Microsoft Dynamics Cloud Partner Profitability Guide

Second EditionOctober 2013

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1. Preface

2. Executive Summary

3. The Cloud Era 3.1 Shifting Market Forces 3.2 Nature of Cloud Demand 3.3 Customer Motivations 3.4 The “Other” Demand Pillars 3.5 Change in Buyer Behavior and Personas 3.6 Market Impact

4. The Emerging Cloud Business Model

5. The Cloud Solution “Curator” 5.1 IP Aggregation & Development 5.2 Owning Desktops and Devices 5.3 BI, Dashboards, and Data Services 5.4 Mobile Access 5.5 Business Process Consulting 5.6 The Curator’s Premium 5.7 The Curator’s “Keys” 5.8RevenueDiversificationandExpansion 5.9 Customer Lifecycle Management

6. Cloud Transition Planning 6.1 Current State Assessment 7. Cloud Transition Execution 7.1 Business Management 7.2 Finance & Admin 7.3 Marketing 7.4 Sales 7.5 Services Delivery 7.6 Product Management

Table of Contents

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8. Conclusion

9. Additional Resources

10. Acknowledgements

11. Appendix

12. Cloud Transition Scorecard

13.SampleProfitandLossStatements 13.1 Cloud Deal Anatomy – ERP 13.2 Cloud Deal Anatomy – CRM 13.3 Cloud Deal Anatomy – O365/Intune 13.4SampleProfitandLossStatement–ERPVAR 13.5SampleProfitandLossStatement–CRMVAR 13.6SampleProfitandLossStatement–SystemsIntegrator

14. Sample Marketing Calendar

15. Accelerated Sales Process

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1. PrefaceIn2011,MicrosoftpublishedthefirstCloudPartnerProfitabilityGuide.Followingitsguidance,manyPartnersbegantheir journey to the Cloud. Although not without challenges, several are now well on their way to building Cloud-based businesses.

As in all fundamental business transformations, some core business aspects and assumptions remain relatively constant as time passes, while others change in the face of evolving market developments, and lessons learned. This document is intended to address both.

In the main, what has remained constant about the journey to the Cloud is:

• The significantly growing customer demand for Cloud-based business solutions.

• The dramatically superior valuations that companies meeting this demand can capture, relative to traditional software resellers.

• The short-term P&L impact on cash flow and profitability.

ThemainbusinessaspectsthathavechangedsincethefirstProfitabilityGuideinclude:

• The continued maturing of Cloud offerings alongside the growing importance and acceptance of mobile, social media, and “big data” technology as major drivers and beneficiaries of Cloud growth.

• The emergence of many more “born-in-the-Cloud” players seeking to capture Cloud demand and build strong presences in numerous market segments.

• The aggressive expansion of Cloud “front-runners”, who now have established strong cash flow and are investing in further customer acquisition.

• The discovery of increased levels of complexity in the tactical aspects of transitioning to the Cloud, which impacts all functional areas of the business.

Insum,thisCloudPartnerProfitabilityGuideisintendedasanup-to-dateroadmaptohelpyousuccessfullynavigatethis new landscape.

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2. Executive SummaryThe Cloud era has arrived, and changing customer motivations and buying behavior are putting all of our businesses under great pressure. We have no choice but to adapt our businesses to meet the challenges of this fundamentally disruptive market event, and reap the rewards that any such opportunity presents.

Amplifying the business challenges and opportunities this brings are advances in mobile, big data, and social media which are also transforming the business and technology landscape.

The Cloud era impacts all market segments (Enterprise, mid-market and SMB), but to varying degrees. The mid-market and SMB spaces in particular have seen the arrival and establishment of strong competitors to meet the new demand. In the process, they have established the cornerstones of an entirely different business model, which secures an “annuitized” revenue stream and in the process achieves greatly superior business valuations for those able to establish Cloud practices.

To fully take advantage of the business opportunity, increase our win rate and meet our customers’ need for complete, integrated solutions, we must “curate” technology solutions on our customers’ behalf. We must pull together as many of the various pieces of the technology puzzle that are needed by the customer, and deliver it in such a way as to offer compelling value to their businesses.

As “Cloud Solution Curators” our success will lie in our ability to:

• aggregate and develop IP

• own the management of customer devices and interfaces

• deliver compelling value propositions comprised of BI, dashboards, applications, and data services

• provide full mobile access to all our solutions

• replace the inevitable decline in our traditional services business with business process consulting, managed services, and data-driven service offerings

Transitioning our business for survival and success in the Cloud era will require concerted effort and attention to all functional areas of our business, but in particular:

• the identification of an appropriate market focus

• the execution of a well-structured pricing and packaging strategy

• the development of significantly increased marketing “muscle”

• the adoption of an “accelerated” sales methodology that expands our solution footprint in “waves”

• the introduction of new sales roles and compensation structures

• the development of “repeatable” business solutions and greatly increased automation of our services delivery processes

• the adoption of a disciplined product management approach that keeps “all the dots” of an expanded offering set connected for the customer

The pages that follow are intended to serve as a blueprint for achieving success in the Cloud era.

The Cloud means both substantial opportunity and the requirement to change

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3. The Cloud Era3.1 Shifting Market ForcesThe Cloud, above all else, represents a total disruption in how technology is discovered, evaluated, purchased and consumed – the magnitude of which has not been seen since the dawn of the client-server era. It changes the very business models that underlie the delivery of technology solutions.

We have all seen examples in recent years of old business models being disrupted by new ones. Examples like:

• Netflixrisetodelivermoviesonline,whileBlockbusterclosesitsdoorsasconsumersstoprentingDVD’s.

• Music being sold or streamed online by companies like Amazon, ITunes, Spotify and Pandora, rather than being bought in physical form in stores, to the great expense of traditional record labels and retail stores.

• Physical newspaper circulation has been steadily trending down and the classified advertising revenue has been decimated, as news is consumed online instead and people post and purchase items on Craigslist.

Particularly as it relates to the delivery of business applications software, the consequences of this shift in demand on traditional business models could not be more fundamental, or more threatening.

Asdifficultanddangerousastransformingabusinessmodelis,thealternativeisevenworse.ThosewhodonotadapttomeetClouddemandwillsurelyperishinthecomingyears,withsteadilydecreasinglevelsofprofitability.Thegamehas changed, and the only real choice for all of us is to learn to play the new way. The good news is, success in this transformation brings the potential for dramatically higher business valuations.

3.2 Nature of Cloud DemandCloud demand is not driven by a shift in technology so much as by a radically different set of customer expectations. As solutionproviders,wemustrespondtotheseexpectationstoensurelong-termviabilityandprofitability.

Technology has changed all aspects of our lives, and we cannot live without it, but it has also all too often been a sourceoffrustrationforthoseusingit.Atthecore,thesefrustrationsarewhatdriveClouddemand.AsGeoffreyMoore1 puts it, the Cloud is about “engaging end users in digital experiences”, not simply delivering technology solutions. In this context, he points out that “the experience takes precedence over the transaction”. In other words, as an industry we’re now accountable for the customer experience, not just the technology transaction, with expectations driven by the online consumer-focused applications such as Facebook, Amazon and Bing that they use every day. This requires a whole new way of doing business.

3.3 Customer MotivationsThere is probably not a business decision maker out there who has not lived through at least one technology implementation disaster. Many have experienced several. Years of seeking competitive advantage through the use of technology has proven to be, by and large, illusive. Technology diffuses too fast; what a business uses today to gain a competitive advantage, every competitor will soon have also. And staying on “the bleeding edge” of technology has proven a very expensive proposition for an individual company. It is, in fact, most often unaffordable in the prevailing economic context.

1 from a recent LinkedIn post, http://www.linkedin.com/today/post/article/20121023205555-110300724-Cloud-computing-my-education-continues

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What the customer often seeks today is not competitive advantage through deeply customized technology solutions, but gaining as much of core and common business processes and supporting technologies “out of the box”, ensuring competitiveparityatacompellingprice.Differentiation in technology isonly justifiedby itsability tosupport truecompetitive advantage, most often driven by unique business models, products or services that are difficult forcompetitors to duplicate. Spending the majority of technology budgets on packaged, repeatable solutions while focusingstrategictechnologyinvestmentsonspecificareasofcompetitiveadvantageallowscompaniestheabilitytoreact quickly to new opportunities while holding costs down.

This is especially true for small to medium sized businesses, who have found the costs of customization prohibitive. In upper market segments this is less the case, but even they look to leverage the cost and other advantages of both packaged software solutions and the Cloud, as described later under Market Impact.

Added to all this is the worldwide economic “reset” which puts pressure on businesses of all sizes to preserve capital and to wherever possible substitute operating expenses for capital expenditures. Subscription pricing is especially attractive in this context.

Although it varies somewhat by market segment, today’s customer largely wants to consume what amounts to “industry best practices”, in subscription form and at the lowest possible cost. They can justify investing capital in bespoke technology solutions only to the degree that they are truly strategic in nature.

Unlike the past, this time we have a perfect storm in the market. All the needed “enablers” are in place to deliver true Cloud-based solutions and satisfy customer demand, while the commoditization of technology has dramatically lowered the cost of entry for new players seeking to disrupt existing technology providers and business models. Consider that:

• Security is now greatly enhanced for Cloud applications, and concerns among customers greatly decreased.

• Bandwidth is broadly available and in most jurisdictions is sufficiently reliable.

• HTML5 and other technologies provide a groundbreaking level of interoperability, particularly with respect to cross-platform mobile applications.

• Adoption of mobile devices and the increasing use of smartphones and tablets have driven a mobile-centric mentality, both for the consumer as well as within enterprises.

• Hosting platforms such as Azure and Amazon Web Services exist and provide both the low cost structure, scale, and reliability needed to meet Cloud demand.

In short, this is not like the “dot bomb” collapse at the end of the last century when big pieces of the puzzle were stillmissing,ortooexpensivetocost-effectivelyassemble.Thistime,thegamehastrulychanged,tothebenefitofcustomers and those partners that choose to deliver solutions that fully leverage the emerging technologies.

3.4 The “Other” Demand PillarsDeeplyintertwinedwiththeCloudphenomenonjustdescribedare3otherdemandpillars,identifiedbyIDC2, as follows:

1. Mobility. We live in an unprecedented era of mobile connectedness, where both consumers and businesses have the expectation that they can access any information they want, anywhere, anytime.

2. Social Media. It’s no longer just about remaining connected on a personal level, but becoming increasingly important to businesses as they seek to build brand awareness, manage relationships with customers and prospects, and gather ideas and feedback for the improvement of their products and services.

2 from IDC Research Document, Worldwide SMB 2013 Predictions: Impact of Changing Priorities, Preferences, and Challenges

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3. Big Data. The adoption of data-driven business intelligence solutions is rising significantly, with most notable examples in larger enterprise segments such as Walmart correlating demand planning with weather patterns, and banks trying to predict patterns of fraud. However the case for its use is becoming more and more compelling for SMBs as more data sources become structured for external consumption and integration.

3.5 Change in Buyer Behavior and Persona’sNot only do customers want a fundamentally different experience of technology, they are buying technology in a totally different way today.

First of all, they self-inform as to their options. Search engines, vendor websites and social media give them all the information they need, and keep them in control. They generally engage with us as potential solution providers far later in their buying process, when their opinions are already largely formed and they have strong biases. Traditional marketing methods arealmostuselessinthiscontext.Customerswanttofinduswhenthey’reready, not be bombarded by messages that are at best irrelevant, and at worst annoying. They seek relevant, useful, and timely information at the exact time that they are ready to consume it.

Customers today often avoid salespeople until much later in the sales cycle, especially in the SMB segment. In fact, they don’t want to be “sold” anything. Instead, they want to be helped to buy. Traditional salespeople and traditional sales processes simply do not match with current customer preferences and expectations. Companies that ignore this fact will increasingly be marginalized, saddled with a sales process that is both expensive and unwanted by prospects. While elements of the traditional sales cycle are still expected by larger prospects, the trend towards a reduction in the value of traditional solution selling processes is expected to impact all segments.

The line between Sales and Marketing is also blurred in the Cloud. The customer seeks a seamless digital experience that informs and aids their buying process, and they expect to “self-serve” in terms of the information they need. FormostPartners,accommodatingthis requiresasignificantenhancementof theirmarketing functionandgreatlystrengthenedmarketing“muscle”. (There is infactasignificantdisruptionoccurringwithinmarketingagenciesasaresult of this change in customer behavior. A few years ago, agencies were very focused on the creative side with very little need for IT or systems to support them. Today however, they need to have more Business Intelligence, data mining, etc. than ever before).

Cloud decision-makers are no longer predominantly from the IT department, either. Rather, they tend to be executives with senior operational or sales responsibilities. End users now dominate3. In some cases, they buy Cloud technology withoutanyinvolvementwiththeITdepartmentwhatsoever,butinallcasestheyexertasignificantinfluenceoverthebuying decision. And they have a totally different set of needs and expectations that are centered on business value rather than technical superiority.

TheCloudbuyeralsohasaccesstosignificantlygreatertechnologicalcapacity,atafractionoftheup-frontcostoftraditional solutions, because they pay only for what they use, as they use it. This fundamentally transfers risk from the clienttothevendor,andpowerintheoppositedirection.Vendorsmustinvestup-frontbothinbuildingoutsolutionsandsecuringthecustomer,lengtheningthetimeittakestomakeaprofit4. Minimizing churn and keeping customers loyal far longer becomes critical to achieving the same economic returns once available with on-premise solutions.

In short, buying behavior has fundamentally changed, and we must all deal with that.3 from Consumption Economics – The New Rules of Tech, by Wood, Hewlin, and Lah4 Ibid.

Customer Buying Behavior has Fundamentally Changed

Partner Sales and Marketing Processes must Change

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3.6 Market ImpactThe Cloud is impacting various market segments differently, of course, depending on the nature of the customer requirements. The core differences in demand shift, the degree it impacts each segment, and the required vendor responses are outlined in the following table.

Market Segment

Enterprise Mid Market SMB

Demand Shift Some core business applications, work streams, and infrastructure move to the Cloud to reduce costs, but a high need remains for customization and complex integration. IT departments and the CIO’s are some of the key gatekeepers to Cloud adoption.

Strong preference for complete, vertically-specific Cloud-based solutions, accessible on a subscription basis and for a single monthly fee, with customization restricted to functionality that is truly strategic in nature. Strong resistance to up-front fees (other than justified as a migration cost to a subscription model).

