Microsoft Dynamics Cloud Partner...Microsoft Dynamics Cloud Partner Profitability Guide March 2011 First Edition, March 2011 IntroductIon ExEcutIvE Summary thE cloud payoff markEt

Microsoft Dynamics Cloud Partner

Profitability Guide March 2011

First Edition, March 2011

IntroductIon

ExEcutIvE Summary

thE cloud payoff

markEt pErcEptIon cuStomEr motIvatIonS

partnEr typES

gEnEratIng rEvEnuE wIth thE cloud tradItIonal SourcES of rEvEnuE nEw SourcES

Impact on profIt and loSS StatEmEnt total SubScrIptIon prIcE cuStomEr acquISItIon coStS / cogS hoStIng coStS hIghEr volumE of cuStomEr acquISItIon dEploymEnt coStS churn ratE cuStomEr lIfE cyclE managEmEnt Summary profIt and loSS StatEmEntS profIt & loSS Summary for dynamIcS crm fIxEd aSSumptIonS

ExEcutIon plannIng: buSInESS managEmEnt ovErvIEw prImary conSIdEratIonS trackIng SuccESS

ExEcutIon roadmap: fInancIal plannIng ovErvIEw prImary conSIdEratIonS

Table of Contents

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ExEcutIon roadmap: markEtIng ovErvIEw prImary conSIdEratIonS

ExEcutIon roadmap: SalES ovErvIEw prImary conSIdEratIonS

ExEcutIon roadmap: dElIvEry ovErvIEw prImary conSIdEratIonS

concluSIon

gEttIng StartEd analyzE thE buSInESS opportunIty plan & dEvElop your practIcE gEttIng to markEt and Start SEllIng

acknowlEdgEmEntS appEndIx ExamplE #1: dynamIcS crm / EntErprISE ExamplE #2: dynamIcS crm / mId-markEt ExamplE #3: dynamIcS crm / Small buSInESS & lowEr mId-markEt ExamplE #4: dynamIcS Erp / EntErprISE ExamplE #5: dynamIcS Erp / mId-markEt ExamplE #6: dynamIcS Erp / Small buSInESS & lowEr mId-markEt

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play rElatEd vIdEoS for addItIonal InformatIon

jump to SEctIon»

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Introductionthe cloud is a fundamental shift in culture. It is a shift in delivery. It is a shift in approach. It is a shift in mindset led by a strong desire for all of us to have access to the information we want when we need it most, anytime, anywhere. for our customers, the cloud is represented by a demand to consume technology as a utility in order to achieve this desired state, maintain competitive advantage, and maximize return on investments. for the software industry, the impact spans productivity tools like microsoft® Office and Microsoft® Exchange® Server to business applications like microsoft® dynamics® Erp and crm.

the shift to the cloud changes customer expectations. customers want faster results. they should be able to turn on a service and go. Software is quick to be chosen as a monthly operating expense and not a burdensome capital acquisition with a complex implementation process. the way we think about and use software has forever changed.

microsoft and our partner ecosystem must transform how we bring value to our customers. we must adjust our perceptions and the way we operate. For Microsoft partners who want to increase profits, it requires developing a better business model that will have tremendous and sustainable upside long term.

this guide will help microsoft partners understand the key success factors for their transition to the cloud, in particular, when selling or delivering business application services and solutions. Every partner’s journey will be unique. while we cannot describe every possible issue and its solution; our goal is to provide some of the most relevant tools to develop a solid business plan.

The Microsoft Dynamics Cloud Partner Profitability Guide will help partners to:

• understand the market perception for services

• Establish an execution roadmap by business function

• Optimize business processes and investments

• apply profitability models to create a financial plan

This guide is one of several cloud resources Microsoft Dynamics is delivering to our partners. It offers a critical first step in planning a business in the cloud. additional resources include online courses, sales and marketing content, technical guidance, and customer-ready materials, which are available at www.microsoft.com/dynamicscloudpartner. I am also excited to announce that microsoft dynamics partner development centers around the world have been staffed to provide partners with one-to-one coaching to help partners develop a cloud business.

Transitioning to the cloud is an evolution. We expect it will take most partners a few years to create and refine their end-to-end business model and build a strong base of customer subscribers. microsoft sees the cloud as an opportunity for larger, more stable, and self-sustainable annuity streams for partners. there is no better time to begin the transition.

Please review this guide for insights to drive profitability in the cloud. We look forward to helping partners succeed in this new business arena.

Now is the time to make the shift.

Sincerely,

Kim Smithdirector, dynamics cloud & crm partner Strategymicrosoft business Solutionsmicrosoft corporation [email protected]

http://www.microsoft.com/dynamicscloudpartner

https://mbs.microsoft.com/partnersource/partneressentials/partnerreadiness/partneracademy/trainingcenters.htm

mailto:[email protected]


6

Executive SummaryBusinesses are outsourcing their IT infrastructure to reduce costs, achieve greater flexibility, and enhance competitiveness. this trend is likely to intensify and will expand to include most of the business software market. Idc forecasts the Service as a Software (SaaS) market is expected to grow to uS $40.5 b by 2014, at a compound annual growth rate of 25.3%.1

The rapid emergence of cloud business applications has vividly demonstrated significant demand for enterprise resource planning (ERP) and customer relationship management (CRM) in the cloud. we believe this shift is fundamentally driven by customer demand, not by the technology industry.

Most companies demand cloud computing so they can realize the benefits of the solution at a decreased cost. The cloud can deliver better profits in three ways:

• Reduce time to value - customers expect cloud applications to be turned on and off as needed with virtually no startup effort

• Optimize investments - Cloud computing offers companies:• the benefits of a solution without paying a large up front cost to acquire it• less costly analysis and bureaucracy than a capital acquisition• less consumption of working capital they would prefer to apply to other revenue-generating

activities

• Realize cost savings - cloud customers can substantially reduce actual It infrastructure expense because costs are leveraged, shared, and optimized by microsoft across many customers

we expect some traditional revenue streams will begin to deteriorate. this is not necessarily bad news for business application partners. This guide shows how to manage a transition to the cloud and actually increase profits and long term sustainability.

most partners will need to adjust the nature of their revenue streams. building a sustainable annuity stream using packaged intellectual property (Ip) is critical for success. developing consistent functionality and packaged services for re-use across similar customers or verticals enables repeatability and efficiency. These services can help acquire and successfully implement customers faster and less expensively. It is the development of repeatable Ip and services that can create a rapidly growing annuity stream, increase profitability, and drive higher business valuations.

A successful transition to the cloud means most partners must operate and execute more efficiently. This requires the following changes:

• Increased demand generation delivering a higher volume of better educated prospects that can be closed quickly.

• Closing deals with fewer interactions with salespeople, who are compensated for driving volume. Services delivery must develop predictable, well-scoped offerings as fixed bids and provide proof-of-concept trials for customers.

• Services offerings must provide customers with cost-effective, valuable, low risk solutions that help the partner avoid early customer attrition (known as “churn”).

• careful management of the causes of late cycle churn by developing a customer life cycle management strategy.1 Idc worldwide Software as a Service 2010 - 2014 forecast: Software will never be the Same, june 2010

7

this guide does not assume every customer will do all of their business in the cloud. In fact, some customers will opt to continue purchasing on premises solutions or a hybrid model depending on their policies, business requirements, or geographies. however, this document focuses primarily on helping the microsoft partner community understand how to evolve their business model to meet the expectations of customers subscribing to cloud based services.

this guide is organized by functional area and includes links to many additional resources for a microsoft partner’s evolution to the cloud. this guidance and its related documents will be updated regularly as the market evolves.

as an overview, below is a view of a 36 month roadmap for transitioning to a cloud based model with key decision points identified. Partners should assess the current state of their business throughout this process to determine if the appropriate investable cash is available, new capabilities have been created, and operational milestones have been met. throughout this document there is detailed guidance for how to optimize business decisions against this roadmap as required throughout the lifecycle of cloud transformation.

Month

Establish hostingrelationship (ERP)

Establish Working Capital requirements

Source WorkingCapital

Build Fin.Model Build Business Plan Ready Marketing Machine

Ready Sales Machine

Ready Delivery Machine

Evaluate SalesReadiness

Can this be priced, packaged, and drive enough cash flow?

Evaluate MarketingReadiness

Evaluate DeliveryReadiness

Engage Initial Marketing Wave Refine and adjust marketing activities

Engage Sales Wave 1

Did I generate enough leads to support the volume targets?

Was my close rate, length of sales cycle, and requiredsales touches in alignment with volume requirements?

Engage Sales Wave 2

Engage Initial Delivery Wave

Refine and adjust marketing activities

Refine and adjust ongoing delivery efficiencies

Engage Sales Wave 3

Engage Sales Wave 4

Has EBITDA returned to previous levels prior to funding transition activities?

Engage Sales Wave 5 Engage Sales Wave 6

Refine and adjustdelivery efficiencies

Identify TargetMarkets

Establish Cloudoffering (Inc. IP)

Cloud Partner Execution Plan

?

? ?

?

? ?

1 2 3 4 5 6 7 8 9 10 11 12

13 14 15 16 17 18 19 20 21 22 23 24

25 26 27 28 29 30 31 32 33 34 35 36

Am I of significant size (>$5M)and healthy EBITDA (>8%)

Am I committing the resourcesand process to drive 4x + adds?

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The Cloud PayoffInitial analysis shows that the payoff for building a cloud business is primarily based on the value of the annuitized revenue stream. application subscribers have little reason to switch back to perpetual licensing, if the subscription price is reasonable, the offering is current and competitive, and the service is reliable.

this means that revenue in the cloud is more likely:

• Perpetual: Software subscriptions typically wrap software, maintenance, and training into an annual fee that lasts as long as the customer perceives value.

• Stable: applications sold on-premises have a revenue stream that must be largely replaced each year. Subscription-based revenue streams are comparatively more stable and larger in aggregate once the break even point is passed.

• Higher margin: professional consulting services businesses rarely deliver gross margins over 50%. cloud services businesses regularly do.

the cost of evolving to this new businesses model will probably exceed revenues from the cloud practice for a period of time. however, margins improve once the “crossover point” is passed. figure 1. croSSovEr poInt

once momentum has been established, cloud-based revenue streams grow more consistently than on-premises licensing. because margins in the cloud can improve over time as well, profitability also increases. this is expected to drive up valuations, as shown in table 1.

today, privately held services businesses rarely accomplish more than three times earnings before interest, taxes, depreciation, and amortization (EBITDA). publicly traded companies have valuation ranges (p/E ratios) from 10 to 25 times earnings. valuations are usually higher for rapidly growing profitable businesses. Indeed, competitors in this space may trade at nearly 200 times earnings.

a successful, sizeable cloud-based business may have a valuation that is double a comparable traditional services-based business because their revenue is growing faster, they are more profitable, and their IP gives them better operating leverage with size. the potential business valuation for the owners of a business transitioning to a cloud model is shown below.

table 1: buSInESS mEtrIc comparISon

Cumulative Revenue

Cumulative Cost

Time

Crossover Point = 18 Months

0 6 1812 24 3630

9

Market PerceptionIt is critical to understand why customers buy and how those reasons vary across business segments. Business segments are defined by how many employees (including consultants, contingent staff and vendors) are potential users of the technology or service. Segment-specific considerations will impact how partners operate to maximize profitability. Because being efficient is so critical to profitability in the cloud, partners should prioritize on one segment as an entry point.

customer motivationsBalance Sheet Impactcustomers prefer balance sheets “clean” of capital intensive, depreciating assets that do not directly produce revenue. a balance sheet “cluttered” with non-revenue generating assets depresses valuations.

Income Statement ImpactIn the cloud, capital expenditures are effectively “swapped” for operating expenses. Expenses are seen as more controllable and give the business greater flexibility to manage profits.

Capital Availability ImpactIn the cloud, capital resources are freed up to invest in revenue generating assets. for small to midsize businesses, capital scarcity regularly limits their ability to exploit market opportunities and grow.

IT Infrastructure Impactorganizations consuming software as a service on a subscription basis can more completely outsource the It infrastructure which is both more cost-effective and requires far less in-house infrastructure. In-house infrastructure costs do not scale in a smooth line; they have big step functions when huge new chunks of technology are required. In-house systems are notoriously either more than is needed or not enough as business volumes change and market conditions shift.

key points

questions to consider

Time to Value

right or wrong the market perceives that subscribing to a business application as a service is easier and faster than buying an on-premises solution. for many companies the IT procurement process is long and difficult. Many business decision makers (bdms) prefer cloud services that bypass long capital acquisition cycles.

bdms also expect a true utility. It must work for their business and be ready to use the day they subscribe. a customer’s willingness to pay for customization varies by market segment and in most cases should be addressed by offering packaged Ip, as described in the following section.

customer perceptions by Segment

Enterprise

many enterprise customers (2,500+ employees) see their business processes as a competitive advantage. they tend to require that the solution be adapted to their unique needs. partners who focus on this segment will likely continue to realize a substantial portion of revenues coming from implementation or customization services.

