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4 tips for MSPs building a cloud backup services business

Getting started as a cloud-based backup services business requires a grasp of the target market, a solid mix of backup vendors and a sound pricing formula.

So, you're thinking you want to add cloud backup to your list of services. Today, there's so much confusion around what your offering should include, where to host your customer's data and applications, what it should cost and other questions. Part of the confusion comes from so many providers vying for your attention -- from backup solutions, to hosting services, to cloud service providers and more.

The mistake many managed service providers (MSPs) make is to start with the technology available and then work to create an offering around it. You'll be trying to "fit a square peg into a cloud hole" if you do that. What you need to do is to first start with your business and work toward the technology. To assist, I've outlined four steps you can follow to get your cloud backup services business defined and ready to sell.

Step 1: Define your target market

You already know who your market is but think about your customer from a standpoint of the amount of data they use, the applications they work with and the criticality of both. Do your customers like the idea of using the cloud? Are they open to hosting parts of their infrastructure in the cloud during a disaster? These questions and more all need to be thought through, so you can define exactly what your target cloud backup customer looks like -- reason being, once you've exhausted selling to your existing customer base, you know what kind of customer to look for to sell them the service.

Step 2: Select the right cloud storage and backup vendors

Let me start by pointing out I used the term "vendors" plural. You're potentially going to need to select a few vendors that, in total, will craft your service offering. At a minimum, you'll need to select a backup solution vendor and a cloud storage vendor to launch a cloud backup services business. But before you just run to the manufacturer of your on-premises backup software and see if they have a cloud option, really think about the customer needs you defined in the first step. Translate the business needs that defined your market into technology requirements and look for those to short-list vendors. For example, if your customers all have at least one critical application that needs virtual replication to the cloud to maintain a high degree of availability, then your search for cloud and backup vendors needs to include that capability. Here's a quick hit list of considerations I think are important:

  • Pricing -- Many cloud storage vendors have complex pricing models. This is going to impact how you price your service. Make sure it's simple enough for you to understand exactly what your costs are so that your backup offering is both predictable and profitable.
  • Storage tiers -- Without going into too much detail, nearly all major cloud storage has hot, warm and cold storage. Each has a little better pricing per GB, but there are hidden costs around retrieval times and egress fees among other variables. Understand what level of service you get with each and choose those that fit your desired model.
  • Recovery capabilities -- Your customer doesn't care that you back everything up; they care that you can get their business back up and running. Look for backup vendors that support your recovery needs -- continuous recovery, physical-to-virtual (P2V) and continuous replication, for example. Every capability can either become part of your base offering, or an optional upcharge.

Step 3: Get pricing right

Your customer doesn't care that you back everything up; they care that you can get their business back up and running.

This factor has more impact on whether a customer buys or not. Make it too confusing, too costly, even too inexpensive -- anything that makes your potential customer not see the value -- and they may simply pass. There are a lot of moving parts that, in total, drive what your pricing model should look like for your cloud backup services business. This includes overhead, labor, software, infrastructure, cloud storage and maintenance.

In short, you need to determine your hourly burden rate (which includes your billable and non-billable business costs calculated to an hourly rate) and your cost of service (e.g., your software, storage and egress costs), make some assumptions on the average storage size of your customers, and decide on a profit margin. The basic calculation for your pricing looks something like:

Software + (Burden Rate x # of Hours)   +   Storage Cost/GB
                              # of GBs      

You only need to raise this total cost to include your profit margin and you have a simple cost/GB pricing model.

Step 4: Sell your cloud backup service

The most important thing I can convey to you in this article is the fact that you're not actually selling cloud backup. You're selling peace of mind, operational uptime and business continuity. To sell this service, start by talking with your customers about their business needs. Get them to define the data, applications and systems that are critical to the business. Ask them how long the business can continue to run without these workloads. Once you have all this customer-provided ammunition, you can discuss how to provide the necessary cloud backup and recovery strategy that meets the just-defined business needs.

There's some exactness in the execution of this that will take some time and experience to get 100% right, but the strategy above is the right one. It's very customer-centric, allows the customer to decide upfront what is and what isn't important, and it provides you all the context necessary to demonstrate how cloud backup can help ensure the business remains operational.

I've only scratched the surface on what it takes to truly define and establish a cloud backup services business. But, by following the high-level steps and digging into each one with a scrutinizing eye around functionality, costs and customer value, you'll be on your way to adding a predictable and profitable service offering that your customers will want.

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