BasicGLAPRCloud-based solutions demanded, accessible for a single monthly fee. No room for up-front fees (other than justified as a migration cost to a subscription model), and little budget for customization.

Degree of Impact Moderate. Traditional services business less impacted, but an expanded range of Cloud- related products and services required to retain customer loyalty and repeat business.

Significant. Traditional implementation and consulting services business significantly reduced, and a materially expanded customer base and rate of customer adds needed to maintain similar levels of revenue and profitability.

Extremely high. Traditional services business virtually eliminated, and a significantly larger customer base and rate of customer adds required to remain viable.

RequiredVendorResponse Inclusion of a Cloud-based cost reduction strategy paramount. A resource shift to Cloud-specific IT cost reduction consulting.

VerticalIPdevelopment,aggregation and maintenance paramount. A resource shift from software implementation to functionality development, and management consulting based on specific vertical expertise, business process consulting, managed services, and data-enabled services.

IP development, aggregation and maintenance paramount. A focus on specific verticals often required, and a resource shift from software implementation to out-of-the-box functionality development and integration.

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Overall, perhaps the most telling indication of the impact the Cloud is having on our industry lies in the emergence of companies dedicated to satisfy this demand5.

Several born-in-the-Cloud vendors have now established themselves, achieved significant scale, and are enjoyingrevenue growth rates well in excess of the market for traditional IT services or products. In addition, these born-in-the-CloudvendorsarevaluedatsignificantpremiumstotraditionalITcompanies.Capitalmarketsaresaying,withthesevaluations, that they expect revenue growth to continue to be strong, and that the current imperative is to capture themarketsharefromwhichlongtermprofitabilitystems.Themoreacompanysecurestheadoptionofenduserswho “can’t imagine living without” the solution, the higher the valuation will be, even if in the short term the costs of customer acquisition are greater than the revenue generated.

* Market value over total revenue

As impressive as the success of these players is, it is really only the tip of the iceberg. There are also numerous new entrants in virtually every market worldwide that operate largely “under the radar” and are privately held. Many of these players cater to the lower market segments where the demand is arguably greatest, but they will surely grow stronger over time and expand, creating market pressure on us all from both above and below.

Our challenge, simply put, is to capture a meaningful market share before others do. And time is of the essence. IDC predicts6,forexample,thatthenext12-18monthswillbeatimeofsignificantexperimentationwithnewapproachesfortraditionalPartners,andwhiledifficultitwillsetthestageforsuccessintheyearsahead.

Inshort,thetimeforactionisnow,whilethedemandforCloudsolutionsisstillfarfromsatisfied.Thosewholearntooperate in this model and capture the emerging capture demand will reap the rewards, while those that do not will see their businesses put under considerable pressure.

5 AllfigurescompiledfromSECfilings.6 from IDC Research Document, Worldwide SMB 2013 Predictions: Impact of Changing Priorities, Preferences, and Challenges

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Salesforce Netsuite Concur RightNow

Annual Revenue $1.9b $213m $293m $207m

RevenueGrowth 38% 23% 18% 29%

Employees 6,352 1,084 1,200 920

Customers 104,000 7,200 10,000 1,900

Market Cap $16.58b $2.47b $2.62b $1.44b

ValuationMultiple* 8.56 11.59 8.94 6.95

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4. The Emerging Cloud Business ModelWhether we view it as a result of Cloud demand or not, “traditional” industry P&L’s are under attack. As business owners, we feel this pain every day. Falling revenue, lower hourly billing rates, squeezed margins, smaller average deal sizes, the list goes on. And we all know this pressure will only intensify with time.

ThereasonsbehindthisfinancialpressurecanperhapsbebestunderstoodbyanexaminationoftheemergingCloudbusiness model, as represented by a handful of early movers7,comparedagainsta“traditional”VAR.

* for 12 months ending April 30, 2012 ** for 12 months ending June 30, 2011 *** for 12 months ending June 30, 2011 **** Salesworks database as of Oct 26, 2011

7 AllfigurescompiledfromrecentSECfilings.

Salesforce * Netsuite ** RightNow*** VAR ****

Annual Revenue $2,457,642,000 $213,084,000 $207,111,000 $6,030,381

Employees 7,700 1,084 920 35

Customers 104,000 7,200 1,900 256

EBITDA -2.2% -13.6% 5.5% 6.1%

Services: Subscription (software) Ratio 0.06 0.18 0.24 2.05

Subscription(Software)GrossMargin 78.2% 83.7% 83.9% 30.4%

ServicesGrossMargin 4.4% -6.1% 11.5% 39.1%

CombinedGrossMargin 78.1% 69.8% 69.9% 36.2%

R&D 13.2% 18.0% 10.3% 0.0%

Sales & Marketing Costs 52.3% 50.9% 43.1% 10.9%

G&A 14.9%% 14.5% 10.9% 19.2%

Revenue/Employee $319,174 $196,572 $225,121 $172,297

Market Cap $19,130,000,000 $2,470,000,000 $1,440,000,000 n/a

Market Cap/Annual Revenue 7.78 11.59 6.95 n/a

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Several points become evident with this analysis, as follows:

1. The Cloud business model is about delivering a solution.

The solution is largely made up largely of packaged, repeatable code or content (Intellectual Property or IP) far more than the traditional on-premise approach of starting with generic code or content accompanied by large amounts of customization and implementation services.

Perhaps the most immediately noticeable difference in the traditional versus the Cloud business model is a significant decline in the level of professional services revenue. In most present-day Partner businesses, anywhere from 50% to 80% of revenue on a specific deal comes from customization, implementation and installation, and not from its own IP or any other form of packaged software products. The exact opposite is the case in the Cloud, where nearly all of the revenue is derived from product.

“Product”isnotjustcodeandspecificfunctionality,either,butpackaged“know-how”inanyform.Eitherway,itrepresentsPartner-specificIP,andprovidestherealcompetitivedifferentiationintheCloud.

Finally, the nature of the professional services monetized in the Cloud is very different, as detailed in the next section, The Cloud Solution Curator.

2. Higher gross margins are needed to survive in the Cloud.

The simple fact of a Cloud business is that it drives higher gross margins, because it sells packaged know-how far more than ad-hoc professional services. Without these higher gross margins, it is impossible to support the level of sales and marketingcostsneeded,orinvestinR&D.Andinalmostallcases,significantscaleisrequiredinthelongtermtodriveoperating costs down to an acceptable level.

3. Sales and Marketing must drive rapid market share gain, cost-effectively.

The Cloud at the moment resembles a gold rush; territory in the form of market share is being staked and claimed, so that thegoldcanbefullyminedlater.Thefirstplayerstoestablishasizeablepresenceinamarketsegmentwillbedifficultandexpensive to unseat later. Relatively high levels of sales and marketing expenditures are of course key to gaining share before the competition does, but customer acquisition efforts must also be cost-effective.

4. R&D is critical to long-term competitiveness.

Because the Cloud is fundamentally about selling packaged repeatable software solutions, investments are required to either build or buy and integrate new product offerings, as well as to keep them working together and matching or exceeding competitive offers over the long haul. A different product development methodology is also required that accommodates more frequent release cycles with incremental functionality as opposed to the traditional “big bang” product release approach.

5. Business valuations are the driving reason to transform to a Cloud business.

No one would logically invest in transforming their business unless it provided an adequate return. In other words, the transformed business must be capable of being monetized for a more attractive sum. The fact is that Cloud businesses command dramatically higher multiples than traditional software reseller operations. This is based on the higher valuation of revenue that is seen as more defensible and dependable – annuity revenue streams coming from existing customers –versusrevenuethatdependsonfindingnewprospectsandcustomerseveryyear.Whenacompanychoosestostoppurchasing servers, storage and applications for on-premiseise deployments and moves it all to the Cloud, the ability or desiretoeitherbringtheapplicationsbackinhouseorchangetoanothervendorissignificantlydiminished.

6. In the Cloud, location and geographical proximity to the customer are no longer significant differentiators. The completeness and attractiveness of the actual solution is what matters.

Above all else, today’s customer desires complete, industry specific solutions in the Cloud. They look to us, as solution providers, to “connect the dots” required to deliver these solutions. This is the central challenge we face in transforming our businesses to meet these expectations, and capitalize on the opportunity this demand presents.

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5. The Cloud Solution “Curator”In short, today’s customer looks to us to “curate” solutions on their behalf.

As Cloud Solution Curators, we must pull together all the following elements of the technology puzzle. Not necessarily all at once, nor for all customers, but our solutions must address all these elements over time, in one way or another.

Let’s look at some of the core activities of the Cloud Solution Curator in more detail.

5.1 IP Aggregation & DevelopmentAs earlier stated, packaged know-how and repeatable code are at the core of the Cloud business model. In other words, IP. The Cloud Solution Curator brings together the IP needed to deliver a complete solution, including IP that it develops and maintains itself.

IPcanbecreatedinseveralways,andonseveral“platforms”.ItcanbeembeddedinERPsolutions,asverticallyspecificfunctionality.OrinCRM,asspecificprocessesand/orreports.Insomecases,IPthatrepresents“optimized”workflowscanbeembeddedinSharepoint,leveragingExchangeandOutlook.Pre-configureddashboardsthatenableexecutivesand managers to better manage and control their business is also a form of IP.

Each Cloud Solution Curator must decide what IP they build, versus buy in some form. While developing and monetizing “owned IP” is a key driver in the Cloud business model, it will rarely make sense to try and build it all. A balance must bestruckthatleverageseachPartner’suniquecapabilitiesandexpertise,andfieldsacompleteofferingfastenoughtocapture the market share that drives long-term valuations.

Customer Cloud Solution Curator

IP Aggregation (Own & 3rd. Party)

ERP(GP,NAV,AX)

CRM, Marketing Automation, Social Media Leverage

Document Management & Workflows

Office 365, Intune, Managed Services

BI, Dashboards, Custom Applications

Mobile Access

Business Process Consulting

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5.2Office365,Intune&ManagedServicesUntil now, many CRM and ERP solutions providers have chosen not deliver core server and network infrastructure, security and productivity applications to their clients. The ability to offer these solutions as a solution, hosted in the public cloud, changes the game. 67% of businesses expect to acquire a wide variety of cloud services from a single solution provider, and the value of the integration between server and productivity applications and business applications continues to grow. Dynamics ERP and CRM partners are uniquely positioned to offer complete solutions, spanning on-premise, public and private cloud and “hybrid” solutions.

GiventhecoreeconomicsoftheCloud,customerswillchosetomigratetoOffice365ratherthancontinuetoinvestin onsite infrastructure. As this happens, managed services revenue associated with maintaining servers and networks must be replaced with services that manage desktops and devices. Of particular importance is providing the security and access required of mobile devices.

Capturing this demand can prove pivotal to monetizing many other elements of the total solution demanded by customers. It is analogous to the checking account in the banking industry. While relatively low margin on a stand-alone basis,itdefineswhatthecustomerconsiderstobetheir“primary”bankingrelationship,andsoisconsideredan“anchor”product to sell. Mortgages and investment products (carrying higher margins) become far easier to subsequently sell. 84%ofbusinesseswanttoestablishatrustedrelationshipwithacloudservicesprovider.Thisrepresentsasignificantopportunity for Dynamics partners to both increase revenue and strategic importance to the customer. Partners that have offered this services utilizing efficient, technically skilled staff operating remotely have achieved gross profitmargins in excess of 50%.

5.3 BI, Dashboards, and Data ServicesApplications and tools that provide real-time business information and insight, driving timely action, are a key focus for today’s business leaders. This explains the strong executive and management desire for compelling dashboards and business intelligence and the internet and extranet portals and applications that drive resulting collaboration and action. It’s what allows them to drive better business outcomes.

To get this capability, the underlying operational applications are obviously a pre-requisite, whether in the form of CRM, ERP, Marketing Automation, or other business applications. A Cloud Solution Curator is in the position to provide a tightly integrated solution.

Data services represent an entirely new revenue source as the Cloud Solution Curator can provide accurate, data-basedguidanceonhowtoachieveoptimaloperationalefficiency.Thebusinessvaluetothecustomerisquantifiable,and compelling. Integrating external data sources can also bring “big data” capabilities into the equation, and provide additional business insights and opportunities. Surfacing this information on mobile devices and web-based dashboards rounds out the overall value proposition of delivering critical management insights and controls anywhere, anytime.

In terms of technology, Microsoft provides the key enabling technologies with Sharepoint, Microsoft SQL Server and SQL Reporting Services and Excel, delivered either on-premise or in the cloud. A Sharepoint practice that starts with basic sites and collaboration and expands to internet and extranet sites and custom business applications both provides new sources of revenue and enhances the value of a core CRM or ERP offering.

As a Cloud Solution Curator, you are in the perfect position to create and expand this valuable integrated solution to customers.

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5.4 Mobile AccessAs earlier pointed out, mobility is a core demand pillar in the Cloud. Consumers and businesses demand the ability to get any information they want, anywhere, anytime. A solution that is not mobile-enabled is simply inadequate.

The Cloud Solution Curator needs to be in a position to provide guidance with respect to mobile strategy and execution, along with solutions that are able to meet their customers’ mobile needs. Partnering with Microsoft provides the technicalelementsneededtofieldcompletesolutions.

5.5 Business Process ConsultingPartners’ traditional services business is rapidly eroding. Implementation and customization services revenue is decreasing, and so are margins.

Asdescribedearlier, this is largelybecause customers todaywant solutions specific to theirneeds,outof thebox.Softwaretargetedspecificallytotheneedsofspecificverticalshasbeencreatedandtheabilitytofindandobtainthesesolutions has greatly increased with the Cloud. Customers are rejecting the high cost, time and uncertainty of highly customized solutions. That is the promise of the Cloud, and why the demand exists. It’s also why the Cloud reduces cost. This is what customers want of you today – more utility, rapid “time to value”, lower costs, and no surprises.

