such as recurring revenue funding, extended payment terms, software payment plans, and lease or rental payment plans, empower suppliers to align their customers technology investments with budget cycles and cash flows. This avoids the impacts of upfront technology payments, which can ultimately impact the organisation’s ability to commit to any customer’s digital transformation.
MSPs and ISVs can take advantage of alternate technology funding to unlock the value of future monthly recurring receivables. By treating this as an asset class, financiers can prefund up to 90 per cent of the annual contract value upfront. This is a non-dilutive approach that lets MSPs and ISVs realise the value of their subscription-based contracts immediately; making cash available for reinvestment and growth.
Read our whitepaper to find out more about how this approach can help MSPs and ISVs take on more customers at scale without needing to consider disruptive forms of financing such as mergers or capital raising activities.