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Wednesday , 18 October 2017
Home » INSIGHTS » Rental Models Done Right – Stabilize Cash Flow, Accelerate Sales and Grow Business Equity

Rental Models Done Right – Stabilize Cash Flow, Accelerate Sales and Grow Business Equity

By Andre Nataf, SVP Heartland Commerce Sales

In an age where smartphones rule the hands, hearts and minds of our customers, our employees and ourselves – we’re often frustrated with the legacy state ofthe business model for Value Added Resellers in the restaurant technology industry.

Recurring revenue is, without question, one of the most important business strategies for the 21st century reseller to implement.  In my decades of being a reseller and creating reseller channels, I’ve seen an entire shift in customers’ desire for hardware and software solutions.

Andre-Nataf
Andre Nataf, SVP Heartland Commerce Sales

Years ago, a restaurant or retail customer would rather pay $30,000 in cash to buy everything outright.  But today, many business owners want to hold onto their cash and instead look at structured and ongoing payment plans.  We’ve seen this model become wildly successful in the consumer space.  Does anyone really want to own their smartphone?  The pace of which technology changes is so rapid that it isn’t feasible to think that hardware, and the supporting software tools to keep it running, have a ten, seven or even five year life any more.

Additionally, customers want new technology selection and implementation to be simple and pain free.  A complete rental model provides exactly that for the customer.  Structured leases for equipment and then separate contracts for installation, software and support are complicated and intimidating.  It creates additional psychological barriers and extends sales cycles.  A rental model that is “all in” with a low upfront fee and low ongoing monthly payments provides exactly what modern business owners and managers want – ease of understanding, no capital expenditure and a predictable ongoing expense.  This model provides a full 360 degree solution that is affordable on a monthly basis.

Of course, the reseller needs to have a long term view on the economics.  This isn’t about a “quick hit” of cash on the sale.  Instead,companies build layer upon layer of monthly cash flow into their business, evening out the cash flow peaks and valleys.  Additionally, this offers far greater financial predictability and allows companies to better plan the growthof their business.

The truly great blessing of a business heavily steeped in an ongoing, total package rental model is that predictable cash flow has significantly greater value to a purchaser.  It is extremely easy for a buyer of a business to deeply discount one-time sales.  After all, how much of sales success is dependent on the owners that are looking to leave?  Regular recurring payments, especially with a track record of many years,are valued at a premium because they reduces the risk of loss by the buyer.

There is another big question that resellers need to consider. How do they significantly add value to their customers?  The answer to this question rarely lies in the reseller’s vast diversified hardware to draw from and often can be found in the software they sellwhich has general feature and function parity with other competing products.In order for the reseller to stay relevant in the market, it’s essential to build more relationships, move systems at a faster pace and focus on developing a strong core value that is a true differentiator.

A good rental model can help in all three areas.  Additionally, rental customers are long term relationships and typically are very receptive to new business tools, functionality and add on services if they are also delivered in affordable monthly packages.  If resellers are smart about your contracting, additional services could be as simple as an appendix to the main contract or even a signed order form.

For resellers who really like the idea of creating a recurring revenue model but are intimidated in getting started, it doesn’t have to be all or nothing.  You can start with a SaaS model (Software-as-a-Service) and then expand the program to include hardware and services on a monthly payment basis.

Frequently, it can be difficult for resellers to shift from one-time sales to recurring revenue as it creates too much financial risk.  In these circumstances, partnering with a financial services company that can supply the upfront capital is a great option.  In this case, the financial partner will be taking a share of gross revenue but also, they will be taking on the risk of non-payment.

What is critical for the reseller in this scenario is to make sure they are not ultimately “cut out” of the business and there are several ways to do this.  The first is to make sure there are no loopholes that provide time limits on the customer program.  The second is for the reseller to hold exclusive rights to services offered such as first tier support, on-site servicing and training.  The third is to make sure the reseller has no exclusions in the sale of additional products and services to that customer so they have no barriers to expanding the economic value of the customer base.

Resellers face more business pressures than ever before but the reseller model can very much be a rich and rewarding business.  The key to overall success today is to provide a model that is a win-win for both you and your customers.  A rental model is a real winner all around.

 

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