Description Demand Trend Monetization Method

Traditional Services

Largely technical services associated with the configuration, customization, installation, integration, and support of business software solutions

Decreasing in all but the upper market segments, as out-of-the-box solutions proliferate and technical services become commoditized

Effective utilization of the technical resource pool, typically not exceeding gross margin levels in the 30-40% range

Business Process Consulting

Consulting services associated with the improvement of business processes and operational efficiency, leveraging available technology

Increasing, as businesses of all sizes seek greater cost advantages and operational performance from technology

Effective utilization of a non-technical consultant resource pool, coupled with value-added pricing, typically achieving gross margin levels in the 45-50% range, or better

Managed Services

Ongoing support services “wrapped around” core technical infrastructure such as onsite servers and networks, or OFFICE 365 and Intune in the Cloud

Decreasing as it relates to onsite technical infrastructure, increasing as it relates to Cloud-based infrastructure

Effective utilization of a technically competent and low-cost resource pool operating remotely, coupled with packaged pricing, typically achieves gross margins in excess of 50%

Technology-enabled, Data-driven Services

Data-driven services that enable businesses to benchmark and optimize various business processes so as to achieve industry-specific “best practices” and operational efficiencies

Increasing significantly as Cloud-based solution delivery enables the data-capture from internal and external sources that allow best practices to be identified and disseminated

Ongoing subscriptions to “best practices” data, processes and infrastructure, coupled with business process consulting services, potentially achieving gross margins well in excess of 50%

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To be sure, there is still a market need for services, but they are often quite different than what has been sold in the past.Truebusinessprocessconsultingandoptimizationinspecificverticals, forexample,arehighlyvaluable iftheyreduceacustomer’stotalcostandoperationalefficiency.Customerswillhappilypayforsaleseffectivenessconsultingif it increases revenue or revenue predictability. Hands-on assistance in leveraging marketing automation functionality andsocialmediaiseasilyjustifiedifitaddscustomersorsellsmoreproducts.

Akeywayofsurvivingasignificantandpermanentdeclineintraditionalservicesrevenueandmarginsisthroughtruebusinessprocessconsulting,oftenfocusedonaspecificcomplexbusinessprocessand/orverticalbusinessrequirement.

Business process consulting can be either strategic or tactical in nature, but either way it has to do with how a business incorporates technology to streamline and optimize their operations and reduce costs, rather than how technology gets adapted to support existing sub-optimal business processes.

Additionally, successful Cloud vendors often have pre-packaged services to ensure the adoption that is critical to long-termprofitability. Examples include “launchpackages” to support thefirst fewmonthsofanewbusinessprocess,training services by role or business community, and annual health checks to ensure the organization is maximizing the technology capabilities and that those capabilities are aligned with business outcomes. Those partners that have combined effective utilization of a non-technical consulting resource pool and value-based pricing typically achieve gross margin levels in the 45% - 50% range or better.

5.6 The Curator’s PremiumIn sum, the Cloud Solution Curator “connects the dots” and delivers total Cloud solutions. In fact, the precise manner in which these dots get connected is in itself an additional form of IP that gets monetized in the Cloud.

The function of “curation” delivers enormous value to the customer. They are no longer responsible for assembling all the pieces of the puzzle; they can divert resources and instead focus on driving better business outcomes. It is the ultimate in outsourced IT management, and the payoff to the customer is immense.

In exchange, the Cloud Solution Curator earns a premium for bringing together all of these elements. The amount of this premium will be driven both by the cost reductions delivered to the customer, as well as the value they perceive in being able to focus on expanding revenue or markets served.

The Cloud Solution Curator earns another form of premium over time, in the form of a greatly expanded “lifetime customer value”. In curating total solutions, and keeping them in step with ongoing technology advances, there is little reason for a customer to leave.

5.7 The Curator’s “Keys”Four things are key to becoming a successful Cloud Solution Curator:

1. Owning strategy. A curator must be seen to provide the strategic direction for technology use and adoption by the customer. As earlier stated, they must be seen to be the ones responsible for “connecting the dots” of technology. Not all elements of the technology puzzle will be consumed by the customer at once, and in some cases certain elements may never be consumed, but the curator must be seen as providing the strategic direction needed to maximize the utility of all available technology, at the lowest possible cost.

The ability to aggregate, test, sell and support a “Curated Solution” provides true business value

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2. Owning the billing relationship. In order to be considered a curator by the customer, they must receive a single bill for all elements provided. Separate billing, by definition, means that the solution is not being totally “curated” and managed, resulting in complexity and potential finger-pointing between vendors.

3. Owning support. Whatever elements of the total solution that are provided by the curator, must be supported by the curator as well. Otherwise, the curator’s premium is forfeit.

4. Owning integration and validation. The curator must pre-validate each element of technology used by the customer, and ensure they all work together, seamlessly. For some, this will be another source of IP monetized in the Cloud.

5.8RevenueDiversificationandExpansionIntheend,thepayofffortheCloudSolutionCuratorisbothadiversificationandexpansionofrevenue,asthefollowinggraphs illustrate. The exact future revenue composition will vary, but it will always be bigger than today, and more diverse.

Traditional License & Enhancement Revenue

Traditional Professional Services Revenue

Cloud Based Services Revenue

Subscription Revenue (Owned & Aggregated IP)

Current Revenue Composition

Future Revenue Compostion

67%

33%31%

25%

20%

24%

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5.9 Customer Lifecycle ManagementAs just stated, the Cloud Solution Curator reaps the rewards of an expanded lifetime customer value.

But it is not without effort – customers must be actively managed over the long term. Simply put, you have to keep customers subscribing to your Cloud solutions, for years.

This is because as a Cloud Solution Curator, too much churn will kill your business.

Churn

Minimizing churn and keeping customers far longer becomes critical to achieving the same economic returns once available with on-premise solutions.

Churn has a dramatic bottom-line impact for a Cloud Solution Curator. You simply must keep customers subscribing toyoursolutionlongertoturnaprofit.Thehigherthechurn,thelongerittakestoachieveprofitabilityandadequatecashflow.

ChurnalsosignificantlyimpactsthevaluationyourCloudbusinesscancommand.Thereisnothingmoreimportanttoa business owner than that. High churn levels clearly indicate a problem in getting customers to adopt your solution for the long haul.

Consider the following analysis of Salesforce.com’s subscriber acquisition costs8. As for many others in the Cloud, thecostofacquiringanewcustomerexceedsthefirstyear’srevenue.Itcantakeanywherefrom15to20monthstobreakeven on that customer on a gross margin basis, sometimes more. The more customers you lose, the worse that mathbecomes.Cashflowisseriouslyimpactedaswell.Therearenotwowaysaboutit–runawaychurnisaseriousaffliction.

So what is an “acceptable” level of churn? After all, some is inevitable.

The short answer is that annual churn rates of 10% or less are usually needed to make your Cloud math work. Churn rates in excess of 20%, by contrast, will often be fatal if they last for any period of time. And the fact is, many new entrants to the Cloud have experienced churn rates this high or higher, initially. Salesforce.com, for instance, now boasts churn rates of less than 1% per month (12% per annum), but it wasn’t so very long ago it was twice that9.

8 Basedonanalysisof10kfilings,SFDCMilesonesreport,Trefisanalysis,andthe2012Dreamforcedeck.9 from 2012 Dreamforce presentation materials

Fiscal 2013 (est) Fiscal 2012 Fiscal 2011

Derived Sales & Marketing Cost per gross Subscriber Add $937.06 $755.75 $827.72

Derived Annual Revenue per Subscriber $792.84 $731.14 $789.11

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Wave Selling

The fact is, practically no customer will buy everything you sell at once, and the economics of the Cloud favor Partners selling multiple offerings, as previously mentioned. In addition, the laws of consumption economics10 allow a customer to take on lower risk by not fully committing to your solution up front.

So you need a plan for selling to them over time, continuously. That is, to sell in waves.

The mechanics of wave selling are detailed later in this document under Cloud Transition Execution, but the main intention is threefold:

1. Obtain the first sale and relationship with the customer by offering a wide array of technology offerings.

2. Expand the business with the customer over the long term so as to maximize potential revenue and contribution margin.

3. Minimize the churn that can kill your Cloud economics.

Online Marketing

We all know that customer buying behavior has changed. When making a purchase decision they self-inform, and engage with a “live” salesperson far later in their buying cycle. Once a customer, they want to be kept informed in the same way. That is, online. This is the domain of online marketing, not only in terms of new customer acquisition, but also in terms of the ongoing prospect and customer nurture that increases share of wallet over time. In short, Sales and Marketing must be highly automated and fully coordinated. Online marketing is also a critical compliment to Wave Selling; the two go hand in hand.

Online marketing is most often created and delivered as education. Industry expertise, vertical best practices, and other information of value to the customer are ideally all packaged in an easily consumable fashion and, of course, connected to the value provided by the partner’s products and services..

Customer Service Excellence

In today’s world, you also need to be extremely responsive and accessible to your customers, especially as we shift to more remote and web-based forms of support and interaction. We all have our customer service horror stories to relate, where we’ve taken our business elsewhere not because we didn’t fundamentally like the product or service, but because it was just too much hassle to deal with the supplier. For us, seamless interactions with our customers ought to be straightforward; after all, we’re the ones selling the very technology that enables it. And there’s ample evidence suggesting that the most loyal customers are often those that have had an issue successfully resolved.

Thiswillalmostalways requireanexpandedcustomerservicecapacity,and insomecasesasignificantone. Itgetsmonetized either as an embedded element of the subscription, or as an incremental managed service, or both.

10 from Consumption Economics – The New Rules of Tech, by Wood, Hewlin, and Lah

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6. Cloud Transition PlanningThere is no question about it – traditional revenue is declining in the face of Cloud demand. The real issue becomes how to replace it, and indeed grow revenue by taking advantage of new Cloud-enabled product and services offerings.

To become a successful Cloud Solution Curator, you will need to:

1. Identify your historical market focus, and how you might logically expand it.

2. Identify and source or build the additional products you will need to offer both to retain your existing customer base, as well as to expand your market focus as appropriate.

3. Build or assemble the other elements needed to become a Cloud Solution Curator, such as IP, consulting services, managed services, and data-enabled services.

4. Put in place the additional marketing and sales infrastructure needed to quickly gain the market share required to provide an adequate return on capital, as well as truly manage customers over an extended lifecycle.

5. Form and execute an effective Cloud Transition Plan.

6.1 Current State AssessmentBeforebeginningyourtransitionplanning,however,youneedfirsttoidentifywhereyouaretodaywithrespecttotheCloud opportunity. The process of transforming your business for the Cloud can be said to have 5 stages, as follows:

Within each stage, the following functional areas need to be examined:

• Leadership

• Finance and Admin

• Marketing

• Sales

• Services Delivery

• Product Management

Use the Cloud Transition Scorecard in the Appendix to identify where you are today, and identify the areas that most need attention, in order to become an effective Cloud Solution Curator.

Denial Awareness Proactivity Operationalization Optimization

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7. Cloud Transition Execution7.1 Business ManagementBefore developing an execution plan, each Partnermust first choosewhichmarket segments to address. Thiswillinvolve, based on your historical business concentration:

• The identification of a product and market focus given pre-existing project experience, domain expertise, customer base and references, and IP, as well as the overall competitive landscape any offerings will exist within. In addition, potential markets must be “sized” to ensure there is sufficient potential demand to build a viable long-term volume business upon.

• The appropriate packaging and pricing for these offerings, given the competitive landscape and customer ROI as well as the fundamental Cloud economic model the Partner operates within.

Identify a market focus

Two potential routes can be taken in terms of selecting a market focus:

• A deep understanding of a specific business process and the understanding of how technology can be used to drive additional effectiveness or efficiency in the process. A key example would be the understanding and optimization of specific sales, marketing and customer services operations and how the application of CRM and other technologies can optimize these processes.

• A deep understanding of the needs of a specific industry or vertical and the application of technology and consulting services that meet the needs of that industry.

WeatMicrosoftbelievethatafocusonaspecificverticalprovidesthehighestprobabilityoflongtermcompetitivenessandprofitability.Whetherintentionallyornot,everyPartnerwillhavesomeformofindustryorverticalconcentrationsimply by virtue of its customer base and employee skill sets and experience. The questions are:

• What are those vertical or industry concentrations?

• What is the depth and opportunity for profitable expansion of those concentrations?

Thefirststepistodefinemarket“sweetspots”,bymappingindustriesservedagainstexpertisedepth,asinthefollowinggraphic.

Previous Project Code and Domain Expertise Depth

Customer Breakdown: Low Medium High

Pulp Mills ✔

Field Services ✔

Eating & Drinking Establishments ✔

Apparel & Accessory Retailing ✔

Commercial Printers ✔

Chemicals & Allied Products ✔

Auto Dealers ✔

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Having identifiedwhere a Partner’s potential “sweet spots” lie, the next step is to get a sense of the competitivelandscape in these segments. The questions here become:

• What is the total size of the market that I could address? Is it big enough to bother with?

• What competition is already in this space, and how could my offering be differentiated? What would be its unique and compelling value proposition? What pressing business issues would the solution address?

• Givenadifferentiatedoffering,howshoulditbepriced,relativetocompetingproductsandinawaythatdeliversadequate levels of profitability?

• What investments would be required in order to make this offering market-ready? What would be the high-level product development plan?

• How would the offering need to be packaged and priced, given all the previous considerations, in order to be competitive and represent a compelling business proposition to the Partner. In other words, what is the fundamental economic case for bringing this offering to market and providing an adequate return to investors?

From an executional standpoint, consideration should be given to expanding reach in the chosen target markets by becomingembedded in the vertical trade industries and topofmindwith key influencerswhoare trustedby theexecutive decision makers in this space.

7.2 Finance & AdminPricing & Discount Structures

GettingpricingstrategyrightbecomesakeyimperativeforaCloudSolutionCurator,onceamarketfocushasbeenidentified,andnomatterwhatyouractualCloudofferingis.ThisisbecauseintheCloud,onesizedoesnotfitall.

Consider the fact that each Cloud customer acquired will have associated sales, marketing, setup, and ongoing operational costs (COGS) that are largely fixed to the Partner, irrespective of how long the customer stays and inmany cases irrespective of the actual number of users. This means that the margin structure to the Partner11 will vary depending on deal size and length of contract commitment. In some cases, as the following graph illustrates, the contribution margin will be inadequate.

11 based on calculations driven by a Cloud Pricing Model developed by 1 Click Factory, and used by several Dynamics Partners globally

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

5 Users 8 Users 12 Users 17 Users 23 Users

Cont

ribut

ion

Mar

gin

1 year contract 2 year contract 3 year contract

Danger Zone

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ChargingaflatamountperuserirrespectiveofdealsizeandcontracttermwilloftenbreaktheCloudeconomicmodelfrom the start.

