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What's not to love about the application service provider (ASP) model? Customers will be charged less up front and save on their IT costs over the long haul and resellers, systems integrators and e- business consultants can enjoy the continual revenue stream the ASP model offers. But there are some management hurdles that need to be cleared before ASPs can enjoy the security of a steady, ongoing monthly income.
VARs and e-business consultants benefit from the ASP model, but should avoid stumbling over a few management issues, says Ken Thoreson, an analyst specializing in sales management at the Acumen Team, a consulting company based in Eden Prairie, Minn.
Forecast accurately. The most cumbersome management issue confronting new ASPs is "accurately projecting two-year revenue and cost models," Thoreson says. That can be particularly difficult, because an ASP's costs may go up and its customers may leave. So, cash flow becomes paramount.
Work toward the future. Unlike the traditional sales model, ASPs must make a large investment in their clients and accept a gradual payoff. They also have to shoulder a significant amount of work, such as testing the sales force automation and customer relationship management apps and implementing the final solution, says Thoreson.
"An ASP's payback from a cash-flow perspective doesn't happen in a 60-day time frame. The ASP's revenue is based on monthly transactions. And at the one-year anniversary date, a customer can leave if the support or cost structure isn't good," he says.
Keep the customer in mind. Customer service is mission-critical, says Thoreson. If you don't provide the support the customer is used to in the old model, you may lose the customer.
"When you build revenue based on continual revenue, you have to assume that 15 to 20 percent of your customers are going to leave...