• Expectations and willingness to pay for traditional services varies by segment

• customers want to do more with their scarce capital - going to the cloud allows that

• customer buying processes and decision makers differ in the cloud

• what segment will be primarily served?

• are there potential opportunities for packaged Ip?

• how do sales and delivery motions have to change? can customer expectations be met?

• what segment can current staff best serve?

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however, since microsoft will host the offer in the cloud, partner billings for installation and configuration will be essentially eliminated.

Enterprise focused partners should adjust selling and delivery motions to a “seed-and-expand” approach. this approach builds credibility quickly by successfully deploying a service to solve a small number of key challenges in one business unit of a large customer. once a trusted advisor relationship has been established partners can expand the solution across the company. this allows the customer to minimize risk, requires less capital to get started, and removes the need to go through a complex It analysis.

Mid-market

mid-market customers (with 251–2,500 employees)will likely require more packaged Ip and lower implementation services because they wish to pay for the solution as an operational expense. these customers expect a fixed monthly fee where 70-80% of their business needs are met out of the box. In these deals, only a limited set of customizations may be required. partners should shift their business accordingly.

chart 1. IMPACT TO IMPLEMENTATION SERVICES OVER NEXT 18-24 MONTHS

as outlined in this document, offering packaged, repeatable IP is typically more profitable than a traditional services practice. benchmarking performed by International Data Corporation (IDC) shows that most partners have services margins of 30-45% while partners with packaged Ip typically realize nearly double that margin rate for their solutions. read more on the microsoft dynamics assessments .

Small Business and Lower Mid-market

Serving companies with 250 and fewer employees requires a partner’s business model to be very focused on driving volume. this market segment is highly cost-sensitive. they demand that the solution be readily consumable (“turn on and go”).

Serving smaller companies means providing simple, easily accessed, competitively priced, complete packages. partners must sell and support large volumes of customers in this segment of the market efficiently. this means a very low cost of goods sold and a low-cost support model.

visit www.microsoft.com/dynamicscloudpartner for additional insights on how customer buying

behaviors differ by segment

https://partner.microsoft.com/US/productssolutions/dynamics/40141858

https://partner.microsoft.com/US/productssolutions/dynamics/40141858

http://www.youtube.com/user/microsoftcrmstrategy#p/c/2/UJK89qY9Aig

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Description Impact from Cloud Example Business Strategy

Selling Primary Partner Types:

• Distributors service a broad market of small to mid-size businesses through Value Added Resellers (VARs)

• Large account resellers (LARs) service larger customers with Enterprise Agreements (EAs)

• Syndication partners wrap Dynamics products into a larger white label offering

• Complements existing portfolio of Microsoft products

• Reduces the risk of a customer migrating to another platform by “capping the Microsoft stack”

• Increases wallet share by expanding into business applications

Distributors:

• Optimize offerings for scale and repeatability

• Enable the channel to sell and service customers with Microsoft Dynamics cloud services

LARs:

• Attach Microsoft Dynamics CRM Onlineto EA, expanding each solution’s footprint

• Work closely with Solution partners for co-selling, industry relevance and additional services

Syndicators:

• Increase value with Microsoft Dynamics CRM Online

• Drive deeper penetration and more wallet share

• Connect ISV’s vertical IP with low engagement

Solution Solution providers develop industry vertical software and integrate software components. These include:

• Independent software vendors (ISVs) provide incremental, attached IP

• Systems integrators (SIs) provide professional services (packaged or customized)

• Value-added resellers (VARs) deliver unique services on top of packaged services provided by Microsoft

ISVs:

• Build sustainable annuity streams on embedded IP that are larger than a VARs

• Selling and supporting ISV IP is a very different business than a VAR’s

SIs & VARs:

• Limited billable hours compared to a traditional on-premises business

ISVs:

• Scale with internal sales & support engine or an existing (or to be developed) channel ecosystem

• Set competitive, profitable prices primarily driven by a careful analysis of competitors’ TCO

• Extend awareness by leveraging mediums like the Microsoft Dynamics Marketplace

SIs & VARs:

• Build products and services to sell repetitively

• Package billable engagements as fixed price and scope offerings that can be easily consumed in a repeatable fashion

• Automate basic activities (training, data migration, etc) so that billable people provide value add services such as business consulting

Support Support partners deliver infrastructure, implementation, consulting and support services. Partner types include:

• Hosting partners that provide IT infrastructure and outsourced services

• Cloud services partners that provide 3rd party offerings connected to the business application such as payroll, information services, and business process outsourcing

• Opportunities for hostersinclude: 1) customers with strict data sovereignty requirements, 2) customers who choose to outsource IT

• New business opportunities for outsourced Business Intelligence (BI) services, and non-strategic operations like travel & expense mgt. and recruiting

Hosting and Cloud services partners:

• Identify markets with strict security requirements and a high propensity to fully outsource all IT functions

• Develop partner-to-partner engagement between Solution and Support partners

• Create combined services offers from channel partners that creates friction-free vendor interactions for customers

Partner Typespartners are pivotal to the microsoft online Services business. microsoft expects three primary partner types to play a role in the cloud: Selling, Solution, and Support partners. The operating and financial model for each type varies. partners may choose to operate as a hybrid partner type. below is an overview of these partner types:$

thinner circle

$

thinner circle

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Generating Revenue with the CloudEvolving to a cloud business can increase profitability. this is done by:

• Acquiring new customers who would not purchase an on premises solution due to cost

• Creating new revenue for pre-packaged Ip and Services

• Building a predictable revenue stream that increases in profitability over time

this section outlines the core revenue opportunities for partners. the role and mix of revenues will vary by partner depending on their choice of segment, vertical, and their ability to create packaged offerings.

Packaged IP is considered structured, fixed price functionality or services that are highly repeatable. for packaged functionality, prices are likely to be set as monthly payments. for packaged services, prices may be either a monthly payment or a one-time fee.

Establishing a successful, annuitized offer will most likely be the most important profit lever for partners in the cloud.

for examples of how this will affect a partner’s p&l, see the next section, Impact on Profit and Loss Statement ».

traditional Sources of revenuePartner of Record Fees

Partner of Record (PoR) fees can be collected for the advisement of a prospect who eventually licenses or subscribes with microsoft. partners may also collect fees for referring prospects who purchase microsoft dynamics products and services.

Microsoft Dynamics CRM Certified Software Advisor (CSA) program , Services provider license agreement (Spla)

discounts, and the microsoft dynamics referral program.

these por fees are primarily intended to help partners cover selling costs. for microsoft dynamics crm online, partner of record fees also contribute to building up an ongoing annuity stream.

Deployment and Customization Services

the Market Perception section shows that deployment and customization services revenue streams vary by customer segment. customers may be more willing to pay for deployment services in the short term but a customer’s appetite for services will likely decline over time particularly in the mid-market and below.

• understand the p&l impacts as your mix of business shifts from on-premises to the cloud

• assess the value of packaged Ip as a profit lever

• generate partner of record fees to cover sales costs

• relevant and repeatible solutions will form your primary annuity stream

Key Points

Questions to Consider

• can the business support the volume requirements for cloud offerings?

• can current Ip be expanded to offer ‘out of the box’ customer experiences at a low cost?

• what additional services could be included to further drive long term customer commitment?

• what investment is required to support the mid-term impact to revenue streams?

• what is the best pricing and packaging by customer segment, geography, and industry?

• can current Ip be expanded to offer ‘out of the box’ customer experiences at a low cost?

https://partner.microsoft.com/global/productssolutions/dynamics/40012663



https://partner.microsoft.com/global/40012010

https://partner.microsoft.com/global/40012010

https://partner.microsoft.com/global/productssolutions/dynamics/leadreferral

https://partner.microsoft.com/global/productssolutions/dynamics/leadreferral

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because technology is now consumed as a service the normal deployment costs associated with installation and configuration will no longer exist.

Packaged IP

Selling packaged Ip is not a new idea. however monetizing Ip on a monthly basis is relatively new. when charged monthly, a consolidated offering can help partners build a long-term, predictable, high volume revenue stream. In many cases this can be one of the profitable aspects of a partner’s business. Surveys from Idc show that partners who provide a packaged offering have a higher average operating margin than a partner whose primary revenue stream stems from billable services.

new SourcesKey Performance Indicators and Benchmarking

partners who can successfully package and sell Ip have an entirely new business opportunity: tracking customer/user level activity and managing performance against a set of key performance indicators (KPIs). In this model, partners can measure their customers performance across a set of metrics or industry benchmarks to compare an individual company against its peers. this information can then be offered as an incremental service either priced separately or included as a part of the standard monthly payment.

Example: Customers in professional services track KPIs such as billable rates, average hours billed per individual and billable markup rate. Because of Dynamics ERP and/or CRM solutions are provided in the cloud, a term of service could be included in customer contracts allowing the partner to anonymously track customers’ statistics. Partners could then normalize the data, and sell it back to customers in a dashboard showing how they compare to competitors or other relevant companies.

Business Process Consulting

for some partners this may be considered a traditional source of income. for most it represents a new opportunity. as partners focus on a particular segment and vertical, their improved understanding of the space can help them to provide even more value-add services.

this consulting may be tied to the kpI and benchmarking opportunity described above. knowing customers’ performance against these figures helps a partner proactively engage and offer billable assistance to address issues around business performance improvement.

Example: A partner who can see the gross services margin metric for their install base on a KPI dashboard can then stack rank the performance of their customers by this metric. The partner can then proactively market to those in the bottom quartile, offering business process consulting services to improve the associated business processes.

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Impact on Profit and Loss Statement partners who sell or deliver on-premises offerings today should plan to transition to the cloud over a number of years. most partners will need to manage a blended practice of both on-premises and subscription services during this process. for solution partners in particular, the two practices will probably need to be managed separately because they operate differently across areas such as sales compensation, sales process management, solution delivery, and support. because it takes time to recover the startup costs of a subscription model, partners will want to use the working capital generated by on-premises deployments to help fund the short-term development of their cloud business.

managed thoughtfully, pragmatically, and with a focus on process efficiency, a cloud-based business can generate an increase in operating margin as sales volume increases. research and modeling suggests some financial levers have a greater impact on a partner’s ability to succeed in the cloud. the most critical to consider are:

total Subscription pricethe Market Perception » section showed that with the exception of the enterprise customer segment, customers purchasing cloud-based solutions expect services to be relevant, fast, and cheap. customers do not want to pay for significant customization; they simply want to consume the service as an operational expense. this aversion is most prevalent among small and medium businesses. partners need to provide ready-to-use, easily consumed solutions.

pricing must be both market-competitive and attractive when compared to licensing the same solution in an on-premises setting on a total cost of ownership (TCO) basis.

Example: Compared to competitors, Microsoft Dynamics CRM Online is relatively inexpensive, leaving room for partners to monetize their incremental IP. To know how to set prices, compete and profit, partners should consider the whole stack of customer costs among competitors in their chosen markets. For example, competitive cloud pricing models should consider the monthly subscription price, the average implementation services required to deploy, and other services such as training and support. The models should also account for the customer’s delayed benefits while waiting for a customized solution, rather than turning on a relevant cloud service.

average deal SizeOne of the fastest ways to increase profitability in the cloud is to increase the number of users per customer. this does not necessarily mean acquiring larger customers. often, pursuing larger customers drives up the cost of goods sold (COGS) and could result in a more expensive sale. Instead, partners who can provide a well-rounded, more complete offering that can be consumed by a larger proportion of employees will find themselves capturing more wallet share while maintaining or cutting their cogS.

Primary Levers of Profitability

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Example: Increasing the average number of users per customer by as little as five seats can have a tremendous impact on profitability. This effect is even more noticeable in an annuity-based model over an extended period of time. If the partner has packaged IP monetized on top of the Microsoft subscription cost, the contribution from these incremental users becomes substantial as more and more customers are acquired.

customer acquisition costs/cogSSelling cloud-based Erp and crm solutions is very different from selling on-premises. mainly, sales cycles must be significantly shorter, and salespeople must be able to close deals largely remote, with fewer meetings and at a lower cost than an on-premises deal. a key enabler of sales cogS reductions is effective marketing. marketers must execute digital media and ‘push’ content, demand generation, and lead generation more cost-effectively. Each marketing program should be analyzed on cost per lead generated, cost per deal closed, and length of sales cycle.

