A balancing act

Traditional resellers transitioning to selling cloud services may face a mutiny from their sales force unless they overhaul their commission structures. Hannah Breeze looks at the most effective ways to make the cloud pay

The benefits of cloud have been shouted from the rooftops, and there is no doubt that what was once dismissed as a fad is set to become a mainstay of the IT industry.

Although the bright lights of cloud computing have attracted many, the journey has not been without its setbacks.

But aside from the fears over security associated with the transition to the promised land of recurring revenue, another risk has reared its head, and this time, it is internal.

When sales staff are used to chasing high-commission sales of products to big enterprises, how can they remain motivated to sell pay-as-you-go, longer-term subscriptions that carry a much lower price?

The moral dilemma of balancing a customer's needs against what will earn the most commission is one that has been highlighted in the cloud migration process, and only now are companies beginning to make headway in deciphering how to keep customers' costs down, while still feeding the hunger of the sales team with big rewards.

Richard Tub, an independent IT business consultant, highlighted the challenges for businesses surrounding the dilemma, and argued that educating sales staff is an important first step.

"It is a difficult situation. A small, ongoing commission [for cloud] compared with one big commission for on-site solutions means there is a challenge to make sure [sales staff] are doing the best for their client and not for their pay packet," he said.

"It is about educating staff that they must have the best fit for their clients in mind. Cloud is not right for everyone and lots of end users need on-site or hybrid solutions too, but the world has changed, and if you do not offer cloud, someone else will."

The cloud consumption model is on the rise, with analyst Canalys predicting that in 2011, private cloud computing could have opened the door to a $36bn (£23bn) opportunity for the channel. Meanwhile, 61 per cent of 250 UK-based firms quizzed by the Cloud Industry Forum (CIF) in July said they use cloud services, with 92 per cent saying they are satisfied with them.

Against this backdrop, VARs are looking for ways to remunerate their sales teams so they can continue to cash in on cloud.

Kevin Bland, UKI and South Africa channel director at vendor Citrix (pictured), explained that there are two options for businesses when looking at their sales commission structure.

"If they are serious about transforming to cloud, companies need to get over the commission structure. The first option is that they can create multiplier or accelerator incentives for staff, where they offer commissions up front. But this comes with big risks. Or, they can create a completely separate cloud business and brand with a cloud-sensitive structure for commissions that is separate to the normal business," he said.

"The successful channel partners we have seen have segmented their companies and simply created separate businesses. They [realise] that cloud is a different model and that is where we have seen real traction."

Although creating a new branch of the business to accommodate cloud can ensure sales staff from both sides are given the appropriate incentives, having two sections of the same business can cause competition within the same company, according to Workbooks' sales director Ian Moyse.

He said: "Some businesses do not have the luxury of splitting their sales team to create a new branch of the business. The other challenge is that you could end up with sales staff competing against each other for the same customer; one for cloud and one for the original company.

"Each [part] is looking to win the business just to get the commissions and not for what is right for the customer."

Telecoms businesses are used to variable billing models, and the channel needs to learn from this in order to thrive with selling the cloud, added Moyse.

"The solution lies in creating new models. If utility billing becomes more popular, then in the education [vertical], for example, summer months will dry with no usage," he explained.

"We need to look to the telecoms industry, as it really understands this - those business models are perfect for the cloud. Mobile phone contracts run well on this model. Managed services providers understand it, but the channel does still not ‘get' variable billing.

"If [the channel] ignores it, it is giving business to telecoms vendors."

Consider all eventualities

Sales teams at channel firms which find the right balance can be imbued with renewed enthusiasm because hardware margins and commissions are on the decline, according to Shaune Parsons, managing director of Computerworld Wales.

"For a lot of salespeople, the salaries and remunerations are not what they were," he said. "There has been a dramatic drop in margins - you are lucky to make £10 on a PC - so you must sell a lot.

It is getting harder to hit targets because of this, so a new area of technology to sell might give them something new to get excited about even though the rates are lower."

Andy Burton, chairman of CIF, argued that long-term cloud contracts can lead to long-term rewards for those in sales.

"With the cloud, the sales compensation plan should not be materially different [to that of selling products]; it is just the weighting of it that differs," he said.

"There will always be a handful of enterprise staff who get huge cheques which are hard to translate to services, and that is because of the massive scale of their opportunities and their skills. However, that is an extreme example, and the vast majority of sales staff have more modest earnings that can be more than matched by the cloud.

"They will earn the same amount of commission but over a longer period of time. They could earn even more because one-off, upfront payments are often cheaper in order to secure the deal."

Moyse said resellers making the transition to cloud models should also consider what would happen if a customer ceased trading.

"If a reseller signs a three-year customer contract on monthly billing, what happens if during the contract, the customer goes bust, for example? Does the reseller pay the vendor for the whole contract?" he asked.

"There is a knock-on impact and if a vendor says resellers would not have to pay in that circumstance, they take the risk of basically underwriting contracts, and that is a big risk.

"And if a reseller goes bust, does the vendor have to provide for the customer still? There is a huge issue here, and it must be addressed by each party communicating with each other and thinking about this sort of thing early on, as it will happen."

Ancoris is one VAR that opted to completely desert kit sales in favour of selling cloud services within a two-year period, a decision director David McLeman said made the transition easier.

"We effectively took the approach to reduce sales quotas for cloud as a reward in order to encourage the switchover. We skewed the business so it was easier to make business for the cloud. With a lower cloud quota, it was easier for them to achieve that," he said.

"If a business still has a foot in both camps, it is very hard."