Instead, a differential pricing strategy must be adopted that meets the following business objectives:

• Closing a high volume of deals, to build market momentum

• Closing larger deals, to build a big subscriber base as fast as possible

• Closing longer contract terms to decrease churn and increase profitability

• Gettingupfrontpaymentstoeasecashflow

All of these objectives must also be achieved in a manner that delivers an acceptable margin structure to the Partner, irrespective of deal size and contract term. To do this, a “pricing cube” approach is needed, as follows.

The essence of the pricing cube is to offer better pricing to customers committing to larger deals and longer contract terms, to better defray customer acquisition costs and ensure adequate margins to the Partner across the board.

OneoftheotherkeyaspectstomitigateasaCloudSolutionCuratoristheimpactoncashflow.Subscriptionrevenue,bydefinition,replaceslumpsumsupfrontforbothlicensesandserviceswithanongoingannuityrevenuestream.Inaddition, investments must be made initially to secure this growing annuitized revenue stream. This requires additional working capital, or an outside capital infusion.

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Thecashflowimpact,however,canbegreatlymitigatedbyofferingdiscountstothecustomerforpaymentsinadvance,as the following graph illustrates. In effect, the discount offered can substantially replace the capital required.

Automated Provisioning & Billing

Another key requirement for a Cloud Solution Curator is infrastructure that automates provisioning and billing. Hosting itself can be most cost-effectively delivered by Azure, but a key determinant of long term viability to the Partner will be theefficientadministrationofagrowingsubscriberbase.

7.3 MarketingAs indicated earlier in this document, not only do customers want a fundamentally different experience of technology, theyfind,evaluateandbuytechnologyinatotallydifferentwaytoday.Theywanttoself-informastotheiroptions,andengage “person-to-person” with us as potential solution providers far later in their buying process. Customers want to finduswhenthey’reready,andthentheyseekrelevant,useful,andtimelyinformation.

Customers today also want to avoid traditional salespeople until the last moment, which means Marketing must carry the ball further down the sales cycle than ever before. To do this, Partner websites must be far more than simply online brochures;theymustgeneratetraffic,engagewithprospects,capturetheirinterest,andconvertthemtoqualifiedleads,all without human intervention.

Andfinally,thelinebetweenSalesandMarketinggetstotallyblurredforaCloudSolutionCurator.Thecustomermakesno distinction, however much we might. They seek a seamless digital experience that informs and aids their buying process.

All this leads to a need for “closed-loop” customer acquisition.

Closed-Loop Customer Acquisition

Marketing for a Cloud Solution Curator can be said to have two primary functions, as indicated in the following graphic:

Monthly PayAnnual Pay

Monthly Cumulative Cash Flow

Capital Required

Discount Applied

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1. Gettingprospects to “find”you.Thekeymechanisms involvedare thecreationof compellingwebsite content,Search Engine Optimization (SEO, Pay-per-Click campaigns (PPC), and selected use of social media.

2. Gettingprospectstobuy.Thisinvolvestheir“nurturing”bywayofhighvalueassetsthatenticethemfurtherintothe sales process. Webinars, training materials, tools that assist them in their buying process, surveys, and the like all become critical assets a Partner needs to develop and make available.

Of special importancehere is leveragingMicrosoft trial engines, and configuring them toaddress knownbusinessissues. The intent here is not to close the deal so much as to meet the prospect’s expectation that they can “kick the tires” as part of their buying process. Care must be taken, however, to not get them “lost” in the trial with too much complexity,buttohandoffabetterqualifiedprospecttoSales.EspeciallyinthecaseofCRM,thereisanopportunity

to enable the prospect to become familiar with the solution by offering limited functionality as a trial, which triggers a purchase of increased functionality later on.

Tactical Mix

From a tactical perspective, the marketing mix is very different for a Cloud Solution Curator. The following represents the

13%

11%

13%

13%10%

14%

26%

Tactical Marketing Mix

Pay-per-Click

Search Engine Optimization

Link Building

Content Creation

Webinars

Blogging & Social Media

Prospect Nurture

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allocationthatcanbeexpectedtobeoptimalintheCloud,andformanyPartnersachievingthiswillinvolvesignificantinvestments in building marketing competencies and infrastructure.

Budget

SuccessforaCloudSolutionCuratorrequiresafargreatermarketingproficiency(andinvestment)thanthetraditionalbusinessdid.TheCloudprospectsimplyexpectstofindyouonline,andtheyexpecttobeabletoquicklyself-educatethemselves about your service.

There is no way around it, those growing market share fastest spend heavily on marketing. A Partner will have to contemplate spending a minimum of 5% of revenue on direct demand generation, not including the cost of actual marketing personnel, and in most cases more. This is a key area in which partners can utilize the strength of the Microsoft brand and the hundreds of millions of dollars in investments in both awareness and demand generation that is being executed by Microsoft.

Calendar

Marketing has always needed to be continuous rather than campaign-based, and this is even more critical for a Cloud Solution Curator. Partners must plan and execute a coordinated marketing plan throughout the year.

For more detail as to what a sound marketing calendar should look like, refer to the Appendix.

7.4 SalesIt has been said earlier but bears repeating, customer buying behavior has changed, and is fundamentally different in the Cloud. One of the key differences is that customers now engage with Sales far later in their buying process, once they have already self-informed as to their options, and formed opinions and biases (hopefully with the assistance of Marketing). This radically changes the selling context.

Buying Cycle

Historical on Premise Engagement Point

Initial Exploration Current Engagement Point

Close

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Accelerated Sales Process

The later engagement point with the buyer drives a need for a different sales methodology for a Cloud Solution Curator, one that “accelerates” the sales process. This Accelerated Sales Process has 3 phases:

1. Qualify

ThemajorityoftheheavyliftingandpositioningiscompletedduringQualify;whicheffectivelycompressesthefirstthree phases of a traditional complex sales model. Coming out of this phase 1 the sales professional should have:

• Validated(qualified)thattheopportunitymeetspre-defined“accelerated”criteria

• secured an understanding of the selection process and selection criteria

• aligned the prospect’s buying process with the Partners selling process

• secured access to the BDM (business decision maker)

• delivered a 15 – 20 minute buy-in demo

• confirmed the desired solutions set and fit to Partner offering

• determined proof activities required to move to contracting

• validated all of the above through a mutual alignment/action plan

2. Proof

The Proof phase focuses exclusively on providing the comfort required to proceed to contract and surfacing, then handling all outstanding objections. The primary Proof activities are:

• Satisfying outstanding technical concerns

• Satisfying any security concerns

• Aligning business outcomes to the solution offering

• Educating and demonstrating to a broader stakeholder group

• Managing a trial process (if required)

• Providing access to references (if required)

• Aligning the prospect with a recommended close plan

• Exit criteria for the Proof phase are the elimination of all outstanding objections and agreement to proceed to submitting a proposal.

3. Close

The Close phase focuses exclusively on the mechanics of handling hidden or unconscious objections and mechanically closing the transaction. The primary Close activities are:

• Developing and presenting a proposal

• Handling outstanding objections

• Contract execution

Exit criteria for the Close phase are contract execution and a successful hand off to delivery. A more detailed schematic of the Accelerated Sales Process can be found in the Appendix.

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Wave Selling

A critical requirement of Sales for a Cloud Solution Curator is that it be continuously engaged in selling to the customer base. This not only expands the revenue profile of each customer, but is especially critical in securing adoption and minimizing churn. The following is an example of a wave selling program executed over a 2 year period.

As mentioned earlier, the Cloud Solution Curator could start with the sale of any offering as a starting point, and follow over time with the sale of additional products or services.

The following example takes the perspective of the initial sale of an ERP system.

12 3 4

Secure the Client Month Three Month Six Month Nine

Add industry specific functionality• Partner generated• Additional ERP modules• 3rd Party IP

Offer value-added service• Business value review• Cloud opportunity

assessment• Data-enabled services

Secure user adoption and expand the solution footprint, e.g.• Collaboration (O365)• BI (SQL, Sharepoint)• Mobile Access

Complete the initial ERP sale, deliver on key commitments:• Promised functionality• Delivered on committed date

and budget• Measurable business results

6 7 8Month Twelve Month Fifteen Month Eighteen Month Twenty-Four

Introduce next service• Cloud Optimization based

on fully integrated solution set

• Could include 3rd party content

Secure renewal if needed• Business impact assessment• Next Tier offer• Pre-pay Discount

Introduce another product offering, e.g.• CRMOL• Expanded BI – Dashboards for

additional user types

Secure renewal if needed• Next Tier offer• Pre-pay Discount• Business impact assessment

5

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Roles

A different sales process also calls for different types of sales roles. Partners should think of a sales team comprised of the following roles.

Compensation

Sales compensation plans for a Cloud Solution Curator 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. This probably means a lower base salary than required for on-premises salespeople, with an opportunity to earn strong variable compensation. Sales quotas in the mid-market should generally be set at 30 to 35 deals per year; compared to an on-premises rep who might close 12 to 15 deals. In other market segments, the quota will scale up or down according to the average deal size.

Salescostsmustalsobekeptlow;ideallylessthan10percentofthefirstyear’srevenue.Salescompensationstructuresthat provide residual (renewal) compensation (beyond the first 12months) to the initial selling representativewilldiscourage their concentration on new business and may be too costly. These “hunters” should be paid based on the annuity they originally create. The following is an example of a compensation structure for such a “hunter”.

Role Responsibilities/Skill Set

Sales Leader

• Operational sales manager – deal engagement• Active sales team leadership and management• Deal/forecast reviews• Heavily process oriented, strong sales skills, good coach

BDR – Business Development Representative

• Follow-up on all inbound leads (web, marketing)• Outbound lead generation• Understands business problems/challenges• Ability to manage a sales cycle and close

CSM – Customer Success Manager

• Primarily a sales role: secure customer adoption, renewal and upsell/cross-sell

• ResponsibleforsupportofVolume/CloudSolutions• Route/address inbound questions, requests for information• Inbound & outbound responsibilities

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Sample Compensation Volume/Cloud Business Development Rep - BDR (New Business):

Subsequent selling can be executed by lower cost sales personnel (“farmers”). The “farmer’s” compensation structure containsrelativelylargerfixedbaseandmayincludecompensationovermultipleyearsforthesuccessfulmaintenanceof the customer relationship and long-term revenue stream.

AnnualQuota

PipelineBuild 3X

Benefits % at Quota Salary On Target

Earnings

Quarterly &YTD

Thresholds

Commission Rate

Subscribable

Commission Rate

Services

Software & Services Yr. 1 Subscription

Fees

$600,000 $1,800,000 15% $70,000 $120,344 75% 4.5% 2.3%

One Time Services Fees $550,000 $1,650,000 100% 8.0% 3.5%

Total Quota $1,150,000 150% 11.0% 5.5%

> 150% 14.0% 7.0%

Cost of Sales at Quota

SalaryOn-Target Earnings

Com.Benefits Bonuses CoS % Gross Cost

$70,000 $46,344 $17,452 $4,000 11.98% $137,795

Sample Commission Plan

Subscribable Annual Sales

ServicesSales

Commission Buckets

Bonus Buckets

SubscribableCommission

Rate

ServicesCommission

Rate

Cumulative CoS

with Bonuses

Cum CoSwith

Bonuses -Subscr.

@ 24 Months

Up to 75% $450,000 $412,500 $29,531 $0 4.5% 2.3% 13.56% 8.91%

76% to 100% $150,000 $137,500 $16,813 $4,000 8.0% 3.5% 11.98% 7.87%

100% to 150% $300,000 $275,000 $48,125 $0 11.0% 5.5% 10.78% 7.08%

150% to 200% $300,000 $275,000 $61,250 $0 14.0% 7.0% 10.75% 7.06%

Total Variable $155,719 $159,719

Total Salary $70,000 $70,000

Total at 200% of

Quota$225,719 $229,719 @ 100% of

Quota $116,344 $120,344

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7.5 Services DeliveryIn order to meet the changing expectations of customers in the Cloud, implementing a Cloud-based solution must befarfasterthananon-premisessolution.Allaspectsoftheimplementationmustbestreamlinedsignificantly,asthefollowing graphic illustrates, for the following reasons:

1. User training becomes self-serve and web-based. Overall, better product design also drives down the need for training.

2. Reporting becomes more “packaged”, and the need for custom reporting declines as a result.

3. Configuration and setup is Cloud-based, “templatized”, and automated.

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” has become the expectation of prospective Cloud customers.

Several services delivery aspects will need particular attention in the move to the Cloud, as follows.

Repeatability & Automation

All of the implementation elements described above will need to become far more “templatized” and repeatable for a Cloud Solution Curator, in order both to reduce costs as well as to speed up delivery times. Those elements that can be readily automated (for example data conversion) should be. The Cloud is about delivering standardized solutions quicklyandcheaply,andinorderforthistobeprofitabletothePartner,aheavyfocusonrepeatableandautomatedimplementation process is mandatory.

On-Premises Cloud

Executive Training

Workstation Setup

Server Configuration

Data Conversion

Reporting

User and Super User Training

Application Setup and Configuration

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Fixed Price & Scope

Manyprofessionalservicesfirmsstructureandbillprojectsonatimeandmaterials,not-to-exceed,milestonecompletion,or hybrid basis. These Statements of Work (SOW’s) typically contain a description of the services performed, level of effort, timing, customer and partner resources required, assumptions, along with other terms and conditions. For a CloudSolutionCurator,SOWswillfavormorefixedprice,fixedscopeengagements,eitherinwholeorinpart.

Ifaprofessionalfirm’sSOWratioisweightedmoreheavilytowardstimeandmaterialstructures,thereareafewstepstoconsiderbeforemovingentirelytowardsfixedfeeserviceofferings:

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

• 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 proprietaryrights,confidentiality,mutualindemnification,warranties,anddisclaimers.

“Blended” Consultants

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. It may appear to consultants that moving to the Cloud hurts them.

A 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 satisfiedcustomercompleted”modeltohelpensureefficiency,quality,andquantityfrombillablestaff.

Partnersfocusingintheenterprisesegmentmayfindthatsomeofthebestconsultantsmakeanexcellentblendedsalesresource, 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.

Contract Management

For a Cloud Solution Curator, 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.