In the cloud, cogS should be managed very closely and needs to be in the range of $6,000 to $8,000 USD depending on the market segment. this will prove challenging for many since the average in the microsoft partner ecosystem is much higher today (the u.S. average can be over $25,000 for Erp or crm).

hosting costsfor partners who have developed or are considering developing a hosting practice, success in this model requires scale. that is to say, unit costs decline significantly as the number of users served increases because hosting is a capital and infrastructure-intensive business activity. It also requires specialized expertise.

many elements are involved in the delivery of a hosted offering. the following table illustrates how these costs may behave based on the number of end users served.

as the deals become larger or a higher number of customers are acquired, partners will see greater

economies of scale in the data center investment category which consists of hardware, software, and facility services required to run a data center environment.

Self-hosting is likely to be cost-prohibitive except for partners who have already achieved a relatively large customer base for hosted applications. for most partners, working with a company who has hosting as a primary revenue model will likely be a more cost effective way to deliver this type of offering.

higher volume of customer acquisition a successful cloud-based business must fundamentally achieve higher sales volumes and a growing subscriber base. partners who understand this and execute well should see annuity streams build more quickly and recover costs faster.

Higher volumes require a shift in how partners fill sales pipelines and manage sales processes. partners will also have to change the types of salespeople they hire and how they compensate them. partners must establish a mindset where generating 35+ customer adds per year per salesperson is the norm (rather than 10). Increasing the pipeline volume and decreasing the time from lead to close are critical to success.

chart 2. hoStIng coSt pEr uSEr

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In certain segments at the upper end of the market, the cloud sales development plan should include strong Solution architect(s). good solution architects can quickly reject unqualified deals and educate viable customer opportunities about specific cloud offerings. Solution architects will be building Ip while they are also helping to sell. Successful solution architects create a virtuous cycle of lead qualification, sales assistance, learning from the installed base, and wrapping that knowledge into Ip that helps the next sale. this role is a key success factor for a partner’s ability to win customers quickly and create volume.

deployment costsfor many partners today, consulting services represent over 80% of revenue. Much of this revenue comes from deploying the software solutions. as customers shift away from on-premises deployments full of billable hours toward more of a consumable utility, the ratio of revenue sources is likely to change. understanding the segment and market’s appetite for services will help partners move to the proper level of consulting services in a cloud model.

because customers are becoming more sensitive to deployment costs, partners will need to determine which offerings can be packaged and sold as an annuity rather than as customizations. other billable services normally associated with deployments will need to be revisited and offered in other mediums.

Example: By offering pre-recorded training, partners can increase its quality; reduce their expenses per user, scale across geographies, and charge for access to training on a monthly basis rather than as a single billable event.

churn ratewhile initial sales are critical to starting a cloud business, customer retention is crucial to its long term success. that means keeping the churn rate of customers as low as possible. Churn is defined as an erosion of customer base. limiting churn is primarily driven by each customer’s perceived value to cost ratio for the solution compared to competitive offerings that consistently improve.

a defecting customer may state that they are no longer able to afford the service. but usually the customer just did not see enough value compared to a competitor’s current offerings to justify the continued expense of the solution. customers usually do not drop an Erp or crm system after having acquired one. they tend to move on to the next generation of a competitive system.

like cell phone plans, subscription audio services, cable bills, and other monthly expenses, the service may seem to be a great deal until a competitive (satellite dishes to a cable provider) or disruptive (mp3 for cd sales) technology or provider arrives in market.

that means offerings must remain leading edge from functional, technical, and economic perspectives. this is a key reason we all must move to the cloud. If we don’t pave the road there, a competitor will pave their road right over us. this means we are in a permanent race to maximize the value to cost ratio that drives customer renewal behavior.

given the immediacy and ease with which a customer can unsubscribe from a service, we need to increase the speed with which we deliver value and reduce the costs at which we supply solutions. this is the glory of the free market set loose on behalf of customers - more for less always.

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customer lifecycle management partners should carefully think about the long term implications of managing and maintaining customer relationships. the old saying still holds true, it is less expensive to retain a current customer than to acquire a new one. this is not to say partners should not focus resources on new business but rather find the right balance of focus on driving a high volume of new customers and existing business.

while the focus on customer acquisition is vitally important to increase revenue, the shift to cloud services – with its subscription based licensing model and lower exit barrier - forces us to put more emphasis on long-term customer retention to maintain and grow profitably.

cloud offerings reduce up front license revenue. So it is important to increase monthly revenue per customer by cross selling additional subscription services throughout the customer’s lifecycle. to be effective, partners must have regular deep discussions with existing customers to discover how a solution can expand its value. these follow-on sales in the cloud help replace the high up-front on-premises revenues but with lower infrastructure and support costs.

figure 2: lIfEtImE valuE of cuStomEr

not only do follow-on sales create revenue for partners, but they increase customer loyalty. the more a partner’s solutions and processes are foundational to the customer’s business, the more committed the customer is to the solution.

In the illustration above, note that the traditional monetization of on-premises software (blue line) shows most of the revenue at the beginning of the customer lifecycle and then again when they upgrade. most other revenue is driven by maintenance and support. the in-the-cloud monetization (dark blue line) demonstrates the opportunity for a partner that builds effective subscription based services throughout the entire lifecycle.

cloud models and on-premises models are not mutually exclusive. the services and Ip offered can also supplement on-premises or hybrid deployments. the more partners prepare themselves with these additional services, the easier the transition to selling and retain customer loyalty to cloud solutions.

visit www.microsoft.com/dynamicscloudpartner for additional insights on how a partners profit & loss statement is affected by transitioning to

the cloud

On-Premises Revenue

Online Services Revenue

Years on Solution

Life

time

Valu

e

0 2 4 6 8 10 12

http://www.youtube.com/user/microsoftcrmstrategy#p/c/49CA3B007E38F72F/3/zuDjEVnKm4I

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Summary Profit and Loss StatementsThe financial impact of transitioning selling or service delivery businesses to the cloud is summarized in the following tables. Each provides a five-year view with the first being snapshot of the year prior to beginning the transition. this year (year 0) is intended to show the state of the partner as a starting point. Included are relevant assumptions on the impact to cash flow.

with a cloud based model, most, if not all partners, will likely experience an initial stage of negative cash flow associated with the cost of acquiring customers, and installing the solution. working capital will typically also be required to fund investments in online demand generation infrastructure and to onboard dedicated cloud sales people. these costs, along with the removal of the up front payment historically associated with on-premises deployments, are the elements that drive cash flow impact.

the “Start up” example shows a new cloud partner entering the ecosystem as a new entity with no on-premises legacy business. for partners starting up, this provides an opportunity to move more quickly than other organizations having to transition from an on-premise business model.

Existing microsoft dynamics on-premises partners transitioning to cloud can choose to operate in a hybrid model or complete a full transition to the cloud.

the “hybrid business model” example outlines a partner going from being completely on-premises partner in year 1 to a near even split between on-premises and cloud by year 4.

the “complete cloud transformation” example models a partner moving entirely to the cloud by year 4. allowing for blended business execution for years 1-3.once past the break-even point, overall margins continuously improve as the customer and subscriber base expands. this is accelerated by incorporating functionality that can be packaged and monetized in a monthly fee above the standard dynamics license price.

Assumptions

Each example includes a set of fixed and variable assumptions affecting profitability. These are outlined immediately following the summary examples below. a full explanation of these can be found in the appendix. all monetary values are in u.S. dollars.

Start Up

CRM ERPyear 1 year 4 year 1 year 4

operating Expenses $117,801 $1,588,981 $445,158 $4,784,469 operating margin ($207,384) $591,887 ($81,602) $1,750,691

EbItda -51.5% 12.9% -11.8% 16.4%new customer adds (on prem) 0 0 0 0

new customer adds (cloud) 12 96 12 96cloud cash flow $0 $0 $0 $0

Hybrid Business Model


operating Expenses $1,907,186 $2,553,606 $2,010,529 $3,506,654 operating margin $276,745 $493,646 $298,750 $538,352

EbItda 4.5% 6.7% 6% 7%new customer adds (on prem) 15 15 15 15

new customer adds (cloud) 6 18 6 18cloud cash flow ($120,569) $726,752 ($58,972) $1,765,756

Complete Cloud Transformation


operating Expenses $1,835,687 $3,392,232 $2,044,635 $6,257,059 operating margin $214,805 $1,010,832 $223,546 $1,577,999

EbItda 3.8% 12.1% 4% 11%new customer adds (on prem) 12 0 12 0

new customer adds (cloud) 12 96 12 96cloud cash flow ($121,583) $2,189,868 $21,556 $5,229,160

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Profit & Loss Summary for Microsoft Dynamics Summary 1: Start up

while lacking the ability to use the existing on-premises business as a funding mechanism, the advantage of a startup business is the capacity to manage one business model built around creating scale. with the introduction of microsoft dynamics crm online into the north american market two and a half years ago, there were a number of partners who did just that. as a result, their agility has enabled them to rapidly build up a high customer add rate similar to, and in some cases surpassing what is outlined in this example.

• Working Capital Required: $632,672 (CRM), $439,403 (ERP)

• Cash Flow Break-even: 28 months (CRM) 22 months (ERP)

Startup

Year 0 Year 1 Year 2 Year 3 Year 4

Software $461,400 $1,701,000 $4,101,600 $8,832,000Services $230,000 $474,400 $963,200 $1,826,400

total revenue $691,400 $2,175,400 $5,064,800 $10,658,400

cogS (Software) $135,344 $498,960 $1,203,136 $2,590,720cogS (Services) $192,500 $392,920 $793,760 $1,532,520

total COGS $327,844 $891,880 $1,996,896 $4,123,240

operating Expenses $445,158 $1,237,687 $2,435,540 $4,784,469

operating margin -$81,602 $45,833 $632,364 $1,750,691

EbItda -11.8% 2.1% 12.5% 16.4%

new customer adds (cloud) 12 24 48 96

working capital required $439,403

cash flow breakeven 22 months

Microsoft Dynamics CRM Microsoft Dynamics ERP

Startup


Software $202,917 $630,103 $1,452,652 $3,078,718Services $200,000 $404,500 $813,500 $1,527,000

total revenue $402,917 $1,034,603 $2,266,152 $4,605,718

cogS (Software) $300,000 $300,000 $425,000 $625,000cogS (Services) $192,500 $387,475 $777,425 $1,799,850

total COGS $492,500 $687,475 $1,202,425 $2,424,850

operating Expenses $117,801 $298,853 $780,776 $1,588,981

operating margin -$207,384 $48,275 $282,951 $591,887

EbItda -51.5% 4.7% 12.5% 12.9%

new customer adds (cloud) 12 24 48 96


cash flow breakeven 28 months

Summary 2: hybrid business model

partners transitioning at a slower pace may choose to operate in a blended environment. for this model, there is a risk in not developing the operational efficiencies required to build the volumes needed to be successful.

additionally, the strain from running both models will likely reduce the probability of growing the on-premises business resulting in a plateau effect for that portion of the business. although growth is seen in terms of the number of overall customer adds through the cloud practice, the rate will likely not be significant. The net result is small improvements to operating margin and relatively flat EBITDA.


• Cash Flow Break-even: 21 months (CRM) 17 months (ERP)

Microsoft Dynamics CRM Microsoft Dynamics ERP



Software $2,125,000 $2,226,431 $2,439,694 $2,698,437 $2,987,696Services $3,850,000 $3,975,000 $4,102,250 $4,244,250 $4,385,125

total revenue $5,975,000 $6,201,431 $6,541,944 $6,942,687 $7,372,821

cogS (Software) $1,790,000 $1,790,000 $1,790,000 $1,790,000 $1,790,000cogS (Services) $2,117,500 $2,227,500 $2,338,738 $2,437,463 $2,535,569

total COGS $3,907,500 $4,017,500 $4,128,738 $4,227,463 $4,325,569

operating Expenses $1,725,000 $1,907,186 $2,076,253 $2,253,389 $2,553,606

operating margin $342,500 $276,745 $336,954 $461,835 $493,646

EbItda 5.7% 4.5% 5.2% 6.7% 6.7%

new customer adds (on prem) 15 15 15 15 15new customer adds (cloud) 0 6 12 15 18


cloud cash flow -$120,569 $168,707 $420,224 $726,752

cloud cash flow breakeven 21 months




total revenue $5,000,000 $5,370,700 $6,137,700 $7,151,200 $8,279,300


total COGS $2,925,000 $3,061,422 $3,492,190 $3,846,896 $4,234,294


operating margin $350,000 $298,750 $157,531 $329,799 $538,352

EbItda 7.0% 5.6% 2.6% 4.6% 6.5%



cloud cash flow n/a -$58,972 $457,260 $1,058,054 $1,765,756


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Summary 3: complete cloud transformation

by committing a full transition, partners stand a higher probability of optimizing processes across the business. the net effect of this focus should result in a more dramatic increase in customer adds which is the first key component of profitability. The second is the monetization of incremental IP that can be charged as a monthly fee on top of the base price for the microsoft dynamics subscription or license cost. these two variables acting in conjunction can rapidly build up a sustainable, predictable, more profitable revenue stream that grows over time.


