SaaS Integration Opportunities for IT Consulting Firms

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While Software as a Service (SaaS) applications are experiencing explosive growth, there are still many businesses, especially smaller businesses that are not aware of this option. Business owners are focused on running their business and don't have time to search for alternatives to on-premise solutions. While SaaS is not a fit for every client, there are clearly instances where these solutions make more financial sense than spending capital for an on-site solution. With today's credit crisis, more businesses are open to low up front solutions with predictable IT costs.

IT consulting firms traditionally generate revenue from on-site installations, break-fix services, upgrades, and in some cases managing on-premise equipment for their clients. Many IT firms are not offering their clients these applications because they aren't sure how their firm will generate revenue. Including these applications has to be a win-win situation and must positively impact a firm's bottom line as well as their client's.

It's clear that IT firms will generate recurring revenue selling Software as a Service solutions. However, many IT firms believe that their implementation revenue will take a hit. If a firm sells from a value perspective rather than hours, implementation fees should be similar resulting in significantly higher billing rates increasing gross margin. The following example illustrates how consultants can maintain implementation fees.

For illustrative purposes, let's assume a company wants to implement Exchange for 10 people. Based on discussions with several IT consulting firms, an SBS 2008 server installation is about $8K (excluding desktops) up front with about 15 - 20% going to their bottom line and the remaining 80 - 85% going to the hardware and software vendor. The installation time frame is about 2 - 3 weeks from the time the customer agrees to order the solution until installation is complete. Ongoing costs are typically unknown.

Let's take a look at a Hosted Exchange offering which is fully redundant with daily backups, includes upgrades, housed in a tier 1 data center, and managed 24x7 by certified technicians. The customer does not need to purchase servers, software, or backup devices so capital expenditure is not required. However, they do need help configuring the service. If you charge $1.5 - 2k up front to configure Outlook/Hosted Exchange, it is 75 - 80% less than the on-premise solution and they have a fully redundant architecture managed around the clock. The on-going fee for Hosted Exchange is roughly $150 a month with a portion of that going to the bottom line.

Let's assume a firm's implementation revenue (excluding hardware and software costs) for the on-site solution is $1 - 1.5k, which is less than the implementation revenue earned from the SaaS solution. Furthermore, the time required to configure Hosted Exchange is significantly less than an on-premise Exchange. As a result, hourly rates increase dramatically and with the added benefit of recurring revenue and an experienced staff managing the service.

Software as a Service, not only builds recurring revenue while maintaining implementation fees, it also differentiates your business. The majority of IT consulting firms only offer their clients on-premise solutions which require a significant up front capital expenditure with unknown IT maintenance costs for hardware and software. If a firm can add services to their portfolio that drive recurring revenue while maintaining implementation fees, and differentiate their company, they should strongly evaluate SaaS Integration services.

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