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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

Managed Services

Afinalelementtoconsiderintermsofservicesdeliveryiswhetherornottoprovidemanagedservicesofferings.Forsome,thiscanrepresentasignificantadditionalrevenuestream.

Managed services “wrap” around and support core technology offerings, and so the starting point in determining an appropriate offering is to ascertain what elements of technology infrastructure you provide and support today.

The following graphic can be said to describe the common building blocks of a customer’s technology infrastructure, as they view it.

Not every business, of course, needs all of these elements in order to function. Small businesses will have less complex requirements, and may only consume the base elements. Larger organizations, however, will consume all these elements.

Strategic Decision Making (Predictive Modeling, Opportunity Analysis)

Financial Management (Budgeting, Reporting, Analytics, BI)

Workflow Management (ERP, CRM, Sharepoint)

Admin (Accounting, Compliance, Remittances, Tax Filing)

Collaboration/Coordination (Calendars, Scheduling, Social Media)

Communications(Voice,VOIP,text,email)

Desktop Productivity (Word, Excel, Powerpoint)

Internet/Network Connectivity

Devices (PC, Tablet, SmartPhone, Printer)

Dat

a St

orag

e/ M

anag

emen

t

Security(Authentication,Firewalls,Virus,

Mal

war

e, Id

entit

y M

anag

emen

t)

35

The key questions each Partner faces with respect to deciding on a managed services offering set is:

• Where do I play today? What elements of infrastructure do I provide, and what ongoing services logically compliment them?

• What is the business value that these ongoing services represent to the customer?

• What is the customer consumption pattern with respect to these services? In other words, how can I structure a services delivery offering in a way that delivers what the customer needs, but in a way that allows me to price it for maximum profitability to me, given the business value I deliver?

7.6 Product ManagementAs stated earlier in this document, the Cloud business model is fundamentally about delivering packaged, repeatable solutionsfarmorethanservices.ForsomePartners(suchasISV’s)thedisciplineandfunctionofproductmanagementwill already be standard operating procedure, for others it will need to be an additional element of the business.

Eitherway,profitablymeetingClouddemandwillrequireaspecificfocusonidentifyingtargetmarkets,definingtheneeded functionality to address market needs, differentiating any Cloud offerings against their on-premise alternatives, and developing a product roadmap. The factors to consider in developing a product roadmap are illustrated in the following graphic.

Of course, any Cloud offering must also include a Mobile component, as earlier mentioned.

Repeatable Solution

ArchitectureSource Code Management

Test Strategy

Roadmap

Configuration

RolesBug Management

Feature Management

& ACE

Sustained Engineering

Fundamentals

VolumeandCloud

36

8. ConclusionThe Cloud era is now fully upon us, and we must adapt.

Changing customer motivations and buying behavior, along with advances in mobile and other technologies, are spurring the emergence and growing dominance of new Cloud-based competitors in virtually all market segments, and in turn driving a massive disruption to existing business models. Time is now of the essence if we are to position ourselves for long-term survival and prosperity.

While the business transition we must achieve to succeed in the new era is neither easy nor without risk, the alternative is far more unpleasant. We have all felt increasing pressure on our businesses over the past few years, and we know it will only intensify with time.

Thankfully, we are now able to see, based on the experiences of others, the emerging Cloud business model and the key elements we must put in place in order to reap the rewards the Cloud era has to offer. There is still market space left to occupy,anddemandlefttosatisfybeforemarketpositionsgetcrystalizedandthefinalwinnersandlosersintheCloudera get decided. But time is now of the very essence.

WestronglyrecommendyouusethisGuideandthemanyotherMicrosoftresourcesavailabletoyou,astheblueprintfor becoming a successful Cloud Solution Curator, and building a strong Cloud-based business that provides attractive economic returns well into the future.

37

9. Additional ResourcesThe Microsoft Dynamics team has produced a robust set of coursework and guidance designed to help partners move their business to the cloud. This covers an end-to-end model that impacts all phases of the business, from marketing and sales to deployment. The process has been called “The Road to Repeatability”.

A white paper that covers the key attributes of the business model transformation is called “The Repeatability Roadmap” and can be found here: https://mbs.microsoft.com/downloads/partner/R2R_Roadmap_final_singlepage.pdf

A website that provides a host of guides, videos, resource kits and other content designed to help partners through their individual path to a cloud-based ERP and/or CRM business model can be found on PartnerSource here: https://mbs.microsoft.com/partnersource/worldwide/northamerica/partneressentials/r2r

Microsoft has also readied a number of its Partner Development Centers on Road to Repeatability content. Partner DevelopmentCenter(PDC)partnersareakeyconsultingresourceforourVARandISVpartners,bringingbothdeepexperienceintheDynamicsbusinessandfirst-handknowledgeofMicrosoftDynamicslongtermproductandpartnerstrategies.ThespecificPDCsthathavebeentrainedonRoadtoRepeatabilitycontentareasfollows:

• 1ClickFactory (Central and Eastern Europe)

• Afirma (Spain)

• Homecom (France)

• PartnerWorks (US and Canada)

• PartnerMasterClass(UK,theNetherlands,Belgium,Germany,Austria)

• PDC Nordics (Denmark, Norway, Sweden, Finland)

• Sirius Advisors (Switzerland)

Microsoft Dynamics CRM has a continuing “Lead with the Cloud” strategy that will only be strengthened with the launch of Microsoft Dynamics 2013. An overall site for CRM partner readiness can be found here: Microsoft Dynamics CRM partner readiness information

Finally,MicrosoftsponsoredIDCtocreateaCloudBusinessGuidethatwasinformedbyinterviewswithhundredsofMicrosoftpartners.TheGuideprovidesvaluable informationabout theoverallCloudbusinessopportunity,partnertypes,customerpreferencesandcloudpracticeprofitability,includingkeyconsiderationsforMicrosoftpartnersmakingtheshifttoCloud-basedsolutionsofferings.TheGuidecanbefoundhere:https://mbs.microsoft.com/partnersource/worldwide/northamerica/partneressentials/MSDYN_IDCStudies

38

10. AcknowledgementsA resource of this magnitude requires a great deal of collaboration with a broad range of experts. During development ofthematerialwe interviewedexistingpartners,analyzedfinancialandprofitabilitydata formultiplechannelsalesmodels 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 ofseveralspecificindividualsresponsibleforauthoringthisguide.

Jeff Edwards

Director, WW ERP Partner Strategy

Microsoft Business Solutions

Microsoft Corporation

Terrence Abrahams

Director, WW CRM Partner Strategy

Microsoft Business Solutions

Microsoft Corporation

Bill Tattan

Director, Dynamics Customer Engagement

Microsoft Business Solutions

Microsoft Corporation

Dana Willmer

Director,GlobalBenchmarkingServices

1 Click Factory

Doug Kennedy

VicePresident

Partners & Support Service Programs

Microsoft Business Solutions

Microsoft Corporation

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:

39

APPENDIX

Lead

ersh

ip

Den

ial

Awar

enes

sPr

oact

ivity

Ope

ratio

naliz

atio

nO

ptim

izat

ion

•Th

is is

just

like

ASP

’s of

20

01•

My

cust

omer

s on

ly d

o w

hat I

tell

them

to•

My

busin

ess

mod

el d

oes

not n

eed

to c

hang

e•

Clou

d is

not a

pro

fitab

le

busin

ess

so w

e w

ill n

ot

play

•W

e ju

st lo

st a

big

dea

l to

a Cl

oud

play

er, t

hat w

e di

dn’t

even

kno

w w

as in

th

e de

al•

Our

reve

nue

is fla

t or

dow

n, a

nd w

e do

n’t s

eem

to

be

able

to d

o an

ythi

ng

abou

t it

•O

ur se

rvic

es m

argi

ns a

re

decl

inin

g, a

nd w

e’re

bei

ng

aske

d to

fixe

d pr

ice

ever

y de

al•

We

need

to d

o so

met

hing

di

ffere

nt, b

ut w

hat?

•W

e ar

e lo

okin

g at

, and

tr

ying

to u

nder

stan

d, th

e Cl

oud

prog

ram

s of

var

ious

ve

ndor

s•

We

are

tryi

ng to

un

ders

tand

the

busin

ess

mod

el im

pact

•W

e re

cogn

ize

inac

tion

is no

t a c

hoic

e, w

e’ll

die

if w

e do

n’t c

hang

e•

We

thin

k of

this

as a

ddin

g a

serv

ice

line,

or L

OB

•W

e ha

ve a

n ex

ecut

ive

assig

ned

to le

ad th

e Cl

oud

char

ge•

We

have

a te

am a

ssig

ned

with

dea

dlin

es, b

udge

ts,

targ

ets,

and

obje

ctiv

es

•W

e no

w h

ave

10 C

loud

cu

stom

ers

or m

ore

•W

e ha

ve a

Clo

ud b

usin

ess

plan

in e

xecu

tion

•W

e ha

ve re

allo

cate

d re

sour

ces

acco

rdin

gly,

and

ad

ded

the

need

ed n

et n

ew

reso

urce

s•

We

have

est

ablis

hed

met

rics

we

are

man

agin

g to

•W

e ar

e fo

cuse

d on

chu

rn

man

agem

ent

•W

e ar

e lo

okin

g at

con

trac

t an

d bi

lling

opt

imiz

atio

n,

and

yiel

d pe

r cus

tom

er•

We

are

driv

ing

dow

n ou

r co

st s

truc

ture

•W

e ar

e bu

ildin

g ou

t/ac

quiri

ng

com

plim

enta

ry o

fferin

gs

to in

crea

se s

hare

of w

alle

t•

We

are

appr

oach

ing

at

leas

t a 1

5% m

arke

t sha

re

in o

ur c

hose

n se

gmen

t, an

d gr

owin

g re

venu

e at

20

% p

er y

ear,

so th

at w

e ha

ve a

mon

etiz

eabl

ebu

sines

s

12. C

loud

Tran

sitio

n Sc

orec

ard

Fina

nce

& A

dmin

Den

ial

Awar

enes

sPr

oact

ivity

Ope

ratio

naliz

atio

nO

ptim

izat

ion

•Cl

oud

has n

o im

pact

on

cash

flow

or P

&L

•N

o ad

ditio

nal b

illin

g or

ca

sh m

anag

emen

t in

fras

truc

ture

is n

eede

d

•Th

is is

a w

hole

new

bu

sines

s m

odel

•Pr

ofita

bilit

y is

engi

neer

ed,

not m

anag

ed•

Cash

flow

and

cap

ital

sour

cing

are

maj

or is

sues

•W

e ar

e bu

ildin

g ou

t the

in

fras

truc

ture

nee

ded,

pr

imar

ily a

utom

ated

bill

ing

and

colle

ctio

ns•

Pric

ing

in m

arke

t, an

d sa

les

com

pens

atio

n ar

e cr

itica

l•

We

have

bui

lt ou

t a p

lan

to ra

ise c

apita

l, or

cre

ate

it in

tern

ally

•W

e ar

e dr

ivin

g co

ntra

ct

mix

by

way

of p

ricin

g st

ruct

ure

and

com

pens

atio

n to

sal

es re

ps•

Hig

h vo

lum

e bi

lling

eng

ine

and

A/R

man

agem

ent

capa

bilit

y•

Cont

ract

term

s ar

e in

pla

ce

that

dea

l with

ear

ly

canc

ella

tions

and

de

fect

ions

•W

e ha

ve a

udito

r app

rova

l fo

r def

erre

d co

mm

issio

ns

and

reve

nue

reco

gniti

on

•W

e ar

e no

w m

anag

ing

cash

flow

wel

l, fr

om a

n in

vest

men

t vie

wpo

int,

so

as n

ot b

e pe

naliz

ed b

y sh

areh

olde

rs fo

r exc

ess

cash

leve

ls•

We

are

exam

inin

g po

tent

ial a

cqui

sitio

ns to

ex

pand

gro

wth

rate

and

m

arke

t pen

etra

tion

•W

e ha

ve a

cces

s to

the

capi

tal n

eede

d to

mak

e ac

quisi

tions

that

are

de

sirab

le

41

41

Mar

ketin

g

Den

ial

Aw

aren

ess

Proa

ctiv

ityO

pera

tiona

lizat

ion

Opt

imiz

atio

n

•W

e ha

ve n

o de

man

d fo

r Cl

oud

•Le

ad g

ener

atio

n is

the

sam

e fo

r Clo

ud a

nd o

n-pr

emise

•M

icro

soft

has t

o gi

ve u

s le

ads

•W

e re

cogn

ize

the

fund

amen

tal

char

acte

ristic

s of

an

onlin

e bu

yer (

pros

pect

)•

We

have

ass

esse

d ou

r on

line

dem

and

gene

ratio

n ca

pabi

lity,

and

reco

gniz

e th

e w

ork

we

have

to d

o•

We

are

awar

e th

at

mar

ketin

g ha

s to

do m

ore

of w

hat s

ales

trad

ition

ally

di

d, m

ove

the

pros

pect

m

ore

deep

ly th

roug

h th

e sa

les

cycl

e

•W

e ha

ve se

cure

d th

e ex

ecut

ive

spon

sors

hip

and

budg

et n

eede

d to

bui

ld

out t

he n

eede

d m

arke

ting

infr

astr

uctu

re•

We

have

shift

ed 5

0% o

f ou

r web

con

tent

to

volu

me/

Clou

d of

ferin

gs,

pack

aged

ser

vice

s, an

d IP

•W

e ha

ve g

ated

PPC

ca

mpa

igns

and

offe

rs in

pl

ace

•O

ur u

nbra

nded

web

traf

fic

mak

es u

p 50

%+

of n

ew

visit

ors

•W

e ha

ve th

e rig

ht U

RL’s

for t

he v

ertic

als w

e se

rve,

so

that

we

can

be fo

und

in

sear

ch e

ngin

es•

We

have

def

ined

the

valu

e pr

opos

ition

s an

d pa

ckag

ed

offe

rings

nee

ded

to

prop

erly

add

ress

dem

and

in o

ur c

hose

n m

arke

t se

gmen

ts

•W

e ha

ve m

arke

ting

auto

mat

ion

tool

s an

d nu

rtur

e en

gine

s in

plac

e,

and

driv

ing

good

pro

spec

t flo

w•

We

have

an

ongo

ing

link

stra

tegy

in p

lace

•O

ur p

age

rank

is 4

or

bett

er•

We

are

driv

ing

an

adeq

uate

pro

spec

t flo

w to

ke

ep o

ur s

ales

reps

bus

y•

We

have

a le

ad sc

orin

g m

echa

nism

in p

lace

, tha

t is

effe

ctiv

ely

gaug

ing

qual

ity

•W

e ar

e dr

ivin

g co

sts

to a

le

vel t

hat F

inan

ce is

OK

with

, and

is s

usta

inab

le in

th

e lo

ng te

rm•

Lead

vol

umes

exc

eed

wha

t is

requ

ired

for s

ales

to h

it qu

ota,

and

cus

tom

er a

dd

targ

ets

•Le

ad q

ualit

y is

cont

inua

lly

impr

ovin

g•

We

have

the

sear

ch e

ngin

e ra

nkin

gs (6

or a

bove

) for

th

e ve

rtic

als t

hat w

e pl

ay

in

Clou

d Tr

ansit

ion

Scor

ecar

d (c

ontin

ued)