• Cash Flow Break-even: 19 months (CRM) 14 months (ERP) Microsoft Dynamics CRM Microsoft Dynamics ERP




total revenue $5,975,000 $5,720,667 $5,767,401 $6,478,341 $8,354,567


total COGS $3,907,500 $3,670,175 $3,482,606 $3,532,091 $3,951,503


operating margin $342,500 $214,805 $280,033 $613,798 $1,010,832

EbItda 5.7% 3.8% 4.9% 9.5% 12.1%



cloud cash flow -$121,583 $368,128 $980,727 $2,189,868





total revenue $5,000,000 $5,191,400 $6,225,400 $8,709,800 $13,938,900


total COGS $2,925,000 $2,923,219 $3,337,068 $4,197,565 $6,103,842


operating margin $350,000 $223,546 $280,221 $759,393 $1,577,999

EbItda 7.0% 4.3% 4.5% 8.7% 11.3%



cloud cash flow n/a $21,556 $919,520 $2,389,904 $5,229,160


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Fixed Assumptions

Below are assumptions applied to the aforementioned profitability models.

Variable Assumption Valuechurn rate 10%on-premises cSa rate for crm 20%on-premises partner discount rate for Erp 45%hosting costs (Erp only) $45cSa rate for crm 40% /6%Erp Spla license (advanced management) $43Software assurance rate for crm 5%brEp rate for Erp 18%crm online Subscription price $44on-premises marketing costs per customer acquisition $5,000Subscription price charged for Incremental Ip (crm – per user, per month) $55Subscription price charged for Erp (inclusive of hosting, base dynamics license, packaged Ip, and any services rolled into the monthly fee – per user, per month)

$300

on-premises cost of goods Sold $15,000cloud marketing costs per customer acquisition $3,500cloud marketing costs – retention and upsell (annual) $700cloud cost of goods Sold – year 1 (acquiring the customer) $5,000cloud cost of goods Sold – year 2+ retention and upsell (annual) $1,000gross Services margin 45%cloud Services value per deal (the market value of what the services provided are worth) $25,000cloud Services collected per deal (what can actually be charged due to adversity to billable hours)

$12.500

marketing Infrastructure costs (over 4 years) $375,000additional cloud Services revenue (i.e. business process consulting, over 4 years) $650,000

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Execution Planning: Business Management overviewSuccessfully building a profitable cloud practice will require a concerted effort across all functional areas of the business. partners will need to adjust most business processes and change how roles are performed and staffed.

before developing an execution plan, the partner must first choose a market to address. Considerations will include at least:

• core competencies and historical sales

• which business segment(s) and functional or vertical(s) those competencies address

• whether the business segment of focus supports growth

• review of the competitive landscape

Having identified the segment, vertical, and functional areas partners can begin to think through current workflows and how to optimize each to match the chosen market.

conducting this gap analysis will help develop investment requirements and a schedule. there will always be some changes required to support the transition such as building stronger marketing infrastructure, changing sales readiness levels and content, or developing packaged offerings.

before the transition begins, kpIs should be set across the organization and subsequently measured to help ensure progress remains on plan.

lastly, please recall from the Introduction that this is an evolution. for existing partners a successful on-premises practice will remain throughout the transition and perhaps perpetually. how partners manage this transition will be based on the portions of the market partners currently or will support in the future.

Partners with a healthy cash flow from operations can probably build their cloud practice without additional capital. Other partners may find that sources of additional funding are temporarily required while they invest in key areas.

primary considerationsIdentify target markets

Operational efficiency creates scale. This requires focus on a carefully selected portion of the market so that partners can create repeatability. Segment, vertical, and geopolitical (political, policy and regulatory) considerations critically affect the adoption of cloud based services. partners must consider all three elements when defining their target markets.

• building a cloud practice is an evolution

• operational efficiency requires repeatability

Key Points


• what portions of the market are there clusters of existing and potential customers?

• what portions of the market is the company best able to serve?

• what Ip exists that can be monetized and at what price will the market bear?

• how can Ip be expanded, standardized, and deployed in specific customer settings and applied to target segments, industries, or geographies?

• how do current statistics align with the benchmarks of the kpI’s outlined in this document – are they actively tracked?

• what role can microsoft office 365 play in the offering?

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for example, data sovereignty (where data is stored and how it is transported across the network) may be a prime consideration for some target markets. by learning and knowing the detailed requirements of a particular market, partners can develop a more precise offering that helps ensure they are the master of a chosen space. target market focus will also improve marketing and sales engines by creating specialized knowledge on those teams. finally, the virtuous cycle of referenceable customers and targeted advertising in the chosen target market can help drive higher volumes at ever lower costs.

figure 3. targEt markEt

to start partners should think deeply about core competencies.

What markets have been served to date?

In what segment, vertical, and geopolitical groupings have the partners concentrated? there may be Ip and services in these markets that can be rapidly packaged and capitalized on as an annuity.

In what portions of the market do current resources have experience?

what are the skills and knowledge of the partner sales and delivery teams? often, sales and delivery team members know a vertical or industry because they have sold to, implemented at, or even worked within that market.

Where is the opportunity?

what slices of the market are poised to grow? among the installed base may be customer types that are thriving and others that are doing poorly. with the skill sets in place, a partner may be able to easily transfer those skills to a somewhat different market that is experiencing growth.

Example: A mid-market focused partner who packages their CRM vertical IP at $55 per user per month and keeps churn under 10 percent can generate over $1 million a year by year three. This revenue can be achievable by roughly one and a half sales representatives.

table 2: fIvE yEar buSInESS Impact

the microsoft core value proposition is providing a connected experience across business applications and productivity solutions (microsoft® Office, Microsoft® Sharepoint® team services, and microsoft® Exchange®). the recommendation is that partners include the microsoft® Office 365 suite in their practice. Among many successful partners, the compelling value proposition of the microsoft integrated platform is a key reason they are selected over competitors. by making the platform part of their story, partners:

• provide a deeper solution

• Increase their partner of record fees

• Sell more packaged cloud services

• Sell more custom consulting services


Customer Adds 24 36 48 60 72

New Seats 480 720 960 1200 1440

Cumulative Seats Sold

480 1200 2160 3360 4800

Churn 10% 10% 10% 10% 10%

Revenue $316,800 $712,800 $1,283,040 $1,995,840 $2,851,200

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Effectively manage KPIs

when developing a cloud practice, the leadership team must carefully manage a core set of kpIs. while the metrics may largely mirror an on-premises business, the benchmarks will be different for a cloud practice. they should be monitored daily, weekly, and monthly. kpI goals and performance should be reviewed with the microsoft account team to help maximize the impact on and influence over prospective customers. The core KPIs include:

Revenue per Employee

because a cloud-based business is more volume-based and less labor-intensive, the number of traditional staff required to generate similar revenue should be lower. the absolute revenue per employee will vary by region, and is expected to be 25 to 50 percent greater than for an on-premises business. partners who invest in a tele-web sales model may further increase revenue per employee because these leveraged resources can be less expensive and create a larger volume of customers.

Services to Subscription (Software) Ratio

cloud based offerings typically come with lower traditional services revenue so the ratio of services to software or subscription revenue will fall.

In the upper market segments the decline in the services to software ratio will be relatively small. In the lower end of the market the decline may be significant.

Example: In the small business sector the services to software ratio will start below 1:1, and fall from there. The ratio may fall to as low as 0.25:1.00 while in the mid-market, it will range from 0.25 - 0.50:1.00. For enterprise customers this metric will decline slightly because of the removal of installation and configuration services. However, the timing of service revenue may change because prospects want tighter proof of concept and a phased implementation approach.

Subscription Gross Margin

to be economically viable, combined subscription gross margins (microsoft Ip and partner Ip) should exceed 65 percent. This is true except in the first year, when customer acquisition and services costs can lower margins by as much as 20 percent.

Services Gross Margin

top performers should target earning gross margins near 50 percent. this metric may vary by geography. for example, countries in Eastern Europe and asia that have heavy competition and price negotiations with customers will probably lower their targets to 40 to 45 percent.

Customer Acquisition Costs

To profitably scale in the cloud, partners must reduce customer acquisition costs (sales + marketing) to under 15 percent of revenue. this is a substantial decrease in cogS for most partners. In developed markets, total sales and marketing costs will need to range from $9,000 to $12,000 per customer add. costs must be even lower for emerging markets.

Research and Development

Ip must be kept current, requiring ongoing research and development (R&D). Solution providers should count on spending 5 to 6 percent of revenue on r&d to keep products competitive. Industry or vertical specific Ip may have longer life cycles than horizontal or work flow based IP.

the microsoft dynamics online services enhancement cycle is six to eight months. regularly refreshed microsoft services could require that partners modify their Ip and r&d efforts to avoid obsolescence. this speed of change also implies that partners will need to identify and implement new complementary capabilities rapidly (possibly in less than two to four months).

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EBITDA

partners who want to build a cloud business need enough size and profits to fund the transition. This depends on market type (emerging or developed). for developed markets, “healthy” would be over $5 million in revenues and 8 percent earnings (EBITDA.) Partners who successfully transition as described here may see EbItda climb into the mid-teens or more.

but when starting a cloud practice partners will probably see a short term reduction in EbItda while their annuity stream grows. Successful partners should see EbItda rebound within 18 to 24 months, and grow steadily from there.

tracking Success

below is a long-term dashboard of kpIs for a cloud-based solution provider. however, it is unlikely that all of these targets will be met initially.

Dashboard ElementTarget

Performance

Subscription (Software) Gross Margin 65%

Services Gross Margin 50%

R & D 5%

G & A 15%

EBITDA 15%

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• the investment in a cloud practice is significant and should be funded over multiple years

• budgets will change across all functional areas

• Investment amounts will vary depending on existing infrastructure and sophistication, and the target market(s) chosen

Key PointsExecution Roadmap: Financial PlanningoverviewExecuting a successful cloud strategy requires investments. for most partners, these investments will be substantial and require current operating profits. without the upfront bulk payments for on-premises deployments, partner cash flow will be temporarily impacted. this obstacle can be overcome through sound operational management.

Depending on partner maturity, profitability, and size, funding sources may vary. the sophistication of current processes and the skill of staff will influence the size of the investment.

the following section outlines a range of investment and cost considerations. the Partner Development Centers (PDC) can help partners build a personalized plan and investment schedule.

primary considerationstable 4: prImary conSIdEratIonS for fInancIal plannIng


• Is there enough cash available? or, can enough cash be generated from operations? will borrowing or selling equity be enough to fund the transition?

• what business scenarios can be constructed based on market conditions, competition, pricing, packaging, and projected sales forecasts? what is the roI of each? which will be chosen? why?

Consideration Impact / Recommendations Variables Financial Impact (U.S. $)

Baseline cash flow and general cash buffer

Recommend a general cash buffer to absorb higher COGS and to fund salaries and commissions.

• Target market segment• Average deal size• Pricing of incremental packaged IP• Marketing costs

$25,000 to $150,000On hand

Upfront online demand generation infrastructure

The annuity model requires more deals and a more effective and efficient lead generation process.

• Online assets investment• Improvement in overall search engine optimization (SEO)

$25,000 to $100,000 Investment

Upfront hosting infrastructure costs

Establishing a hosting practice can be extremely expensive. We recommend working with a partner that already possesses hosting domain expertise.

• Size to establish profitability• Administration resources to manage the infrastructure

24/7• Ability to offer a hosted solution that is economically

viable for customers• Service level agreements (SLAs)

$150,000+Investment

Sales infrastructure costsTo reduce COGS partners must closely manage each sales and marketing process, and see them through to the successful achievement of the resulting KPIs.

• Current CRM deployment• Align sales processes to drive sales efficiency and drive

volume• Microsoft Dynamics CRM Online Internal Use Right

benefit• Partner Business Systems (available in Spring 2011)

$10,000 to $50,000 Investment

Sales onboarding costsSales processes and compensation are typically different for a cloud-based sales rep. Partners will likely repurpose existing individuals or hire new team members.

• Determine fully loaded costs per rep• Compensation model—subscription software versus

consulting services

$25,000 and $75,000Investment

Upfront data migration costs and establishing packaged IP

To meet the customer demand of consuming the technology as a utility, deployment processes must be streamlined and cost less.

