3 Simple Ways for MSPs to Decrease Cloud Costs and Increase Margins

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 results in challenges because the margins offered by Amazon Web Services (AWS) and Microsoft Azure can be slim. And a constantly changing set of services can make it hard to predict and prepare for the long term. 

Sound familiar? Fortunately, you can grow revenue and increase margins in the cloud. The key to improving profits: find ways to decrease costs and increase margins by enhancing your menu of available services.

The method to achieve this goal is two-pronged. First, decrease the costs of your cloud operations by finding ways to save; committed use discounts and enhanced invoicing practices are optimal ways to achieve this. Second, add high-value, in-demand capabilities that will differentiate your business in what is becoming an increasingly crowded marketplace.

Here are three steps you can follow to decrease cloud costs and increase margins for your business:

1. Take Advantage of Committed Usage Discounts

In the cloud, you can dial up the capacity as needed and lower expenses when the need is low. One way to manage cloud expenses on either AWS or Azure is to purchase reserved capacity. (Google Cloud also has options for committed usage.) On AWS specifically, you can take advantage of Savings Plan purchases.

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 up to 72%, according to AWS. 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. If their clients purchase more RIs than they need, the service provider can unshare the discounts, adding the balance to their bottom line. This is known as accidental arbitrage.

More recently, 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. Cloud management solutions can help service providers optimize spend and ensure that they see the benefits of these discounts.

“In one month, we saw a 25.4% cost reduction in terms of month A to month B spend. With an ever-changing and growing cloud environment, we continue to do things like put Reserved Instances in play based on the recommendations from CloudCheckr.”

Gary Derheim, Vice President of Managed Services, PTP

2. Generate Custom Charges and Invoicing

With so many customers and cloud environments to manage, service providers can have a difficult time ensuring that their billing remains accurate and efficient. Many times, MSPs wind up absorbing the costs of discounts. 

Resellers should itemize the ways they can add value. Above and beyond buying and selling AWS and Azure services, they can add a dollar amount or a percentage uplift or both to increase their margins.

This requires a deeper understanding of the cloud’s pricing models to properly allocate cloud costs. Taking advantage of tag mapping, cost splitting, and other allocation features in a cloud management platform can help simplify this process for MSPs. Finally, they can be rewarded for those services by being able to generate invoices, in PDF or CSV formats for use with other tools.

“We’ve seen our margins grow by almost 20% since leveraging the CloudCheckr platform in our reseller business. Without it, we were seeing our partner and consolidated billing discounts slip away to customers, or back to AWS. I honestly have no idea how we could operate at scale without CloudCheckr.”

Mike Atkinson, Senior Cloud Engineer, JHC Technology (an Effectual Company)

3. Add Value Through New Services

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 value to customers.

Organizations moving to the cloud need external expertise, services, and tools to grow business. This creates the perfect market opportunity for managed service providers — if they can position themselves against their competitors and create differentiated offerings. Your business can add value by offering additional services — all of which can be achieved by leveraging a cloud management platform:

Cost Optimization

While the cloud provides a host of benefits for organizations of all kinds, deciphering the pricing models of each service can be tricky. By providing a simple way to break down costs and save money, MSPs can help customers analyze spending and utilization trends to plan for future capacity.

Reporting

A service provider’s job is to help demystify the intricacies of the cloud, ensuring that stakeholders see the continued value of cloud adoption. As a result, MSPs have a unique opportunity to bring clients more visibility into their cloud environments. By utilizing a cloud management platform, service providers can easily share customizable data visualizations, reports, and metrics with customers. 

Security and Compliance

Imagine being able to expand your portfolio of services to include keeping your customers’ cloud infrastructures safe, secure, and compliant against up to 35 regulatory standards. Now imagine that could be done via software without any extra labor costs.

Service Enablement

From shoring up DevOps and cloud operations to using cloud management data as a pre-sales tool, a cloud management platform can help you achieve operational maturity and bring efficiency, clarity, and governance to any customer’s cloud environment.

“In addition to managed services, we’re using CloudCheckr equally as a pre-sales effort to demonstrate ahead of time what a potential roadmap might look like either in terms of improving security posture or bringing in some additional cost-saving opportunities.”

Shiley Johnson, Director of Operations, Eplexity

With the right cloud services, you can meet each and every customer where they are. Learn about the 36 services you can bring to market today in our eBook for managed service providers.

How CloudCheckr Can Help Decrease Cloud Costs and Increase Margins

MSPs and Resellers can improve their bottom line by leveraging value-added services and tools for margin enhancement. CloudCheckr’s partner-centric capabilities include right sizing, custom charges and invoicing, RI unsharing, and AWS Savings Plan deallocation, as well as security monitoring and alerts and compliance checks against 35 major regulatory standards.

CloudCheckr CMx gives MSPs a clear understanding of what services are in use, how they’re being consumed, and ways that they can optimize customers’ cloud environments. The platform enables you to visualize, optimize, and allocate costs, in turn creating and sharing customizable data visualizations with customers.