Sale

s

Den

ial

Aw

aren

ess

Proa

ctiv

ityO

pera

tiona

lizat

ion

Opt

imiz

atio

n

•N

o on

e is

aski

ng m

e fo

r Cl

oud

•W

hen

they

ask

abo

ut

Clou

d, I

can

diss

uade

them

an

d se

ll a

trad

ition

al

solu

tion

•Cl

oud

deal

s are

too

smal

l to

bot

her w

ith ($

)

•W

e ju

st lo

st a

big

dea

l to

a Cl

oud

play

er w

e di

dn’t

know

abo

ut•

Cust

omer

s ar

e no

w a

skin

g ab

out C

loud

alte

rnat

ives

, an

d w

e un

ders

tand

this

is no

t goi

ng a

way

•W

e ne

ed a

diff

eren

t sal

es

proc

ess,

and

com

pens

atio

n st

ruct

ure

•W

e ha

ve h

ired

a ne

w ty

pe

of d

edic

ated

Clo

ud s

ales

re

p (re

mot

e vo

lum

e se

llers

)•

We

have

Clo

ud s

peci

fic

perf

orm

ance

obj

ectiv

es,

and

com

pens

atio

n st

ruct

ures

in p

lace

•W

e ha

ve a

Clo

ud s

peci

fic

sale

s m

etho

dolo

gy in

pla

ce•

We

have

a d

esig

nate

d Cl

oud

sale

s lea

der i

n pl

ace

•W

e ha

ve th

e m

inim

um

nece

ssar

y co

llate

ral s

ales

as

sets

(dem

o vi

gnet

tes,

emai

l tem

plat

es, s

crip

ts,

valid

atio

n co

mpo

nent

s) in

pl

ace

•W

e ar

e dr

ivin

g th

e re

venu

e pl

an a

s ag

reed

•W

e ar

e ge

ttin

g th

e rig

ht

mix

of c

ontr

acts

•W

e ar

e ad

ding

Clo

ud s

ales

pe

ople

as

need

ed to

hit

grow

th ta

rget

s, an

d m

arke

t pen

etra

tion

goal

s•

All o

f our

pro

spec

ts a

re

pres

ente

d w

ith a

Clo

ud

alte

rnat

ives

•W

e ha

ve e

volv

ed to

an

oper

atio

naliz

ed sa

les

man

agem

ent m

odel

, ra

ther

than

a “s

uper

clo

ser”

m

odel

•O

ur sa

les

met

hodo

logy

is

cons

isten

tly a

pplie

d, a

nd

reps

are

mea

sure

d at

m

ultip

le p

oint

s in

the

cycl

e, s

o th

at w

e ha

ve

acce

ptab

le c

onve

rsio

n ra

tios

at a

ll st

ages

in th

e sa

les

cycl

e

•O

ur o

ngoi

ng c

ost o

f sal

es

is at

an

acce

ptab

le le

vel,

from

Fin

ance

’s st

andp

oint

•W

e ar

e hi

ttin

g ou

r gro

wth

an

d m

arke

t pen

etra

tion

targ

ets

•W

e ha

ve a

pip

elin

e of

sale

s ca

ndid

ates

, bec

ause

we

are

a de

sirab

le p

lace

to w

ork,

an

d sa

les

reps

do

bett

er

with

us

than

any

one

else

43

43

Serv

ices

Del

iver

y

Den

ial

Aw

aren

ess

Proa

ctiv

ityO

pera

tiona

lizat

ion

Opt

imiz

atio

n

•It’

s al

l abo

ut ti

me

& m

ater

ials,

ut

iliza

tion,

and

mar

gin

•St

art w

ith a

bla

nk sh

eet o

f pa

per a

nd d

esig

n so

lutio

ns,

scop

e ev

ery

proj

ect f

resh

, and

as

big

as p

ossib

le, m

ake

ever

ythi

ng c

ompl

ex•

Ove

rest

imat

e al

l dea

ls•

We

have

no

way

of d

oing

this

fast

er

•Th

is bu

sines

s is

abou

t re

peat

abili

ty a

nd sh

orte

r im

plem

enta

tion

times

•Sc

ope

thin

gs d

own

rath

er

than

up

•W

e ne

ed v

ery

robu

st

utili

zatio

n by

pro

ject

, so

that

w

e ca

n st

ream

line

proj

ect

impl

emen

tatio

ns (t

his

is a

pre-

curs

or to

man

aged

se

rvic

es)

•W

e ha

ve id

entif

ied

thos

e w

ho

do n

ot w

ant t

o m

ake

the

tran

sitio

n

•W

e ha

ve s

epar

ate

team

s fo

r tr

aditi

onal

and

Clo

ud

depl

oym

ents

(and

redu

ced

our c

ost o

f lab

or to

mee

t cu

stom

er p

rice

expe

ctat

ions

)•

We

have

a s

ervi

ces

deliv

ery

lead

er w

ho is

fully

with

the

prog

ram

•Al

l of o

ur p

rodu

ct tr

aini

ng fo

r cu

stom

ers i

s on

line

•W

e ha

ve d

efin

ed th

e m

inim

um s

ervi

ces

we

can

prov

ide,

to

mee

t cus

tom

er

dem

and

•W

e ar

e de

velo

ping

hig

h va

lue

busin

ess c

onsu

lting

serv

ices

to

com

pens

ate

for r

educ

tion

in

trad

ition

al c

onsu

lting

serv

ices

•W

e ha

ve sp

ecia

lized

on

boar

ding

con

sulta

nts w

ho

get c

usto

mer

s ra

pidl

y us

ing

the

appl

icat

ions

•W

e us

e qu

ota-

driv

en C

DR’

s w

ho d

o le

vel 1

& 2

sup

port

, an

d cr

oss

sell,

ups

ell,

and

perf

orm

som

e m

anag

ed

serv

ices

•W

e co

ntin

ue to

dev

elop

an

auto

mat

ed se

lf-se

rvic

e de

liver

y pl

atfo

rm (m

igra

tion,

te

ch s

uppo

rt, t

rain

ing,

co

nfig

urat

ion)

•Bu

sines

s con

sulti

ng se

rvic

es

are

expa

ndin

g

•Fu

lly le

vera

ged

auto

mat

ed

serv

ices

del

iver

y pl

atfo

rm•

Cut l

abor

ele

men

t of s

ervi

ces

to a

bar

e m

inim

um, a

nd a

re

deliv

erin

g se

rvic

es a

s a

prod

uct

•Grossservicesmarginsarein

exce

ss o

f 55%

, for

any

labo

r co

mpo

nent

Prod

uct

Dev

elop

men

t

Den

ial

Aw

aren

ess

Proa

ctiv

ityO

pera

tiona

lizat

ion

Opt

imiz

atio

n

•W

e do

n’t h

ave

any

or n

eed

any,

eve

ryth

ing

is cu

stom

izat

ion

•W

e vi

ew e

very

thin

g w

e do

as

a se

rvic

e•

We

don’

t hav

e an

y IP

. Whe

re

pack

aged

cod

e is

requ

ired

by th

e pr

ospe

ct, w

e ob

tain

it

in a

one

-tim

e tr

ansa

ctio

n from

anISV

•W

e re

cogn

ize

that

we

have

so

me

dom

ain

expe

rtise

, and

ha

ve id

entif

ied

conc

entr

atio

ns o

f pre

viou

s cu

stom

izat

ions

that

can

be

crys

talli

zed

into

a p

rodu

ct•

We

reco

gniz

e th

at p

acka

ged

serv

ices

are

a p

rodu

ct, t

hat

resu

lt in

hig

her m

argi

ns th

an

ad-h

oc se

rvic

es d

eliv

ery

•W

e re

cogn

ize

that

we

have

no

pro

duct

dev

elop

men

t fu

nctio

n in

hou

se c

urre

ntly

•W

e ha

ve th

e pa

ckag

ed

offe

rings

(man

aged

ser

vice

s, ot

her s

ervi

ces,

inte

rnal

ly

deve

lope

d an

d ag

greg

ated

IP

) in

plac

e th

at e

nabl

e sa

les

to o

btai

n pr

ofita

ble

cust

omer

s and

driv

e hi

gh

cust

omer

satis

fact

ion

•W

e ha

ve id

entif

ied

som

eone

to

lead

this

effo

rt•

We

have

est

ablis

hed

the

role

of

pro

duct

man

agem

ent,

and

give

n th

is fu

nctio

n th

e au

tono

my

and

auth

ority

it

need

s to

mee

t its

man

date

•W

e ha

ve a

pro

duct

de

velo

pmen

t ro

adm

ap (3

ye

ars

out)

•W

e ha

ve c

usto

mer

beh

avio

r BI

sys

tem

in p

lace

, to

mak

e ke

y pr

oduc

t dec

ision

s•

We

have

a m

inim

um o

f 3

early

star

t cus

tom

ers

on o

ur

road

map

, wor

king

with

us

to

refin

e ou

r pro

duct

(bet

a sit

es)

•W

e ha

ve a

dopt

ed a

n ag

ile

deve

lopm

ent m

etho

dolo

gy

•W

e ha

ve a

str

ateg

y fo

r co

ntin

uous

upd

ates

that

pr

ovid

e an

ong

oing

ince

ntiv

e fo

r cus

tom

ers t

o re

new

thei

r co

ntra

cts/

subs

crip

tion

agre

emen

ts•

We

have

exp

ande

d ou

r ro

adm

ap to

incl

ude

func

tiona

lity

com

plim

enta

ry

to th

e co

re a

pplic

atio

n, a

nd

are

inte

grat

ing

pote

ntia

l ac

quisi

tions

and

pa

rtne

rshi

ps w

here

ap

prop

riate

•W

e ha

ve a

fully

mul

ti-te

nant

ed s

olut

ion

•W

e ar

e hi

ttin

g 99

.999

%

uptim

e st

anda

rds

13. S

ampl

e Pr

ofit a

nd L

oss

Stat

emen

ts

Ove

rvie

w

Thissectionprovidesasetofsampleprofitandlossstatem

entsforPartners.Themodelisspreadoverafiveyearwindowwiththefirstyearassum

edtobethe

startingpoint,andthefirstCloudtransactiontakingplaceinyeartwo.

Thes

e m

odel

s ar

e in

tend

ed to

act

as

guid

ance

and

can

var

y by

par

tner

dep

endi

ng o

n th

e cu

rren

t sta

te o

f the

bus

ines

s at

the

begi

nnin

g of

the

tran

sitio

n, th

e ab

ility

to e

xecu

te, a

nd th

e cu

rren

t sta

te o

f the

mar

kets

in w

hich

the

part

ner r

esid

es. M

icro

soft

mak

es n

o gu

aran

tees

as p

art o

f the

se m

odel

s and

par

tner

s sho

uld

cond

uct t

heir

own

thor

ough

ana

lysis

as

part

of b

uild

ing

a Cl

oud

prac

tice.

Ther

e ar

e th

ree

sam

ple

mod

els

incl

uded

in th

is se

ctio

n, a

s fo

llow

s:

• ADynamicsERPVAR

• ADynamicsCRMVAR

• A

Syst

ems

Inte

grat

or

The

gene

ral a

ssum

ptio

ns a

nd v

aria

bles

use

d to

cre

ate

the

follo

win

g de

al a

naly

sis a

nd P

&L

stat

emen

ts a

re a

s fo

llow

s. Al

l mon

etar

y va

lues

are

sta

ted

in U

S dollars.Eachexampleincludesitsassumptionsfortheprim

aryvariablesaffectingprofitability.Thegeneralassum

ptionsusedinallexamplesarepresentedin

Tabl

es [5

] and

[6];

all m

onet

ary

valu

es a

re in

U.S

. dol

lars

.

Variable

Des

crip

tion

Base

dea

l siz

eTh

e nu

mbe

r of s

eats

sold

as p

art o

f the

initi

al tr

ansa

ctio

n.

CloudDeploymentServicesValue

The

tota

l val

ue o

f dep

loym

ent s

ervi

ces p

rovi

ded

to th

e cu

stom

er a

s par

t of t

he fi

rst y

ear o

f the

eng

agem

ent.

Thi

s is

calc

ulat

edat

an

aver

age

billa

ble

rate

of $

150

hour

or $

1200

per

day

.

Upf

ront

Ser

vice

s Cha

rged

TheactualpricechargedfortheCloudDeploymentServicesValueabove.Theexam

plesinthissectionwereconstructedtoena

ble

the

part

ner t

o br

eake

ven

on th

is re

venu

e/co

st li

ne.

This

is ba

sed

on th

e as

sum

ptio

n th

at c

usto

mer

s will

be

relu

ctan

t to

pay

for t

hese

type

s of

serv

ices

in a

util

ity m

odel

. Th

ese

exam

ples

are

bui

lt ar

ound

the

prem

ise th

at th

is av

ersio

n to

ser

vice

s will

beg

in im

med

iate

ly fo

r mod

elin

g pu

rpos

es h

owev

er; i

n so

me

segm

ents

of t

he m

arke

t the

rate

of d

eclin

e in

ser

vice

s ref

lect

ed m

ay n

ot b

e as

str

ong

for a

per

iod

of ti

me.

Re

gard

less

, par

tner

s sho

uld

build

this

assu

mpt

ion

into

thei

r bus

ines

s pla

ns to

day.