• Develop tools for rapid data migration• Estimate costs to package existing IP (such as internal

best practices, documentation, training, etc.)

$5,000 to $25,000 Develop data migration service

$10,000 to $50,000 Investment to package IP

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Execution Roadmap: Marketing overviewto build a successful cloud business demand generation must achieve critical mass. Sales representatives need far more leads than their on-premises peers. a good cloud sales representative should close 30 to 35 deals in a year and maintain a minimum 30 percent close rate. that means they need 100 to 116 fully qualified opportunities annually (defined as 20 percent based on Microsoft Solution Selling Process (MSSP) methodology).

for most partners in developed markets this means marketing-driven customer acquisition costs must be reduced from u.S. $5,000 to around $3,000. In addition, investment in marketing spend must increase proportionally to generate a larger volume of leads. (refer to chart 3 “the marketing mix”)

this is possible through focused and precise market segment and vertical demand generation activities enabled by a sharp market definition chosen by management for the cloud. the net results are increased response rates and a higher proportion of qualified prospects driving down the cost per customer acquisition.

primary considerationsFunding demand generation

to generate the volumes above partners need to invest from 3 to 5 percent of gross revenues in marketing activities, excluding labor costs. an Idc survey of the microsoft dynamics partner ecosystem2 shows that the average partner spends much less than that today.

Understand buyer behavior & adjust marketing mix

prospects for cloud-based business solutions are far more likely to find a solution provider online. Search engine marketing (pay-per-click advertising) and

2 partnering with microsoft dynamics: Eight Steps to Profitability, IDC Research, November 2007

search engine optimization (achieving high rankings in “organic” searches) will dominate the marketing mix.

these efforts will be supplemented by email-based nurture marketing and webinars as shown in chart 3.

Exposure in the Microsoft Dynamics Marketplace

microsoft has invested in the trial engine and the microsoft dynamics marketplace. these two resources inform and educate potential buyers to help field sellers and assist partners to expedite sales.

These resources also help partners significantly extend their reach. thousands of prospects come through the microsoft dynamics crm online trial experience today.

• the rapid development of a substantial annuity stream requires a well-funded, and efficient marketing machine

• cloud buyer behavior and the need to drive down customer acquisition costs forces a shift in the marketing mix more toward the web

• broad exposure through integration into the dynamics marketplace extends reach

• Sales reps need educated prospects in order to close deals with less interaction

Key Points


• what does the current customer pipeline look like for the business? are there customers who might be ‘cloud ready’?

• what resources & investments are in place for marketing infrastructure (digital, demand generation, campaigns)?

• are there resources, campaigns, and processes in place to develop and manage a higher volume of leads?

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chart 3. thE markEtIng mIx

Nurture Marketing

to realize the goals of reduced customer acquisition cost and increased lead volume is no small undertaking. Successful partners have shown this can achieved by increasing the amount of marketing spend and shifting the marketing mix from low volume-high cost activities, to high volume-low cost online activities, such as pay-per click campaigns and search engine optimization.

these marketing activities should not be executed in isolation. a marketing portfolio that manages the sequencing and connecting of these online activities with stages in the customer engagement lifecycle is critical in producing greater lead volume and higher conversation rates. this approach is commonly referred to as nurture marketing.

Effective nurture marketing requires the inclusion of:

• digital vehicles like search, email marketing, webinars to generate prospects• time-based or trigger-based communications to push activities and offers to prospects• ‘trial factories’ where buyers can see, understand, and develop a vision for how to use the offering’s capabilities

in a click, try, buy environment.• application of standard marketing principles with existing customers in alignment with the appropriate selling

methodology by segment.

high volumes also visit the microsoft dynamics marketplace daily. partners can use these tools to show potential buyers the value of their offerings. the microsoft dynamics marketplace applies to both crm and Erp and partners should use this space to develop demand for their packaged offerings and customization services.

more information on the microsoft dynamics marketplace can be found in the Getting Started section » of this guide.

Create educated prospects to reduce the sales cycle

to achieve more customer adds, partners must reduce both the number of interactions with a prospect and the length of the sales cycle. marketing needs to educate and inform prospects more in the early stages. partners should develop web-based assets which help prospects see the solution through self-guided demos and advance to the trial and proof stages quickly.

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Execution Roadmap: SalesoverviewTo profitably scale in the cloud, a partner’s customer acquisition costs (sales + marketing) must be limited to 15 percent of revenue.

the traditional sales model for on-premises solutions is expensive and long. Sales often take over 90 hours to close, include multiple offsite sales calls and consume pre-sales support. these costs are prohibitive in the cloud given the lower initial revenue streams.

primary considerationsDriving volume

consuming It as a utility reduces the willingness for an organization to pay for billable services. It also changes how partners manage profitability. Soon, a partner’s business health and value will be determined by the size of its annuitized revenues. Successful early entrants are more likely to weather economic storms and be more attractive to potential suitors. to accomplish this, the focus must be on driving subscription volume to build up this stream of revenue quickly. doing so requires a large volume of customers.

Dedicated cloud services sales reps

most on-premises sales representatives use a traditional consultative selling approach that may involve several meetings for each of the following steps: pre-sales reviews, customized demos, scoping work, and a proof of concept. these series of meetings require considerable and protracted time commitments.

In the cloud, selling must be faster. Sales representatives who are dedicated to and compensated for selling only cloud solutions will probably excel. people who can show value in the first discussion with the customer or who can deliver a relevant instance of the service during the first customer interaction will significantly shorten the sales cycle.

Compensation models that drive volume

Sales compensation plans for cloud-based sellers should reward building a strong annuity stream. Since most cloud customers will not stand high initial costs, a sales representative’s variable compensation should pay for the number of customers and the annual annuity value closed instead of the billable hours sold.

to close volume quickly, most selling should be on the phone (particularly in the mid-market and below). the offerings should be more straightforward and standardized, requiring less senior representatives.


• can the business support a shift to allocate dedicated sales resources to the cloud practice?

• can the sales processes and compensation be adjusted to achieve target operating margin?

• does the current business model allow for flexibility to support shorter sales cycles, packaged services, and a higher volume of transactions?

• Selling a cloud based service is a volume game and partners should expect to dramatically increase customer acquisition rates

• a sales representative selling a cloud based service, should be 100% focused on selling that delivery model

• compensation models for cloud based representatives will need to be different than on-premises representatives

• Sales cycles will need to be condensed, simplified, and more transparent

• Sales representatives will need to seed smaller projects, make the customer successful, and subsequently expand relationships to promote additional usage and services

Key Points

31

this probably means a lower base salary than required for on-premises salespeople, with an opportunity to earn strong variable compensation. Sales quotas should generally be set at 30 to 35 deals per year; compared to an on-premises rep who might close 12 to 15 deals.

Sales costs must also be kept low; ideally less than 10 percent of the first year’s revenue. Sales compensation structures that provide residual (renewal) compensation (beyond the first 12 months) to the initial selling representative will discourage their concentration on new business and may be too costly. these “hunters” should be paid based on the annuity they originally create.

Subsequent selling can be executed by lower cost sales personnel (“farmers”). the “farmer’s” compensation structure contains relatively larger fixed base and may include compensation over multiple years for the successful maintenance of the customer relationship and long-term revenue stream.

Shorten sales cycles and reduce interactions to keep down COGS

matching sales representative’s skills to those required by the cloud is imperative. Success will require shortening sales cycles and increasing the number of potential buyers with whom a salesperson can engage. historically on-premises sales engagements, have a cogS of u.S. $20,000 - $25,000. In the cloud, partners should aspire to cut these costs by two-thirds, reduce the number of interactions needed to close a deal, and severely limit face-to-face meetings.

Complete the Pilot and grow the footprint

Month 6 Month 11 Month 16 Month 22 Month 27 Month 34

Manage thechurn and create“sticky” customer

experience

Introduce nextoffering

(BPOS,BI, ERP if applicable)

Insure customeris satisfied, add

users to allcategories,

manage churn



Manage thechurn and

maintain “sticky”customer experience

Selling Wave

Complete the Pilot and grow the footprint

Month 6 Month 11 Month 16 Month 22 Month 27 Month 34

Manage the churn and create

“sticky” customerexperience



Insure customer issatisfied, add users

to all categories,manage churn



Manage the churn and maintain

“sticky” customer experience

Selling in Waves

32

Seed an account and expand it over time

there are fewer and fewer large monolithic crm and Erp deployments taking place. customers are now often looking to address very specific needs. Sometimes, customers want to protect their on-premises investments until they are ready to make a full commitment to the cloud. If partners can help them successfully solve an initial business issue in the cloud, they are more likely to expand the footprint of the solution over time. Establishing a beachhead by solving a small set of business challenges through a phased approach helps to establish a role as a trusted advisor while limiting the customer’s risk.

Improve sales execution

marketing and sales must unmercifully disqualify low probability prospects. Wasting time on unqualified prospects is a significant blocker to creating the volume required. additionally, partners should consider the following within the Microsoft Solution Selling Process (MSSP).

Qualify and Develop: potentially disqualifying attributes of prospects should be flagged, escalated, and tested as early as possible for disqualification.

Proof and Solution: the trial engine and the microsoft dynamics marketplace show prospects a relevant experience. these assets can help reduce or eliminate the time required to create and demonstrate custom environments.

Close: Packaged IP and fixed price services reduce the time required for custom proposals. the result is faster and less costly requiring less engagement from finance, legal, and executive management.

visit www.microsoft.com/dynamicscloudpartner for additional insights on strategies for lowering cogS

http://www.youtube.com/user/microsoftcrmstrategy#p/c/49CA3B007E38F72F/4/uQFAH-ctNnE

33

Execution Roadmap: Delivery

overviewIn order to meet the changing expectations of customers in the cloud, implementing a cloud-based solution must be faster than an on-premises solution. today, solution providers regularly require 150 hours or more to implement an on-premises Erp solution and 100+ hours for a crm solution3. a typical implementation can include initial customization, extensions, modifications, localization, and integration.

companies (especially smaller ones) buying in the cloud will be less likely to pay for large sums of billable hours. they are reticent to pay u.S. $2,000 to $3,000 in monthly subscription fees plus $50,000 or more in implementation and training costs. partners who provide standardized offerings that can be consumed as a utility with few customizations have a distinct competitive advantage. the element of “a relevant solution billed monthly” is fast becoming the expectation of prospective cloud customers.

3Ibid

primary considerationsUnderstand the impact on services to software ratio

cloud-based offerings will typically involve fewer billable hours. as described in section above, the overall ratio of services to software or subscription revenue will fall.


• can operational efficiencies and technology solutions be created to accelerate implementations and drive down costs?

• can resource utilization targets be achieved when the velocity and volume of projects increases?

• can a comprehensive library of templates and tools for packaged implementations be created?

• the appetite for deployment services varies by segment

• the software to services ratio is lower in the cloud since customers expect their subscription fees to cover software, support, and services

• typically, delivering packaged Ip is more profitable than billable services - especially via an annuity

• deployment services is changing to a seed and expand approach

• the cloud is creating new revenue streams for both microsoft and our partners

Key Points

chart 4. conSultIng SErvIcES mIx

34

Shift toward repeatability to drive greater profitability

another consideration is what approach, billable services or packaged Ip, has a greater rate of return for partners. as outlined in earlier sections, the average partner today sees a margin for packaged Ip double that of billable services

many partners have Erp and crm Ip that could be reused in a readily consumable form. the challenge for many partners is documenting, packaging, pricing, and supporting the offering.

managing this Ip over time in a quickly changing environment also presents challenges. addressing this challenge by constructing a development and maintenance process should be one of the most critical objectives for a successful transition plan.

Transform Statements of Work (SOW) into fixed price, fixed scope offerings

Many professional services firms structure and bill projects on a time and materials, not-to-exceed, milestone completion, or hybrid basis. these Sows typically contain a description of the services performed, level of effort, timing, customer and partner resources required, assumptions, along with other terms and conditions. In the cloud computing model, Sows will favor more fixed price, fixed scope engagements, either in whole or in part.

If a professional firm’s SOW ratio is weighted more heavily towards time and material structures, there are a few steps to consider before moving entirely towards fixed fee service offerings:

• find work steps that are predictable, routine, and low risk to put into a fixed price offering

• carve out all typical higher risk activities such as integration and data conversion as time and materials separately in the Sow

• Identify high risk work such as integration and data conversion and preserve them to bill on a time and materials basis in the Sow

• provide scoping tools and templates such as configuration checklists and features in scope / out of scope to help define pricing and timing more clearly

• develop a firm-wide set of assumptions and expectations of clients and write it into the Sow

• clearly define conditions and circumstances that could result in a change order or alteration to the Sow

In addition to the Sow, a master services agreement or purchased services agreement should be considered to address the business and legal aspect of delivering software as a service. the legal team will want to ensure it addresses at least proprietary rights, confidentiality, mutual indemnification, warranties, and disclaimers.

