The following questions and answers are provided by TAMCO, a company on a mission to help integrators make the pivot to the subscription-consumption model.
Question 1: Does Technology-as-a-Service Cost More Than Using Cash/Capital?
- Yes
- No
- I don’t know
- Maybe
If you guessed (2), you are correct and destined for greatness. The question is why did most of you secretly choose (1), and that it cost more? Well, if you are like most people who have something financed, the first thing you do is multiply the payment by the term and the amount is always higher, but that’s just arithmetic, not finance and it is an incomplete measurement of the outcome.
Surely, everyone has heard the phrase, “Cash is King,” and especially now, with so many inflationary pressures. Let’s break down why “Cash is King” while also taking the first step in piercing a hole in the misconception that Technology-as-a-Service costs more than cash.
Let’s use real numbers — your new technology (audiovisual, physical security, or IT) solution costs $100,000. You have the choice to pay in cash or use a monthly Technology-as-a-Service subscription plan. If your company has profit margins on its revenue at 10%, which is very conservative, that same $100,000 reinvested back in the company would have a value of $164,532 in five years, which is the average term of a Technology-as-a-Service subscription. It’s difficult to predict when any company will realize that return because there are so many variables, but if you just look at any financial calculator, you will quickly see the return. You can verify this calculation through the Omni Calculator.
The inputs are:
- Present Value: $100K
- Period: 5 Years
- Compound Frequency: Monthly
- Interest Rate: 10%
- Calculate Future Value
Another way to look at this is to input your internal rate of return. Then, internalize that with the basic principles of the time value of money or opportunity cost. It becomes very hard to argue that financing and Technology-as-a-Service costs more than using cash/capital.
Now, what if the $100,000 technology solution that you paid for in cash/capital appreciates? Then you would argue, but because technology solutions have a higher amount of soft costs, i.e., design, labor, licensing, software, and profit, they not only won’t appreciate but will rapidly depreciate roughly 50% the day after installation. In real dollars, that $100,000 in cash now has a market value or appraised value of $50,000. Layer in technology obsolescence over the next five years and you should begin to see the bigger picture.
There are more reasons why using capital/cash and ownership presents a challenge, but hopefully, you now see the logic and reality behind the answer to the question: no, Technology-as-a-Service does NOT cost more than paying with cash or capital to own it.
Question 2: What Organization Types Make a Good Fit for Technology-as-a-Service?
- Large enterprises
- Mid-market companies
- Small businesses
- Nonprofits
- Education
- Local government
- Budget challenged organizations
- All of the above and more
This is the most commonly posed question regarding Technology-as-a-Service. Immediately upon hearing the value, it’s human nature to ask for or seek a match. That being said, the answer is (8) All of the above.
The leverage of cash to be applied to revenue-generating assets or longer-lasting investments doesn’t discriminate based on the type of organization. Neither does the market value of the solution the day after installation, and obsolescence pressures have no boundaries, despite the type of organization.
Don’t Play Judge and Jury – All Organizations Benefit
Playing judge and jury is a big trap for many systems integrator sales professionals. The irony is that most customers have leveraged the subscription-consumption model in other areas outside of AV, physical security and IT. It’s just like any other product — to be successful, one must position and solve every sale, and in the worst case, the customer pays in cash terms. However, in each case, you have differentiated yourself and provided a credible and relevant offering.
The most common answer to this question is (7) Budget challenged organizations. For some reason, Technology-as-a-Service or financing in general, has a stereotype that it is only for customers with no cash or no budget. Hopefully, the answer to the first question of this pop quiz has enlightened you to the fact that even if they have the budget or capital, Technology-as-a-Service can prove to be a better method of absorbing today’s technical solutions.
That said, inflationary pressure has increased on all businesses and organizations’ expenses, so you are likely to get the objection or block that they cannot proceed due to a lack of capital. Then, by all means, leverage this offering to differentiate and win the sale, but remember even if they have the capital, to be a trusted advisor, you should always make the recommendation on how to procure, just like you do on what to procure.
