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Managed Service Providers (MSPs) and Resellers live in the margins. They purchase cloud services at scale to earn volume discounts, then charge list price (or perhaps slightly less) to their customers in order to profit from the difference. That methodology often causes challenges because the margins offered by Amazon Web Services (AWS) and Microsoft Azure can be slim. Plus, a constantly changing set of services can make it hard to predict and prepare for the long-term.
Fortunately, there are ways service providers can grow revenue and increase margins in the cloud. There are two ways to improve profits: increase revenue and decrease costs. To move up the food chain, resellers should plan to add for high-value capabilities that are in demand, such as Security and Compliance consulting. To decrease costs, the best way is to leverage automation and software solutions that can reduce the manpower to deliver those capabilities.
RI and Savings Plans Checklist for MSPs:
If all that a service provider does is buy services and resell them, that’s not a lot of value-add. To be able to increase revenue, they need to offer more functionality such as Security Monitoring and Compliance Tracking. Imagine being able to expand your portfolio of services to include keeping your customers’ cloud infrastructures safe, secure, and compliant with up to 35 regulatory standards. Now imagine that could be done via software without any extra labor costs.
One major challenge in moving from the data center to the cloud is that the old rules don’t apply. In the data center, you wanted to have as much computing power on hand to accommodate your busiest day—given how difficult it can be to purchase, receive, install and configure new equipment. You rarely want to operate at 90%+ utilization in the data center because you will have no room for growth. In the cloud, however, you can dial up the capacity as needed and lower expenses when the need is low.
Reserved Instances (RIs) have been the usual way to make a long-term commitment to a cloud provider (AWS or Azure) in exchange for a significant discount of 50% or more. There are different types of reservations, so you have to be careful about which RIs you buy, especially since you are committing to one- or three-years. When Service Providers purchase RIs to apply to their customers’ On-Demand usage, the process is called arbitrage. When their clients purchase more RIs than they need, the service provider can unshare the discounts, adding the balance to add to their bottom line. This is known as accidental arbitrage.
AWS introduced Savings Plans to address the complexity around RIs. Instead of committing to a specific instance type you only need to commit to an hourly spend amount, in dollars. That spend will be applied towards On-Demand usage that is not already addressed by RIs. Savings Plans can be much more flexible than RIs and can even be applied to Lambda functions if no On-Demand usage would otherwise apply. Service Providers need to be able to deallocate discounts in order to charge full price and keep the profits.
Resellers should itemize the ways they can add value, above and beyond buying and selling AWS and Azure catalog items, while adding a dollar amount or a percentage uplift or both. Resellers can become Value-Added Resellers (VARs) and Managed Service Providers by offering consulting, support, training, security and compliance services. Finally, they can be rewarded for those services by being able to generate invoices, in PDF or CSV formats for use with other tools.
MSPs and Resellers can improve their bottom line by leveraging Value-Added Services and tools for margin enhancement. CloudCheckr’s partner-centric capabilities include Security Monitoring and Alerts, Total Compliance, Right Sizing, Custom Charges and Invoicing, RI Unsharing, and AWS Savings Plan Deallocation. For more on how CloudCheckr functionally helps you take advantage of AWS Savings Plans, visit our Success Center.