Use blended sales consultants to lower cost of sales

most partners cannot afford to and should not replace an existing consulting organization. the objective is to pick a subset of personnel and reeducate them quickly.

In many cases, the compensation model for on-premises consulting projects will be higher and the personnel will have higher utilization rates for longer periods of time. this may appear to consultants that moving to the cloud hurts them.

the way to overcome consultants’ reluctance to join the cloud business model, which is predicated on lower services amounts per customer, is to increase compensation for each successfully implemented customer. rather than a compensation model based on the number or proportion of hours billed, partners may wish to consider a “bonus per satisfied customer completed” model to help ensure efficiency, quality, and quantity from billable staff.

Partners focusing in the enterprise segment may find that some of the best consultants make an excellent blended sales resource, further lowering overall cost of sales. these people are hybrid salespeople / consultants, and can be greatly motivated by the right compensation plan that pays for volume.

35

Employ a streamlined contract management process

In the cloud, contract counts must increase dramatically so making the contract management process simple is important. currently, three-month, six-month, or one-year engagements are the norm. In the cloud, many more one-week, two-week, or one-month assignments will be coupled with software subscriptions. Instead of two or three contracts per resource per year, the number can climb to 15 or 20 contracts in the same period.

best practices for contract management include:

• develop fixed price, fixed scope contract templates

• create an automated contract generation engine that produces signature-ready documents

• Subscribe to an electronic signature software solution to streamline the signature execution process

• link the resource management tool to the contract process

• develop a clear policy to customers and employees

• concerning the rules of engagement when working remotely and onsite

• use configuration settings, customizations, reports, and data from the trial instance where applicable

• remotely set up and configure the application

• deliver end-user training sessions through self-service and instructor-led training using office live meeting

• use a package of standard reports and dashboards

• provide data conversion export templates to the customer and perform the data import remotely

• provide recommended settings for server, network, and security configuration

• perform customizations by using microsoft office live meeting with the customer watching and learning - a train the trainer approach

visit www.microsoft.com/dynamicscloudpartner for additional commentary from one of our partners on how cloud models impact service delivery

http://www.youtube.com/user/microsoftcrmstrategy#p/c/49CA3B007E38F72F/5/MF7PhOZuiZQ

36

Conclusionthe business applications market has passed a turning point. customers across all segments are demanding a new way to consume software solutions. they want solutions that deliver value faster and that cost less up front.

this change brings opportunity: the chance to reposition our businesses to increase the value we bring to our customers. customers can reduce their time to value and improve their overall performance by increasing operational efficiency and reducing costs, all while holding onto more of their working capital. The result for partners can be a substantial, predictable, sustainable annuity stream that is designed to control costs and improve profits.

the shift from traditional on-premises software delivery to a cloud-based model will require all the involved organizations to consider a new perspective on how they do business. the function, goals, and activities of staff members will need to change so they can best push the levers of profitability. The processes, measurement, and compensation of employees must be carefully managed.

for partners who have not already done so, now is the time to develop a plan. this is a transition that will take several years to complete and requires critical decisions about key objectives and strategies.

as stated in the introduction, this document helps partners develop a foundational plan, and gives the right tools and guidance needed to build a successful business in the cloud. we recommend that partners leverage this resource and the many others we’ve made available such as the dynamics partner academy and the partner development centers.

microsoft dynamics is and will remain a partner and customer centered organization. our success depends on the growth and profitability of our partner ecosystem. We look forward to seeing how we can work with our partners and our mutual customers to help each of us realize our full potential.

To the cloud!

visit www.microsoft.com/dynamicscloudpartner for additional commentary on the business opportunity for partners

http://www.youtube.com/user/microsoftcrmstrategy#p/c/1/HmiBMnRq4z4

37

Getting Startedvisit www.microsoft.com/dynamicscloudpartner for additional resources.

analyze the business opportunityMicrosoft Dynamics CRM

• hear from the microsoft dynamics business leaders on the next generation crm and business applications in the cloud

• use the p&l planning tool for dynamics crm online

Microsoft Dynamics ERP

• read the microsoft dynamics Erp Software-plus-Services partner briefing guide

• learn about partner hosted Software as a Service for microsoft dynamics Erp including, licensing, packaging, pricing and online services

• get an overview of program enhancements and deep dive into specific changes for partner hosted Erp services

plan & develop a practiceMicrosoft Dynamics CRM

• work with a partner account manager to integrate a cloud transformation plans into the partner management framework (pmf)

• contact the local partner development center today to build a personalized plan

• for guidance on partner operating models, read the white paper on winning with microsoft dynamics crm online

• Enroll as a dynamics crm Software advisor to earn supplemental revenue when helping customers license and implement microsoft dynamics crm business software

• visit microsoft dynamics partner Essential resources to find tools and resources for running a crm practice

• certify applications (certified for microsoft dynamics (cfmd) accreditation)

• for development and implementation support visit microsoft dynamics Support

• find role-based training for microsoft products and solutions through partner learning and readiness paths

Microsoft Dynamics ERP

• review the quick overview for online Services for microsoft dynamics Erp

• general microsoft dynamics Erp pricing can be found in the how to find pricing guide

• read the Spla program guide to learn more about licensing partner hosted Software-as-a-Service for microsoft dynamics Erp

• get educated on the business benefits of hosted Erp Solutions white paper

• for partners interested in reseller dynamics Erp, please refer to the online Services for microsoft dynamics Erp reseller guide

• ready to sign up? refer to the microsoft dynamics Spla registration forms and microsoft dynamics Spla partner recognition resources for program details and the sign up process

getting to market and start selling• create a profile in partnerSource, where contracts and

financials for dynamics crm/Erp business reside

• for greater customer visibility, list solution and services in the dynamics marketplace

• access the microsoft Sure Step sales framework and templates can help accelerate the selling process

http://www.microsoft.com/dynamicscloudpartner



https://roianalyst.alinean.com/microsoft/business_partner/launch.html

https://mbs.microsoft.com/downloads/partner/softwareplusservices/November2009DynamicsERPS+SPartnerandInternalBriefingGuide.pdf

https://mbs.microsoft.com/downloads/partner/softwareplusservices/November2009DynamicsERPS+SPartnerandInternalBriefingGuide.pdf

https://mbs.microsoft.com/partnersource/marketing/marketingcollateral/presentationdecks/MSDYERP_WPCoverviewSoftwarePlusServices

https://mbs.microsoft.com/partnersource/marketing/marketingcollateral/presentationdecks/MSDYERP_WPCoverviewSoftwarePlusServices

https://mbs.microsoft.com/partnersource/marketing/marketingcollateral/presentationdecks/MSDYERP_SaaSPartnerHostedPresent

https://mbs.microsoft.com/partnersource/marketing/marketingcollateral/presentationdecks/MSDYERP_SaaSPartnerHostedPresent


https://partner.microsoft.com/download/global/40145872

https://partner.microsoft.com/download/global/40145872

https://partner.microsoft.com/global/productssolutions/40012663

https://mbs.microsoft.com/partnersource/partneressentials/default

https://partner.microsoft.com/global/productssolutions/40014662



https://training.partner.microsoft.com/learning/app/management/LMS_ActDetails.aspx?UserMode=0&ActivityId=575344&CallerURL=/learning/app/taxonomy/TAX_Search.aspx?UserMode=0&NodeID=0&SelectedNodeID=0&VSC=ItemName&VSO=A&SourceRef=-1&DispMode=normal&AdvType=0&SearchStr=Online%20Services%20for%20Microsoft%20Dynamics%20ERP&See=Search

https://training.partner.microsoft.com/learning/app/management/LMS_ActDetails.aspx?UserMode=0&ActivityId=575344&CallerURL=/learning/app/taxonomy/TAX_Search.aspx?UserMode=0&NodeID=0&SelectedNodeID=0&VSC=ItemName&VSO=A&SourceRef=-1&DispMode=normal&AdvType=0&SearchStr=Online%20Services%20for%20Microsoft%20Dynamics%20ERP&See=Search

https://mbs.microsoft.com/downloads/partner/erp/GuideHowToEseMSExploreforMicrosoftDynamicsERP.doc

http://www.microsoft.com/licensing/programs/spla/default.mspx

https://mbs.microsoft.com/downloads/partner/softwareplusservices/BusinessBenefitsofHostedERPwhitepaper.doc

https://mbs.microsoft.com/partnersource/deployment/documentation/userguides/MSDYERP_OnlineServicesResellGuide

https://mbs.microsoft.com/partnersource/deployment/documentation/userguides/MSDYERP_OnlineServicesResellGuide

https://mbs.microsoft.com/downloads/partner/nonproductspecific/MicrosoftDynamicsRegistrationFormForSPLA%28Indirect%29Dec09.zip

https://mbs.microsoft.com/downloads/partner/nonproductspecific/MicrosoftDynamicsRegistrationFormForSPLA%28Indirect%29Dec09.zip

https://mbs.microsoft.com/partnersource/partneressentials/guides/MSDYSPLA_PartnerRecogResources

https://mbs.microsoft.com/partnersource/partneressentials/guides/MSDYSPLA_PartnerRecogResources

https://mbs.microsoft.com/partnersource/

http://crm.dynamics.com/DynamicsMarketplace/landing.aspx


38

Acknowledgementsa resource of this magnitude requires a great deal of collaboration with a broad range of experts. during development of the material we interviewed existing partners, analyzed financial and profitability data for multiple channel sales models and partner types, integrated best practices and guidance from industry analysts and leveraged the experience of our microsoft partner leadership around the world.

the microsoft dynamics division could not have produced this comprehensive guide without the talents and assistance of several specific individuals responsible for authoring this guide.

Brent Combestcloud channel development managercloud & crm partner Strategymicrosoft business Solutionsmicrosoft corporation

Eric Pozilprincipal analyst, research directorcrm northwest

Kim Smithdirectorcloud & crm partner Strategymicrosoft business Solutionsmicrosoft corporation

George BrownfounderSalesworks, Inc.

Brad ClovenSenior program managervolt management corporation

Dana WillmerSenior consultantSalesworks, Inc.

The authors and contributors of this document would like to express our extended appreciation to key executive sponsors for their outstanding guidance and leadership in this effort:

Michael Parkcorporate vice presidentmicrosoft business Solutions microsoft corporation

Doug Kennedyvice presidentpartners & Support Service programsmicrosoft business Solutionsmicrosoft corporation

39

microsoft dynamics also recognizes the individuals who have provided significant insights and subject matter expertise in the creation of this guide. Special appreciation goes to the individuals identified below.

Microsoft Contributors

• terrence abrahams, director, uS channel Strategy

• waqas ajaib, uS crm channel manager

• kim boeh, director, crm product marketing

• david brown, crm EmEa time zone lead

• ross dembecki, australia lead product manager

• Stefan gass, director, marketing business management

• jeff Edwards, director, channel Strategy

• jon farmer, crm online International lead

• ricky gangsted-rasmussen, director, S+S pm

• hela giddings, uk crm Solution channel manager

• barry givens, ww crm channel development manager

• Steve helvie, Senior manager, apac dynamics S+S

• wim jansen, mbS partner lead, EmEa time zone

• dan jones, uS crm Sales manager

• james maiocco, Industry business development manager

• connor marsden, director, uS crm online

• wendi okun, Senior attorney, dynamics crm

• david pennington, director, annuity product management

• myia ross, crm aSIa time zone lead

• peter ruchatz, director, Erp product management

• david Smith, general manager, uS dynamics partners

• anders Spatzek, director, partner readiness & ca

• clint will, uS dynamics partner account manager

Partner Contributors

• Tom Crozier, Program Manager, Prime8 Consulting

• Damian Madsen, Creative Director, Prime8 Consulting

• jim Sheehan, coo, power objects

• Steve thompson, vice president of Sales, power objects

• dave hutchinson, Executive vice president ,client Profiles

• david goad, managing director, eSavvy pty ltd

• david kohar, chief business architect, zero2ten

• Terry Kerscher, Partner, Wipfli

40

APPENDIX

41

Sample Profit and Loss StatementsOverview

This section provides a set of sample profit and loss statements for solution partners. The model is spread over a five-year window with the first year assumed as a planning year and the first cloud transaction taking place in year two. these models are intended to act as guidance and can vary by partner depending on the current state of the business at the beginning of the transition, the ability to execute, and the current state of the markets in which the partner resides. microsoft makes no guarantees as part of these models and partners should conduct their own thorough analysis as part of building a cloud practice.