The

impa

ct to

the

exam

ples

pro

vide

d m

akes

them

mor

e co

nser

vativ

e th

an p

erha

ps w

hat s

ome

part

ners

may

see

initi

ally

.

Serv

ices

Cha

rged

in Y

ear 2

and

3A

smal

l set

of b

illab

le h

ours

to c

reat

e ne

w re

port

s, m

ake

wor

kflo

w e

nhan

cem

ents

, etc

.

CostofGoodsSold(COGS)forYear1

The

tota

l cos

t of r

esou

rces

requ

ired

to se

ll a

deal

. In

clud

es th

e lo

aded

cos

t of t

he sa

les r

ep a

nd st

aff t

o su

ppor

t the

m (i

.e. p

re-s

ales

, etc

.) fo

r th

e in

itial

tran

sact

ion.

Doe

s not

incl

ude

mar

ketin

g co

sts.

CostofGoodsSold(COGS)forYear2and3

The

tota

l cos

t of r

esou

rces

to u

psel

l and

min

imiz

e ch

urn

from

a s

ellin

g st

andp

oint

.

Mar

ketin

g Co

st Y

ear 1

The

tota

l cos

t for

the

dem

and

gene

ratio

n re

quire

d to

acq

uire

a c

usto

mer

. D

oes n

ot in

clud

e th

e co

sts a

ssoc

iate

d w

ith m

arke

ting

head

coun

t.

Mar

ketin

g Co

st Y

ear 2

and

3Th

e to

tal c

ost f

or th

e de

man

d ge

nera

tion

activ

ities

to su

ppor

t ups

ell a

nd m

inim

ize

chur

n.

Add-

on M

onth

ly S

ubsc

riptio

n Re

venu

eTh

e in

crem

enta

l val

ue c

harg

ed to

the

cust

omer

for p

acka

ged

IP th

at c

an b

e m

onet

ized

on

a m

onth

ly b

asis

and

wra

pped

into

the

tota

l fee

on

a pe

r use

r bas

is.

Tota

l Mon

thly

Sub

scrip

tion

Char

ged

per u

ser (

Hos

ting

+

Adva

nced

Man

agem

ent +

Pac

kage

d IP

)Th

e to

tal m

onth

ly fe

e ch

arge

d pe

r use

r whi

ch is

incl

usiv

e of

the

host

ing

cost

s, on

e Ad

vanc

ed M

anag

emen

t Use

r, an

d an

y pa

ckag

ed IP

.

45

45

Variable

Des

crip

tion

AssumptionValue

Chur

n Ra

teTh

e an

nual

rate

at w

hich

cus

tom

ers c

ance

l the

ir su

bscr

iptio

n.10

%

On

Prem

ise C

SA R

ate

for C

RMA

wei

ghte

d av

erag

e se

t bas

ed o

n th

e cu

rren

t CSA

pro

gram

gui

delin

es fo

r cla

im fe

es.

20%

On

Prem

ise P

artn

er

Disc

ount

Rat

e fo

r ERP

Assu

mpt

ion

inte

nded

to b

e in

alig

nmen

t with

a p

artn

er o

f thi

s siz

e w

ith th

is ty

pe o

f rev

enue

vol

ume

base

d on

the

curr

ent

stru

ctur

e of

the

part

ner d

iscou

nt p

rogr

am fo

r ERP

.40

%

ERP

Clou

d So

ftwar

e Co

sts

(ERP

Onl

y)Th

e co

sts

of p

rovi

ding

a C

loud

ERP

sol

utio

n, in

clus

ive

of D

ynam

ics

SPLA

or s

ubsc

riptio

n co

sts,

and

Azur

e ho

stin

g co

sts.

$87

Softw

are

Assu

ranc

e Ra

te fo

r CRM

Stan

dard

rate

for f

ees

paid

to a

par

tner

for y

ears

two

and

beyo

nd fo

r a c

usto

mer

on

softw

are

assu

ranc

e be

nefit

s.5%

BREP

Rat

e fo

r ERP

A w

eigh

ted

aver

age

set b

ased

on

the

curr

ent B

REP

sche

dule

for o

ngoi

ng e

nhan

cem

ent f

ees a

ssoc

iate

d w

ith E

RP.

18%

CRM

Onl

ine

Subs

crip

tion

Pric

eN

on-p

rom

otio

nal m

arke

t val

ue fo

r Mic

roso

ft D

ynam

ics

CRM

Onl

ine

$44

On-

prem

iseise

Reve

nue

Dec

line

Base

d on

the

assu

mpt

ion

that

as

a pa

rtne

r bui

lds u

p a

stro

ng a

nnui

ty st

ream

thro

ugh

the

acqu

isitio

n of

cus

tom

ers,

the

prof

itabi

lity

of th

at b

usin

ess m

odel

, cou

pled

with

dem

and

for t

he m

arke

t will

cau

se th

e pa

rtne

r to

slow

ly d

eclin

e th

eir o

n-pr

emise

isebu

sines

s ov

er ti

me.

Thi

s nu

mbe

r will

fluc

tuat

e ba

sed

on th

e se

gmen

t, ve

rtic

als,

and

geog

raph

ies s

old

into

.10

%

Mar

ketin

g In

fras

truc

ture

Cos

tsTh

e an

nual

ized

inve

stm

ent r

equi

red

in m

arke

ting

infr

astr

uctu

re to

sup

port

vol

ume

grow

th.

May

incl

ude

SEO

fees

, web

site

enha

ncem

ent,

onlin

e de

mos

, tra

inin

g vi

deos

, etc

.

Year

1: $

0Ye

ar 2

: $15

0,00

0Ye

ar 3

: $20

0,00

0Ye

ar 4

: $25

0,00

0Ye

ar 5

: $30

0,00

0

Addi

tiona

l Clo

ud-

Rela

ted

R&D

Cos

tsTh

e Cl

oud

will

requ

ire a

dditi

onal

inve

stm

ents

in R

&D

, in

orde

r to

aggr

egat

e, c

reat

e an

d m

aint

ain

IP.

This

is a

cons

erva

tive

refle

ctio

n of

wha

t the

se n

ew c

osts

mig

ht b

e.

Year

1: $

0Ye

ar 2

: $30

0,00

0Ye

ar 3

: $30

0,00

0Ye

ar 4

: $30

0,00

0Ye

ar 5

: $30

0,00

0

CSA

Fee

Stru

ctur

eTh

e CS

A fe

es a

vaila

ble

to th

e pa

rtne

r of r

ecor

d fo

r pre

-sal

es a

nd p

ost p

urch

ase

depl

oym

ent a

ctiv

ities

. Th

e m

odel

s use

the

curr

ent p

rom

otio

nal r

ate

how

ever

, the

impa

ct to

the

prof

itabi

lity

isn’t

as s

igni

fican

t as

a nu

mbe

r of o

ther

var

iabl

es su

ch a

sAd

d-OnMonthlySubscriptionRevenue,BaseDealSize(num

berofusers),GrossServicesM

argin,andCostofGoodsSold

18%

for y

ear 1

and

6%

for o

ngoi

ng

13.1

Clo

ud D

eal A

nato

my

– ER

P

Not

es

• H

istor

ical

ly, u

pfro

nt s

ervi

ces

reve

nue

is hi

gher

giv

en t

he d

eal

size

cont

empl

ated

. How

ever

, in

the

Clou

d, th

e cu

stom

er e

xpec

ts

to p

ay le

ss.

• Im

plem

enta

tion

cost

s as

sum

e a

high

ly s

tand

ardi

zed,

repe

atab

le

appr

oach

exe

cute

d by

rela

tivel

y lo

w-c

ost r

esou

rces

.

• To

tal m

onth

ly su

bscr

iptio

n ch

arge

d of

$24

9 is

com

petit

ive

whe

n to

tal c

ost o

f ow

ners

hip

is co

nsid

ered

. Rep

laci

ng th

e fu

nctio

nalit

y ga

ined

thr

ough

dep

loym

ent

serv

ices

with

pac

kage

d IP

allo

ws

the

cust

omer

to c

onsu

me

the

solu

tion

as a

util

ity a

nd n

ot in

cur

a la

rge

capi

tal e

xpen

se.

Ana

tom

y of

a C

loud

ERP

Dea

l

Vari

able

s

Year

1Ye

ar 2

Year

3

Subs

crip

tion

Reve

nue

$44,

820

$44,

820

$44,

820

Serv

ices

Rev

enue

$8,5

00$2

00$2

00$5

3,32

0$4

5,02

0$4

5,02

0

Serv

ices

Cos

ts$6

,375

$122

$122

Lice

nse

& H

ostin

g Co

sts

$15,

660

$15,

660

$15,

660

Sale

s &

Mar

ketin

g Co

sts

$12,

000

$1,1

00$1

,100

tota

l cos

ts$3

4,03

5$1

6,88

2$1

6,88

2

gros

s m

argi

n$1

9,28

5$2

8,13

8$2

8,13

8

cum

ulat

ive

gros

s m

argi

n %

36.2

%48

.2%

52.7

%cu

mul

ativ

e sa

les

& m

arke

ting

%22

.5%

13.3

%9.

9%

Variable

Assu

mpt

ion

Base

dea

l siz

e -

Use

rs

15

Clou

d D

eplo

ymen

t Ser

vice

s Ch

arge

d (u

pfro

nt)

$8,5

00

Clou

d Im

plem

enta

tion

Hou

rs75

Clou

d Im

plem

enta

tion

Cost

(per

hou

r)$8

5

Serv

ices

Cha

rged

in Y

ears

2 a

nd 3

$200

Clou

d Sa

les

Cost

Yea

r 1$7

,500

Clou

d Sa

les

Cost

Yea

r 2 a

nd 3

$750

Clou

d M

arke

ting

Cost

Yea

r 1$4

,500

Clou

d M

arke

ting

Cost

Yea

r 2 a

nd 3

$350

Tota

l Mon

thly

Sub

scrip

tion

Char

ged

per u

ser

(Hos

ting

+ D

ynam

ics

Lice

nse+

Pac

kage

d IP

)$2

49

47

47

Vari

able

s

Not

es

• H

avin

g re

leva

nt p

acka

ged

IP b

uilt

on t

op o

f the

bas

e of

ferin

g,

shou

ld e

nabl

e pa

rtne

rs t

o m

ore

deep

ly p

enet

rate

a c

usto

mer

ac

coun

t ach

ievi

ng a

vera

ge s

eats

per

cus

tom

er o

f 30+

.

• Sa

les

and

Mar

ketin

g ef

ficie

ncy

will

hav

e to

be

signi

fican

tly

incr

ease

d in

ord

er to

redu

ce th

e co

sts

of c

usto

mer

acq

uisit

ion.

• A

dd-o

n M

onth

ly S

ubsc

riptio

n Re

venu

e of

$55

wou

ld m

ake

the

tota

l cos

t pe

r m

onth

$99

per

use

r. M

ost

cust

omer

s sh

ould

see

th

is pr

ice

poin

t att

ract

ive,

esp

ecia

lly if

dep

loym

ent s

ervi

ces c

osts

at

kep

t at t

he ra

tes

outli

ned

in th

is sc

enar

io.

13.2

Clo

ud D

eal A

nato

my

– CR

M

Ana

tom

y of

a C

RM D

eal

Year

1Ye

ar 2

Year

3

Add-

on S

ubsc

riptio

n Re

venu

e$1

9,80

0$1

9,80

0$1

9,80

0CS

A Fe

es$2

,851

$950

$950

Serv

ices

Rev

enue

$9,5

00$2

00$2

00to

tal r

even

ue$3

2,15

1$2

0,95

0$2

0,95

0

Serv

ices

Cos

ts$6

,375

$117

$117

Sale

s &

Mar

ketin

g Co

sts

$8,5

00$7

00$7

00to

tal c

osts

$14,

875

$817

$817

gros

s m

argi

n$1

7,27

6$2

0,13

4$2

0,13

4

cum

ulat

ive

gros

s m

argi

n %

53.7

%70

.4%

77.7

%cu

mul

ativ

e sa

les

& m

arke

ting

%26

.4%

17.3

%13

.4%

Variable

Assu

mpt

ion

Base

deal

size

-us

ers

30

Clou

dD

eplo

ymen

tSer

vice

sCh

arge

d(u

pfro

nt)

$9,5

00

Clou

dIm

plem

enta

tion

Hou

rs75

Clou

dIm

plem

enta

tion

Cost

(per

hour

)$8

5

Serv

ices

Char

ged

inYe

ars

2an

d3

$200

Clou

dSa

les

Cost

Year

1$5

,000

Clou

dSa

les

Cost

Year

2an

d3

$350

Clou

dM

arke

ting

Cost

Year

1$3

,500

Clou

dM

arke

ting

Cost

Year

2an

d3

$350

Add-

onM

onth

lySu

bscr

iptio

nRe

venu

e$5

5

13.3

Clo

ud D

eal A

nato

my

– O

365/

Intu

ne

Not

es

• Au

tom

ated

mig

ratio

n m

echa

nism

s ar

e ke

y bo

th t

o re

duci

ng

cost

s of

cus

tom

er a

cqui

sitio

n as

wel

l as

to k

eepi

ng u

pfro

nt fe

es

char

ged

low

.

• Bu

sines

s Pr

oces

s Co

nsul

ting

is ke

y to

del

iver

ing

valu

e on

an

ongo

ing

basis

.

• “S

ubsc

ribab

le” I

P an

d M

anag

ed S

ervi

ces a

re k

ey to

roun

ding

out

th

e ov

eral

l offe

ring.

Ana

tom

y of

a D

eal

Vari

able

s

Year

1Ye

ar 2

Year

3

Mig

ratio

n Fe

es$1

,500

$4,5

00$0

Busin

ess

Cons

ultin

g Fe

es$2

,500

$1,0

00$1

,000

Subs

crib

able

IP (N

on C

RM)

$750

$3,0

00$3

,000

Clou

d Pa

ckag

ed S

ervi

ces

Fees

$7,5

00$3

0,00

0$3

0,00

0PO

R Fe

es$1

,134

$3,7

80$1

,512

tota

l rev

enue

$13,

384

$42,

280

$35,

512

Serv

ices

Cos

ts$6

,325

$19,

525

$17,

050

Sale

s &

Mar

ketin

g Co

sts

$1,0

00$2

50$2

50to

tal c

osts

$7,3

25$1

9,77

5$1

7,30

0gr

oss

mar

gin

$6,0

59$2

2,50

5$1

8,21

2

cum

ulat

ive

gros

s m

argi

n %

45.3

%51

.3%

51.3

%cu

mul

ativ

e sa

les

& m

arke

ting

%7.

