The Cloud Computing Services Primer Part 4 by Erick Simpson

SPC International - The IT Business Builder

The Cloud Computing Services Primer Part 4
Erick Simpson – See Part 3 Here

The purpose of this continuing Cloud Computing Services Primer by Erick Simpson is to provide information to help you and your staff understand what Cloud Computing Services are, the benefits of adopting them into your deliverables and how to market, price, sell and manage them effectively. In addition, the concepts shared in this guide can be used to educate your prospects and customers on the benefits of Cloud Computing and why they should consider adopting these solutions in their businesses.

If you missed The Cloud Computing Services Primer Part 3 by Erick Simpson, you can read it here

Pricing Cloud Computing Services

There are several factors that can affect your pricing methodology for Cloud Computing Services. You will need to analyze your business to determine your pricing models depending on factors including, but not limited to:

  • Your predominant business model
  • The services that comprise your Cloud offerings
  • Your costs to deliver these services
  • Your sales sophistication
  • Your efficiencies in delivering these services

The less efficient you are at delivering service, the higher your price points must be to maintain your desired net profitability.

The Cloud Computing Primer by Erick Simpson Part 4

Determining Your Predominant Business Model

Your predominant business model may influence not only your deliverables and how successfully you are able to market and sell them, but also your target markets, customers, vendors and profitability. If your predominant business model is product-centric, you may be challenged when attempting to sell and deliver Cloud services, as the achievement of success in a more service-centric model requires unique skill sets centered on effective sales and long-term relationship-building and customer satisfaction techniques. As an example, it is logical to assume that a product-centric or time and materials based service provider would have a tougher time selling cloud computing solutions and delivering services as efficiently, effectively and profitably as a reseller who has already built a managed services model would.

The Cloud Computing Primer by Erick Simpson Part 4

Determining and Developing a Cloud Services Offering

As each of the three Cloud Services models offer different solutions and appeal to different end customers and markets, you must determine your Cloud offerings. This will also depend heavily on the vendors and fulfillment partners you align with, and their capabilities, SLAs and price points. Each Cloud Services model; whether Software as a Service, Infrastructure as a Service or Platform as a Service, has its own unique requirements and appeal from provider, end-customer, pricing, complexity and implementation and maintenance perspectives – and each delivers a different set of solutions.

You must evaluate each of these deliverables carefully and determine which of these, and in what priority, you will incorporate into your solution stack to begin offering to prospects and clients.

Determining True Costs of Service Delivery

Once you have determined your Cloud Services offerings, the first step in establishing profitable price points for each of these Cloud Services is to identify your cost of service delivery. In order to accomplish this, you must understand your hourly labor burden, your hourly overhead burden, the number of support hours it will require to support your Cloud Services customers and your costs for the Cloud Services you are reselling.

To calculate the labor burden for staff, you will divide all of their labor costs including those above and beyond gross compensation by 2080 work hours per year. To calculate overhead burden, you will total the yearly amount of all company overhead costs and divide that value by 2080 work hours per year as well. By adding these two values together, you can estimate your hourly cost of service delivery.

Once this has been determined, you will forecast the number of hours you predict it will take to support your Cloud Services customer and multiply that number by your hourly cost of service delivery. The final step for you to determine your total cost of service delivery is to add your costs for Cloud Services to the equation, along with any marketing and sales costs expended to acquire your customer.

The Cloud Computing Primer by Erick Simpson Part 4

Determining Retail Pricing

Once you have established your Total Cost of Service Delivery for your Cloud Services offerings, it’s a simple matter to determine the margin you would like to realize for each of your solutions and set your price points appropriately.

The Cloud Computing Primer by Erick Simpson Part 4

Next time in Part 5 of The Cloud Computing Primer by Erick Simpson: Marketing Cloud Computing Services.


Erick Simpson
Senior Vice President & CIO
SPC International

Consulting Services for IT Solution Providers:


Posted in: Cloud, Secrets to improving an I.T. Services Practice

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