There are six sample models included in this section, three CRM and three ERP. The first six focus on a sample partner who has built a go-to-market strategy around a vertical approach within a particular segment. these include crm Small business and lower mid-market (up to 100 pcs), crm mid-market (101-2500 pcs), crm Enterprise (2501+ pcs), Erp Small business and lower mid-market, Erp mid-market, and Erp Enterprise. the next two were developed to reflect an ISV, one for CRM and one for ERP. All scenarios for CRM are built on the Microsoft Dynamics CRM Online product while ERP reflects the SPLA model in a hosted environment.

Each example includes its assumptions for the primary variables affecting profitability. The general assumptions used in all examples are presented in tables [2] and [3]; all monetary values are in u.S. dollars.

table 5. varIablES In all ExamplES

Variable Description

base deal size the number of seats sold as part of the initial transaction.

cloud deployment Services value the total value of deployment services provided to the customer as part of the first year of the engagement. this is calculated at an average billable rate of $150 hour or $1200 per day.

upfront Services charged

the actual price charged for the cloud deployment Services value above. the examples in this section were constructed to enable the partner to breakeven on this revenue/cost line. this is based on the assumption that customers will be reluctant to pay for these types of services in a utility model. these examples are built around the premise that this aversion to services will begin immediately for modeling purposes however, in some segments of the market the rate of decline in services reflected may not be as strong for a period of time. regardless, partners should build this assumption into their business plans today. the impact to the examples provided makes them more conservative than perhaps what some partners may see initially.

Services charged in year 2 and 3 a small set of billable hours to create new reports, make workflow enhancements, etc.

cost of goods Sold (cogS) for year 1 the total cost of resources required to sell a deal. Includes the loaded cost of the sales rep and staff to support them (i.e. pre-sales , etc.) for the initial transaction. does not include marketing costs.

cost of goods Sold (cogS) for year 2 and 3 the total cost of resources to upsell and minimize churn from a selling standpoint.

marketing cost year 1 the total cost for the demand generation required to acquire a customer. does not include the costs associated with marketing headcount.

marketing cost year 2 and 3 the total cost for the demand generation activities to support upsell and minimize churn.

add-on monthly Subscription revenue the incremental value charged to the customer for packaged Ip that can be monetized on a monthly basis and wrapped into the total fee on a per user basis.

total monthly Subscription charged per user (hosting + advanced management + packaged Ip)

the total monthly fee charged per user which is inclusive of the hosting costs, one advanced management user, and any packaged Ip.

42

table 6. fIxEd aSSumptIonS In all ExamplES

Variable Description Assumption Value

churn rate the annual rate at which customers cancel their subscription. 10%

on-premises cSa rate for crm a weighted average set based on the current cSa program guidelines for claim fees. 20%

on-premises partner discount rate for Erp

assumption intended to be in alignment with a partner of this size with this type of revenue volume based on the current structure of the partner discount program for Erp. 45%

hosting costs (Erp only) the costs generally associated with working with a hosting provider on a per user basis. $45

Erp Spla license all modeling uses a set price for the advanced management Spla license. $43

Software assurance rate for crm Standard rate for fees paid to a partner for years two and beyond for a customer on software assurance benefits. 5%

brEp rate for Erp a weighted average set based on the current brEp schedule for ongoing enhancement fees associated with Erp. 18%

crm online Subscription price non-promotional market value for microsoft dynamics crm online. $44

gross Services margin

the total revenue gained through services minus the cost related to delivering those services (e.g. billable resource loaded cost). the assumption used in the models of 45% expects a partner to have their services practice at a relatively healthy rate prior to transitioning.

45%

on-premises revenue decline

based on the assumption that as a partner builds up a strong annuity stream through the acquisition of customers, the profitability of that business model, coupled with demand for the market will cause the partner to slowly decline their on-premise business over time. this number will fluctuate based on the segment, verticals, and geographies sold into.

10%

marketing Infrastructure costs

the annualized investment required in marketing infrastructure to support volume growth. may include SEo fees,website enhancement, online demos, training videos, etc.

year 1: $0year 2: $50,000Year 3: $75,000

year 4: $100,000year 5: $150,000

additional cloud Services revenue

the cloud will generate incremental services opportunities for partners through business consulting, kpI/benchmarking, azure services, etc. this is a conservative reflection of what the contribution of these new revenue streams can provide.

year 1: $0year 2: $50,000

year 3: $100,000year 4: $200,000year 5: $300,000

cSa fee Structure

the cSa fees available to the partner of record for pre-sales and post purchase deployment activities. the models use the current promotional rate however, the impact to the profitability isn’t as significant as a number of other variables such as add-on monthly Subscription revenue, base deal Size (number of users), gross Services margin, and cost of goods Sold.

40% for year 1 and 6% for ongoing

43

Example #1: dynamics crm | EnterpriseAnatomy of a Deal

Variables

• many enterprise deals with begin with a seeding of the account however some may purchase large increments as part of the initial wave. this example uses 100 users as the base line assumption knowing that in many cases the total will be much higher.

• deployment services are expected to remain close to what they are for on-premise in this segment. however, hours associated with set up and configuration is cut reducing the average services hours by 15% which is reflected in the assumptions.

• cogS are expected to remain high due to the nature of selling into this segment. the $5,000 improvement is a result of better qualified, more educated prospects stemming from marketing infrastructure investments.

• add-on monthly Subscription revenue is lower in this example ($45) to account for not all customers wanting it in this segment. there will be a higher proportion of truly custom implementations so this number was lowered to act as a weighted average in the model. pricing in this segment could actually be higher for packaged Ip.

Notes

Variable Assumption

base deal size 100 users

cloud deployment Services value $75,000

cloud deployment Services charged (upfront as cost recovery) $50,000

Services charged in year 2 and 3 $10,000

on-premises cost of goods Sold (cogS) on-premise $25,000

cloud cost of goods Sold (cogS) for year 1 $20,000

cloud cost of goods Sold (cogS) for year 2 and 3 $5,000

on-premises marketing cost $5,000

cloud marketing cost year 1 $5,000

cloud marketing cost year 2 and 3 $1,500

add-on monthly Subscription revenue $45

Year 1 Year 2 Year 3

add-on Subscription revenue $54,000 $54,000 $54,000cSa fees $21,120 $3,168 $3,168Services revenue $50,000 $10,000 $10,000

total revenue $125,120 $67,168 $67,168

Services costs $41,250 $5,500 $5,500Sales & marketing costs $25,000 $6,500 $6,500

total costs $66,250 $12,000 $12,000

gross margin $58,870 $55,168 $55,168

cumulative gross margin % 47.1% 59.3% 65.2%cumulative sales & marketing % 20.0% 16.4% 14.6%


$ % of revenue $ % of

revenue $ % of revenue $ % of

revenue $ % of revenue

Softwaredynamics perpetual license revenue $1,050,000 17.6% $945,000 15.7% $850,500 13.9% $765,450 12.0% $688,905 10.3%own Ip perpetual license revenue $75,000 1.3% $67,500 1.1% $60,750 1.0% $54,675 0.9% $49,208 0.7%Enhancement revenue $1,000,000 16.7% $900,000 14.9% $810,000 13.3% $729,000 11.4% $656,100 9.8%add-on Subscription revenue (own Ip) $0 0.0% $173,025 2.9% $522,525 8.6% $939,900 14.8% $1,418,835 21.2%office 365 cSa fees $0 0.0% $0 0.0% $0 0.0% $0 0.0% $0 0.0%microsoft dynamics crm online cSa fees $0 0.0% $126,720 2.1% $186,067 3.0% $234,010 3.7% $281,952 4.2%

total software $2,125,000 35.6% $2,212,245 36.7% $2,429,842 39.8% $2,723,035 42.7% $3,095,000 46.2%Services

consulting Services revenue (traditional) $3,750,000 62.8% $3,375,000 56.0% $3,037,500 49.7% $2,733,750 42.9% $2,460,375 36.7%consulting Services revenue (cloud) $0 0.0% $350,000 5.8% $560,000 9.2% $840,000 13.2% $1,080,000 16.1%Support revenue (traditional) $100,000 1.7% $90,000 1.5% $81,000 1.3% $72,900 1.1% $65,610 1.0%

total services $3,850,000 64.4% $3,815,000 63.3% $3,678,500 60.2% $3,646,650 57.3% $3,605,985 53.8%COGS (Software)

Software direct costs $1,790,000 30.0% $1,611,000 26.7% $1,449,900 23.7% $1,304,910 20.5% $1,174,419 17.5%software gross margin 15.8% 27.2% 40.3% 52.1% 62.1%

COGS (Services)consulting Services direct costs $2,117,500 35.4% $2,180,750 36.5% $2,133,175 35.7% $2,143,158 35.9% $2,148,292 36.0%

services gross margin 45.0% 42.8% 42.0% 41.2% 40.4%services : software ratio 1.8 1.7 1.5 1.3 1.2

Operating ExpensesSales direct costs (including salaries & commissions) $475,000 7.9% $495,000 8.2% $538,333 8.8% $564,167 8.9% $620,000 9.3%direct marketing costs (excluding salaries) $75,000 1.3% $140,000 2.3% $181,000 3.0% $216,750 3.4% $279,000 4.2%other personnel Expenses (including owners‘compensation) $525,000 8.8% $525,000 8.7% $525,000 8.6% $668,817 10.5% $703,603 10.5%r&d $0 0.0% $100,000 1.7% $125,000 2.0% $150,000 2.4% $250,000 3.7%g & a $650,000 10.9% $783,542 13.0% $794,084 13.0% $828,059 13.0% $871,128 13.0%

total operating expenses $1,725,000 28.9% $2,043,542 33.9% $2,163,418 35.4% $2,427,793 38.1% $2,723,731 40.6%

Total Revenues $5,975,000 $6,027,245 $6,108,342 $6,369,685 $6,700,985Total Expenses $5,632,500 $5,835,292 $5,746,493 $5,875,860 $6,046,442

Operating Margin $342,500 $191,953 $361,849 $493,825 $654,542

EBITDA 5.7% 3.2% 5.9% 7.8% 9.8%

new customer adds (on prem) 15 12 10 8 6new customer adds (cloud) 0 6 8 10 12total customers (cloud) 0 5 11 18 26total users (cloud) 0 545 1,217 2,003 2,893

45

Example #2: dynamics crm | mid-marketAnatomy of a Deal

Variables

• having relevant packaged Ip built on top of the base offering, should enable partners to more deeply penetrate a customer account achieving average seats per customer of 30+.

• there will be slightly more acceptance for deployment services in this segment as compared to Small business & lower mid-market. however, this is expected to decline as partners and niche players drive the availability of relevant solutions without the need for customizations.

• ongoing billable services will be slightly more than Small business & lower mid-market to allow for minor enhancements over time.

• the cogS will need to be reduced by two-thirds in order to optimize efficiency. this will largely come from a more volume oriented sales approach as compared to historical on-premises deals and will ultimately be what contributes to building a long term annuity stream.

• add-on monthly Subscription revenue of $55 would make the total cost per month $99 per user. Most customers should see this price point attractive, especially if deployment services costs at kept at the rates outlined in this scenario.

Notes

Variable Assumption










cloud marketing cost year 2 and 3 $700

add-on monthly Subscription revenue $55


add-on Subscription revenue $19,800 $19,800 $19,800cSa fees $6,336 $950 $950Services revenue $12,500 $375 $375

total revenue $38,636 $21,125 $21,125

Services costs $13,750 $206 $206Sales & marketing costs $8,500 $1,700 $1,700

total costs $22,250 $1,906 $1,906

gross margin $16,386 $19,219 $19,219



$% of

revenue $% of

revenue $% of

revenue $% of

revenue $% of

revenueSoftware

dynamics perpetual license revenue $1,050,000 17.6% $934,500 16.3% $831,705 14.4% $740,217 11.4% $658,794 7.9%own Ip perpetual license revenue $75,000 1.3% $66,750 1.2% $59,408 1.0% $52,873 0.8% $47,057 0.6%Enhancement revenue $1,000,000 16.7% $890,000 15.6% $792,100 13.7% $704,969 10.9% $627,422 7.5%add-on Subscription revenue (own Ip) $0 0.0% $126,885 2.2% $467,775 8.1% $1,127,995 17.4% $2,429,405 29.1%office 365 cSa fees $0 0.0% $0 0.0% $0 0.0% $0 0.0% $0 0.0%microsoft dynamics crm online cSa fees $0 0.0% $76,032 1.3% $162,328 2.8% $324,657 5.0% $649,313 7.8%






services gross margin 45.0% 42.7% 40.2% 35.6% 28.3%services:software ratio 1.8 1.7 1.5 1.2 0.9

Operating ExpensesSales direct costs (including salaries & commissions) $475,000 7.9% $315,000 5.5% $375,000 6.5% $475,000 7.3% $730,000 8.7%direct marketing costs (excluding salaries) $75,000 1.3% $152,000 2.7% $230,000 4.0% $347,000 5.4% $541,000 6.5%other personnel Expenses (including owners' compensation) $525,000 8.8% $525,000 9.2% $525,000 9.1% $518,267 8.0% $710,138 8.5%r&d $0 0.0% $100,000 1.7% $125,000 2.2% $150,000 2.3% $325,000 3.9%g & a $650,000 10.9% $743,687 13.0% $749,762 13.0% $842,184 13.0% $1,086,094 13.0%



Operating Margin $342,500 $214,805 $280,033 $613,798 $1,010,832

EBITDA 5.7% 3.8% 4.9% 9.5% 12.1%

new customer adds (on prem) 15 12 10 6 0new customer adds (cloud) 0 12 24 48 96total customers (cloud) 0 10 30 70 150total users (cloud) 0 327 948 2,161 4,560

47

Example #3: dynamics crm | Small business & lower mid-marketAnatomy of a Deal

Variables

• due to the aversion to paying for consulting services in this space, the amount charged ($4,000) must be provided as a fixed bid and kept very low. these can be charged as basic set up fees. the rate charged will likely only be enough to recapture costs with very minimal profit.