5%2.

2%1.

6%

Variable

Assu

mpt

ion

Seat

spe

rCus

tom

erYe

ar1

25

Seat

spe

rCus

tom

erYe

ar2

75

Mig

ratio

nFe

es(p

erse

at)

$60

Mig

ratio

nCo

sts

(per

seat

)$2

5

Busin

ess

Cons

ultin

gFe

es(Y

ear1

only

)$2

,500

Busin

ess

Cons

ultin

gFe

es(Y

ear2

onw

ards

)$1

,000

Subs

crib

able

IPFe

es(N

onCR

M,p

erse

atpe

rmon

th)

$2.5

0

Clou

dM

anag

edSe

rvic

esFe

es(p

erse

atpe

rmon

th)

$25.

00

49

49

13.4SampleProfitandLossStatem

ent–ERPVAR

Toda

yYe

ar 1

Year

2Ye

ar 3

Year

4So

ftw

are

$%

of r

even

ue$

% o

f rev

enue

$%

of r

even

ue$

% o

f rev

enue

$%

of r

even

ueD

ynam

ics E

RP P

erpe

tual

Lic

ense

s$1

,004

,400

16.4

%$9

03,9

6015

.5%

$813

,564

12.4

%$7

32,2

088.

9%$6

58,9

876.

0%D

ynam

ics E

RP E

nhan

cem

ent

$976

,500

16.0

%$8

78,8

5015

.0%

$790

,965

12.0

%$7

11,8

698.

7%$6

40,6

825.

8%O

wn

IP P

erpe

tual

Lic

ense

s$7

5,00

01.

2%$6

7,50

01.

2%$6

0,75

00.

9%$5

4,67

50.

7%$4

9,20

80.

4%D

ynam

ics E

RP S

ubsc

riptio

nsn/

a$1

30,7

252.

2%$9

20,6

7814

.0%

$2,1

00,9

3825

.6%

$3,9

07,7

4435

.6%

CRM

Add

-on

Subs

crip

tions

(Ow

n IP

)n/

a$2

8,87

50.

5%$2

03,3

633.

1%$4

37,2

505.

3%$7

62,7

137.

0%O

365-

Rela

ted

IP S

ubsc

riptio

nsn/

a$1

,269

0.0%

$12,

654

0.2%

$47,

859

0.6%

$106

,393

1.0%

CRM

OL

CSA

Fees

n/a

$14,

256

0.2%

$28,

512

0.4%

$42,

768

0.5%

$57,

024

0.5%

Offi

ce 3

65/In

tune

POR

Fees

n/a

$6,5

770.

1%$3

3,07

20.

5%$7

2,15

00.

9%$1

41,3

771.

3%to

tal s

oftw

are

$2,0

55,9

0033

.6%

$2,0

32,0

1234

.8%

$2,8

63,5

5743

.5%

$4,1

99,7

1651

.2%

$6,3

24,1

2557

.7%

Serv

ices

Trad

ition

al D

ynam

ics C

onsu

lting

$3,8

20,5

0062

.5%

$3,4

38,4

5058

.9%

$3,0

94,6

0547

.1%

$2,7

85,1

4533

.9%

$2,5

06,6

3022

.9%

Trad

ition

al N

on-P

acka

ged

Supp

ort,

Hel

p D

esk,

Tra

inin

g (T

&M

)$2

35,0

003.

8%$2

11,5

003.

6%$1

90,3

502.

9%$1

71,3

152.

1%$1

54,1

841.

4%Cl

oud

Man

aged

Ser

vice

sn/

a$1

2,68

80.

2%$1

26,5

441.

9%$4

78,5

945.

8%$1

,063

,925

9.7%

Clou

d Co

nsul

ting

(Mig

ratio

n, In

stal

latio

n, O

ngoi

ng O

ptim

izat

ion)

n/a

$145

,000

2.5%

$300

,500

4.6%

$572

,700

7.0%

$917

,125

8.4%

tota

l ser

vice

s$4

,055

,500

66.4

%$3

,807

,638

65.2

%$3

,711

,999

56.5

%$4

,007

,753

48.8

%$4

,641

,864

42.3

%CO

GS

(Sof

twar

e)So

ftwar

e D

irect

Cos

ts (D

ynam

ics P

erpe

tual

Lic

ense

s)$5

50,0

009.

0%$5

42,3

769.

3%$4

88,1

387.

4%$4

39,3

255.

4%$3

95,3

923.

6%So

ftwar

e D

irect

Cos

ts (D

ynam

ics E

nhan

cem

ent)

$800

,750

13.1

%$7

47,0

2312

.8%

$672

,320

10.2

%$6

05,0

887.

4%$5

44,5

795.

0%So

ftwar

e D

irect

Cos

ts (O

wn

IP)

$13,

500

0.2%

$12,

150

0.2%

$10,

935

0.2%

$9,8

420.

1%$8

,857

0.1%

Oth

er S

oftw

are,

Hos

ting,

& 3

rd. P

arty

IP D

irect

Cos

ts$0

$47,

250

0.8%

$332

,775

5.1%

$759

,375

9.3%

$1,4

12,4

3812

.9%

O36

5 M

igra

tion

Cost

sn/

a$3

,625

0.1%

$17,

875

0.3%

$36,

250

0.4%

$64,

625

0.6%

tota

l sof

twar

e co

sts

$1,3

64,2

5022

.3%

$1,3

52,4

2423

.2%

$1,5

22,0

4423

.1%

$1,8

49,8

7922

.5%

$2,4

25,8

9122

.1%

soft

war

e gr

oss

mar

gin

33.6

%33

.4%

46.8

%56

.0%

61.6

%CO

GS

(Ser

vice

s)Tr

aditi

onal

Con

sulti

ng S

ervi

ces

Dire

ct C

osts

$2,4

70,0

0040

.4%

$2,2

23,0

0038

.1%

$2,0

00,7

0030

.4%

$1,8

00,6

3021

.9%

$1,6

20,5

6714

.8%

Clou

d M

anag

ed S

ervi

ces

Dire

ct C

osts

n/a

$6,9

780.

1%$6

9,59

91.

1%$2

63,2

273.

2%$5

85,1

595.

3%Cl

oud

Cons

ultin

g/Im

plem

enta

tion

Dire

ct C

osts

n/a

$95,

625

1.6%

$197

,645

3.0%

$369

,118

4.5%

$584

,580

5.3%

tota

l ser

vice

s co

sts

$2,4

70,0

0040

.4%

$2,3

25,6

0339

.8%

$2,2

67,9

4434

.5%

$2,4

32,9

7529

.6%

$2,7

90,3

0625

.4%

serv

ices

gro

ss m

argi

n39

.1%

38.9

%38

.9%

39.3

%39

.9%

serv

ices

soft

war

e ra

tio1.

97

1.87

1.

30

0.95

0.

73

Ope

ratin

g Ex

pens

esSa

les D

irect

Cos

ts (i

nclu

ding

sala

ries &

com

miss

ions

)$6

05,0

009.

9%$5

89,8

0510

.1%

$670

,707

10.2

%$8

37,1

6210

.2%

$1,1

18,5

3110

.2%

Dire

ct M

arke

ting

Cost

s (ex

clud

ing

sala

ries)

$90,

600

1.5%

$282

,950

4.8%

$355

,890

5.4%

$443

,203

5.4%

$592

,163

5.4%

R&D

$00.

0%$2

00,0

003.

4%$2

00,0

003.

0%$1

50,0

001.

8%$1

50,0

001.

4%G&A

$1,2

00,0

0019

.6%

$1,2

00,0

0020

.5%

$1,2

91,1

3919

.6%

$1,6

11,5

7219

.6%

$2,1

53,2

2019

.6%

tota

l ope

ratin

g ex

pens

es$1

,895

,600

31.0

%$2

,272

,755

38.9

%$2

,517

,736

38.3

%$3

,041

,937

37.1

%$4

,013

,914

36.6

%To

tal R

even

ues

$6,1

11,4

00$5

,839

,649

$6,5

75,5

56$8

,207

,469

$10,

965,

989

Tota

l Exp

ense

s$5

,729

,850

$5,9

50,7

81$6

,307

,723

$7,3

24,7

92$9

,230

,111

Ope

ratin

g M

argi

n$3

81,5

50-$

111,

132

$267

,832

$882

,677

$1,7

35,8

78EB

ITD

A6.

2%-1

.9%

4.1%

10.8

%15

.8%

New

Tra

ditio

nal E

RP C

usto

mer

Add

s (O

n Pr

em)

2015

1311

9N

ew E

RP S

ubsc

riptio

n Cu

stom

er A

dds

010

2035

50N

ew C

RM O

nlin

e Cu

stom

er A

dds

05

1015

20N

ew O

365/

Intu

neCu

stom

ers A

dded

05

1020

30

13.5SampleProfitandLossStatem

ent–CRM

VAR

Toda

yYe

ar 1

Year

2Ye

ar 3

Year

4So

ftw

are

$%

of r

even

ue$

% o

f rev

enue

$%

of r

even

ue$

% o

f rev

enue

$%

of r

even

ueD

ynam

ics

CRM

Per

petu

al L

icen

ses

$1,0

50,0

0017

.4%

$945

,000

16.7

%$8

50,5

0014

.8%

$765

,450

12.0

%$6

88,9

059.

0%D

ynam

ics

CRM

Enh

ance

men

t$1

,075

,000

17.8

%$9

67,5

0017

.1%

$870

,750

15.2

%$7

83,6

7512

.2%

$705

,308

9.2%

Ow

n IP

Per

petu

al L

icen

ses

$75,

000

1.2%

$67,

500

1.2%

$60,

750

1.1%

$54,

675

0.9%

$49,

208

0.6%

CRM

Add

-on

Subs

crip

tions

(Ow

n IP

)n/

a$5

7,75

01.

0%$4

06,7

257.

1%$9

28,1

2514

.5%

$1,7

26,3

1322

.5%

O36

5-Re

late

d IP

Sub

scrip

tions

n/a

$1,0

940.

0%$1

0,98

40.

2%$4

1,70

30.

7%$9

2,28

11.

2%CR

MO

L CS

A Fe

esn/

a$2

8,51

20.

5%$5

7,02

41.

0%$9

9,79

21.

6%$1

42,5

601.

9%O

ffice

365

/Intu

nePO

R Fe

esn/

a$5

,670

0.1%

$28,

901

0.5%

$62,

236

1.0%

$123

,078

1.6%

tota

l sof

twar

e$2

,200

,000

36.4

%$2

,073

,026

36.6

%$2

,285

,635

39.8

%$2

,735

,656

42.8

%$3

,527

,652

45.9

%Se

rvic

esTr

aditi

onal

Dyn

amic

s Co

nsul

ting

$3,7

50,0

0062

.0%

$3,3

75,0

0059

.7%

$3,0

37,5

0053

.0%

$2,7

33,7

5042

.7%

$2,4

60,3

7532

.0%

Trad

ition

al N

on-P

acka

ged

Supp

ort,

Hel

p D

esk,

Tra

inin

g (T

&M

)$1

00,0

001.

7%$9

0,00

01.

6%$8

1,00

01.

4%$7

2,90

01.

1%$6

5,61

00.

9%Cl

oud

Man

aged

Ser

vice

sn/

a$1

0,93

80.

2%$1

09,8

441.

9%$4

17,0

316.

5%$9

22,8

1312

.0%

Clou

d Co

nsul

ting

(Mig

ratio

n, In

stal

latio

n, O

ngoi

ng O

ptom

izat

ion)

n/a

$107

,500

1.9%

$222

,000

3.9%

$438

,800

6.9%

$711

,800

9.3%

tota

l ser

vice

s$3

,850

,000

63.6

%$3

,583

,438

63.4

%$3

,450

,344

60.2

%$3

,662

,481

57.2

%$4

,160

,598

54.1

%CO

GS

(Sof

twar

e)So

ftwar

e D

irect

Cos

ts (D

ynam

ics

Perp

etua

l Lic

ense

s)$8

40,0

0013

.9%

$756

,000

13.4

%$6

80,4

0011

.9%

$612

,360

9.6%

$551

,124

7.2%

Softw

are

Dire

ct C

osts

(Dyn

amic

s En

hanc

emen

t)$1

,020

,000

16.9

%$9

19,1

2516

.2%

$827

,213

14.4

%$7

44,4

9111

.6%

$670

,042

8.7%

Softw

are

Dire

ct C

osts

(Ow

n IP

)$1

3,50

00.

2%$1

2,15

00.

2%$1

0,93

50.

2%$9

,842

0.2%

$8,8

570.

1%O

365

Mig

ratio

n Co

sts

n/a

$3,1

250.

1%$1

5,62

50.

3%$3

1,25

00.

5%$5

6,25

00.

7%to

tal s

oftw

are

cost

s$1

,873

,500

31.0

%$1

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dw

elco

me

emai

ls to

all

new

pro

spec

ts id

entif

ied

Web

inar

Em

ail

send

out

invi

tes

to

web

inar

1se

nd o

ut

invi

tes

to

web

inar

2

send

out

in

vite

s to

w

ebin

ar 3

send

out

in

vite

s to

w

ebin

ar 4

Insid

e Sa

les

Emai

l

send

out

th

ank-

you

emai

ls to

w

ebin

ar 1

pa

rtic

ipan

ts

send

out

than

k-yo

u em

ails

to

web

inar

2

part

icip

ants

send

out

th

ank-

you

emai

ls to

w

ebin

ar 3

pa

rtic

ipan

ts

send

out

th

ank-

you

emai

ls to

w

ebin

ar 4

pa

rtic

ipan

ts

Insid

e Sa

les

Call

follo

w-u

p ca

lls to

w

ebin

ar 1

pa

rtic

ipan

ts

follo

w-u

p ca

lls

to w

ebin

ar 2

pa

rtic

ipan

ts

follo

w-u

p ca

lls to

w

ebin

ar 3

pa

rtic

ipan

ts

follo

w-u

p ca

lls to

w

ebin

ar 4

pa

rtic

ipan

ts

53

53

15. A

ccel

erat

ed S

ales

Pro

cess

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.