• ongoing billable services associated with typical system maintenance and enhancement will likely be minimal in this segment.

• the cogS will need to reduce significantly. this will be accomplished by increasing the productivity of each rep, setting up a properly balanced compensation model, and making most if not all interaction phone based.

• ongoing cogS should be limited to renewal calls and quarterly business reviews .

• add-on monthly Subscription revenue of $44 would make the total cost per month $88 per user. Most customers should see this price point attractive, especially if deployment services costs at kept at the rates outlined in this scenario.

Notes

Variable Assumption




Services charged in year 2 and 3 $375



cloud cost of goods Sold (cogS) for year 2 and 3 $300




add-on monthly Subscription revenue $44 per user


add-on Subscription revenue $7,920 $7,920 $7,920cSa fees $3,168 $475 $475Services revenue $4,000 $375 $375

total revenue $15,088 $8,770 $8,770

Services costs $4,400 $206 $206Sales & marketing costs $6,000 $600 $600

total costs $10,400 $806 $806

gross margin $4,688 $7,964 $7,964



$% of

revenue $% of

revenue $% of

revenue $% of

revenue $% of

revenueSoftware

dynamics perpetual license revenue $1,050,000 17.6% $934,500 16.6% $831,705 14.9% $740,217 12.2% $658,794 9.5%own Ip perpetual license revenue $75,000 1.3% $66,750 1.2% $59,408 1.1% $52,873 0.9% $47,057 0.7%Enhancement revenue $1,000,000 16.7% $890,000 15.8% $792,100 14.2% $704,969 11.7% $627,422 9.1%add-on Subscription revenue (own Ip) $0 0.0% $101,508 1.8% $374,220 6.7% $902,396 14.9% $1,740,508 25.2%office 365 cSa fees $0 0.0% $0 0.0% $0 0.0% $0 0.0% $0 0.0%microsoft dynamics crm online cSa fees $0 0.0% $76,032 1.3% $162,328 2.9% $324,657 5.4% $497,249 7.2%


consulting Services revenue (traditional) $3,750,000 62.8% $3,337,500 59.2% $2,970,375 53.3% $2,643,634 43.7% $2,352,834 34.0%consulting Services revenue (cloud) $0 0.0% $146,000 2.6% $301,000 5.4% $611,000 10.1% $930,000 13.4%Support revenue (traditional) $100,000 1.7% $89,000 1.6% $79,210 1.4% $70,497 1.2% $62,742 0.9%





Operating ExpensesSales direct costs (including salaries & commissions) $475,000 7.9% $297,000 5.3% $362,600 6.5% $480,900 7.9% $609,700 8.8%direct marketing costs (excluding salaries) $75,000 1.3% $182,000 3.2% $287,600 5.2% $460,900 7.6% $609,700 8.8%other personnel Expenses (including owners' compensation) $525,000 8.8% $525,000 9.3% $525,000 9.4% $484,019 8.0% $587,912 8.5%r&d $0 0.0% $100,000 1.8% $125,000 2.2% $150,000 2.5% $325,000 4.7%g & a $650,000 10.9% $733,368 13.0% $724,145 13.0% $786,532 13.0% $899,159 13.0%




EBITDA 5.7% 3.4% 3.2% 6.4% 8.7%


49

Example #4: dynamics Erp | EnterpriseAnatomy of a Deal

Variables

• historically, most Spla sales in the enterprise segment have been purchased as a two-tier Erp approach. the result is lower seats per deal and deployment services since the implementation for a subsidiary.

• cogS is expected to remain high due to the nature of selling into this segment. the $5,000 improvement is a result of better qualified, more educated prospects stemming from the marketing infrastructure investments.

• total monthly subscription charged of $300 is competitive when total cost of ownership is considered. replacing the functionality gained through deployment services with packaged Ip allows the customer to consume the solution as a utility and not incur a large capital expense.

Notes

Variable Assumption










cloud marketing cost year 2 and 3 $1,000

total Subscription $300


Subscription revenue $180,000 $180,000 $180,000Services revenue $50,000 $10,000 $10,000

total revenue $230,000 $190,000 $190,000

Services costs $41,250 $5,500 $5,500license costs $25,800 $25,800 $25,800hosting costs $27,000 $27,000 $27,000Sales & marketing costs $25,000 $6,000 $6,000

total costs $119,050 $64,300 $64,300

gross margin $110,950 $125,700 $125,700



$% of

revenue $% of

revenue $% of

revenue $% of

revenue $% of

revenueSoftware

dynamics perpetual license revenue $825,000 16.5% $742,500 13.7% $668,250 10.5% $601,425 7.9% $541,283 6.0%ISv perpetual license revenue $50,000 1.0% $45,000 0.8% $40,500 0.6% $36,450 0.5% $32,805 0.4%own Ip perpetual license revenue $25,000 0.5% $22,500 0.4% $20,250 0.3% $18,225 0.2% $16,403 0.2%Enhancement revenue $750,000 15.0% $675,000 12.4% $607,500 9.6% $546,750 7.2% $492,075 5.4%office 365 cSa fees $0 0.0% $0 0.0% $0 0.0% $0 0.0% $0 0.0%dynamics Subscription revenue $0 0.0% $576,600 10.6% $1,739,800 27.4% $3,129,400 41.1% $4,725,700 52.0%




Software direct costs $1,075,000 21.5% $1,069,271 19.7% $1,246,684 19.6% $1,346,129 17.7% $1,485,173 16.3%hosting direct costs $0 0.0% $86,490 1.6% $260,970 4.1% $469,410 6.2% $708,855 7.8%

total software costs $1,075,000 21.5% $1,155,761 21.3% $1,507,654 23.7% $1,815,539 23.8% $2,194,028 24.1%software gross margin 34.8% 43.9% 51.0% 58.1% 62.2%



Operating ExpensesSales direct costs (including salaries & commissions) $475,000 9.5% $495,000 9.1% $613,333 9.7% $739,167 9.7% $895,000 9.9%direct marketing costs (excluding salaries) $75,000 1.5% $140,000 2.6% $200,667 3.2% $257,833 3.4% $366,000 4.0%other personnel Expenses (including owners' compensation) $525,000 10.5% $678,325 12.5% $761,976 12.0% $913,728 12.0% $1,090,344 12.0%r&d $0 0.0% $108,532 2.0% $190,494 3.0% $304,576 4.0% $545,172 6.0%g & a $650,000 13.0% $705,458 13.0% $825,474 13.0% $989,872 13.0% $1,181,206 13.0%




EBITDA 7.0% 4.8% 6.1% 9.1% 9.7%


51

Example #5: dynamics Erp | mid-marketAnatomy of a Deal

Variables

• the desire to reduce capital expenses will limit deployment services to $15,000.

• ongoing services of $1200 can be attributed to two day annual reviews and maintenance.

• cogS must be reduced significantly ramping up sales representative productivity.


Notes

Variable Assumption














total revenue $87,000 $73,200 $73,200

Services costs $13,750 $660 $660license costs $10,320 $10,320 $10,320hosting costs $10,800 $10,800 $10,800Sales & marketing costs $11,000 $1,700 $1,700

total costs $45,870 $23,480 $23,480

gross margin $41,130 $49,720 $49,720



$% of

revenue $% of

revenue $% of

revenue $% of

revenue $% of

revenueSoftware





Software direct costs $1,075,000 21.5% $997,947 20.2% $1,133,388 19.6% $1,344,037 16.5% $1,908,640 14.4%hosting direct costs $0 0.0% $69,210 1.4% $255,150 4.4% $615,240 7.6% $1,324,800 10.0%




Operating ExpensesSales direct costs (including salaries & commissions) $475,000 9.5% $465,000 9.4% $610,000 10.5% $830,000 10.2% $1,245,000 9.4%direct marketing costs (excluding salaries) $75,000 1.5% $152,000 3.1% $230,000 4.0% $347,000 4.3% $541,000 4.1%other personnel Expenses (including owners' compensation) $525,000 10.5% $518,847 10.5% $636,669 11.0% $894,897 11.0% $1,459,527 11.0%r&d $0 0.0% $98,828 2.0% $173,637 3.0% $284,740 3.5% $530,737 4.0%g & a $650,000 13.0% $642,382 13.0% $752,427 13.0% $1,057,605 13.0% $1,724,896 13.0%



Operating Margin $350,000 $285,312 $312,240 $870,397 $2,068,224

EBITDA 7.0% 5.8% 5.4% 10.7% 15.6%


53

Example #6: dynamics Erp | Small business & lower mid-marketAnatomy of a Deal

Variables

• Some deployment services will remain for Erp even in these segments of the market in the hosted model. however, reluctance to pay for these will require partners to offer fixed bid offerings for basic set up. a price point of $10,000 is competitive with other cloud solutions in this segment.

• ongoing services of $1,200 can be attributed to one day annual reviews and maintenance.

• cogS must be reduced significantly ramping up sales rep productivity.


Notes



total revenue $46,000 $37,200 $37,200

Services costs $8,250 $660 $660license costs $6,192 $6,192 $6,192hosting costs $6,480 $6,480 $6,480Sales & marketing costs $6,000 $1,000 $1,000

total costs $26,922 $14,332 $14,332

gross margin $19,078 $22,868 $22,868


Variable Assumption







cloud cost of goods Sold (cogS) for year 2 and 3 $500






$% of

revenue $% of

revenue $% of

revenue $% of

revenue $% of

revenueSoftware



consulting Services revenue (traditional) $3,250,000 65.0% $2,925,000 55.7% $2,632,500 41.4% $2,369,250 26.3% $2,132,325 16.3%consulting Services revenue (cloud) $0 0.0% $290,000 5.5% $608,800 9.6% $1,246,400 13.9% $1,912,800 14.6%Support revenue (traditional) $100,000 2.0% $90,000 1.7% $81,000 1.3% $72,900 0.8% $65,610 0.5%


Software direct costs $1,075,000 21.5% $1,065,960 20.3% $1,289,584 20.3% $1,602,867 17.8% $2,168,171 16.5%hosting direct costs $0 0.0% $83,025 1.6% $305,865 4.8% $738,090 8.2% $1,423,620 10.9%




Operating ExpensesSales direct costs (including salaries & commissions) $475,000 9.5% $327,000 6.2% $475,000 7.5% $729,500 8.1% $1,026,500 7.8%direct marketing costs (excluding salaries) $75,000 1.5% $182,000 3.5% $325,000 5.1% $549,500 6.1% $841,500 6.4%other personnel Expenses (including owners' compensation) $525,000 10.5% $656,406 12.5% $762,966 12.0% $1,079,028 12.0% $1,572,276 12.0%r&d $0 0.0% $105,025 2.0% $190,742 3.0% $359,676 4.0% $786,138 6.0%g & a $650,000 13.0% $682,663 13.0% $826,547 13.0% $1,168,947 13.0% $1,703,299 13.0%




EBITDA 7.0% 6.0% 4.2% 5.7% 7.3%


The data and examples provided in this guide are actual results based on third party research and Microsoft Dynamics customer experiences. However, do not rely on this for your own results as they may vary. This document is provided for

informational purposes only and Microsoft makes no warranties, either express or implied, in this document.

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Microsoft Dynamics Cloud Partner...Microsoft Dynamics Cloud Partner Profitability Guide March 2011 First Edition, March 2011 IntroductIon ExEcutIvE Summary thE cloud payoff markEt