Unlocking revenue: Why MSPs should offer hardware-as-a-service (HaaS)

Not long ago, technology resellers found that embracing managed services and its recurring revenue model was a far more profitable approach than pure hardware sales. Now MSPs typically sell IT devices and provide subscription support services for recurring fees—a hybrid recurring sales model, also known as hybrid device-as-a-service (DaaS), that has been adopted by providers of everything from servers to computer monitors to point-of-sale systems.

Yet MSPs are struggling to generate more revenue and scale their operations. Owners and founders seek to create “stickier” products that foster long-term customer retention and drive business growth. Hybrid business models make it difficult for MSP leaders to effectively manage cash flow and forecast future revenue.

Where the traditional MSP business model fails

Most of the 40,000 MSPs in the U.S. charge recurring fees for the ongoing services they offer. Pricing frameworks typically entail per-device or per-user pricing, with payment cycles occurring either on a monthly or an annual basis. But because the hardware has already been sold to the customer, it’s not included in the recurring subscription price. In fact, only 37% of MSPs are considered “pure-play” MSPs: managed service providers that generate the majority of their sales revenue from recurring revenue streams. The other 63%—nearly two-thirds of MSPs—offer managed services but are still waist-deep in traditional activities that only generate one-off revenue.

These managed services providers are what the hardware industry calls “hybrid hardware-as-a-service” (HaaS) or “hybrid device-as-a-service” (DaaS), in which the customer owns the asset but pays recurring fees for software, ongoing maintenance, hardware upgrades, or warranty coverage. Financially, this partial bundling is more profitable for MSPs than the traditional break/fix model because it provides recurring revenue through ongoing, proactive services rather than reactive, one-off costs for repairs. Yet the majority of MSPs aren’t fully capitalizing on the potential of the business model because most of them are bundling software and services—but not the hardware—into a subscription package. Incorporating hardware into the subscription (i.e., providing customers with access to the hardware rather than selling it to them) will unlock an additional stream of recurring revenue.

Introducing hardware-as-a-service (HaaS) for MSPs

Offering full-subscription hardware-as-a-service (HaaS) or device-as-a-service (DaaS) is a much more lucrative option for MSPs. With HaaS, rather than purchasing devices outright and then paying a monthly fee for each device or user, customers pay for the entire package (equipment + software + services) on a recurring basis. The MSP retains ownership of the hardware and oversees its management from start to finish. Ultimately, this generates recurring revenue from the bundled hardware that is significantly more predictable than a one-time sale, and can also result in greater total revenue over a customer’s lifetime.

HaaS is also the most logical next step for the industry: MSPs are already in the business of managing both devices and services. Evolving their existing model is far easier than other growth strategies such as launching or improving marketing efforts, expanding service offerings, transitioning to cloud, or doubling down on customer experience. 

The advantages of HaaS for MSPs

Hardware-as-a-service unlocks a range of benefits for both MSPs and their customers, including:

• Predictable recurring revenue. Bundling hardware into a subscription establishes a more consistent revenue stream, which facilitates more effective financial planning and resource allocation for the MSP, and enhances the overall strength of the P&L.
• More revenue over the contract lifecycle. Providing both hardware and services in a subscription model increases the customer lifetime value. Customers are more likely to remain engaged with the service, leading to additional revenue from renewals, upgrades, and add-on services.
• A broader customer base. Offering flexible and scalable solutions that adapt to changing business needs will attract a broader client base by lowering the barrier to entry, eliminating large upfront capital expenses for hardware purchases. 
• Increased opportunities for up-selling and cross-selling. HaaS allows MSPs to offer hardware upgrades as part of the subscription, ensuring customers always have the latest technology. This also provides MSPs with ongoing opportunities to refresh contracts and sell new products and services.

The challenges of HaaS for MSPs

Adapting a HaaS business model also presents a unique set of complexities for managed service providers, including: 

• Delayed revenue recognition. HaaS and DaaS providers must invest in hardware upfront before they begin generating any revenue. The initial outlay and delayed payment can strain cash flow—especially for smaller or newer providers without ample financial reserves.
• Risk to hardware. Because they don’t own the assets, customers may not treat them with the same level of diligence or care that the provider would. HaaS and DaaS providers run the risk of needing to repair or replace equipment sooner than anticipated, resulting in unforeseen expenses.
• Potential customer non-payment. Non-payment disrupts the expected cash flow for HaaS providers, as they rely on these recurring payments to cover operational costs, invest in new hardware, and support their business.
• The complexity of asset management. When customers hold the equipment, managing those assets becomes more complex. HaaS providers must maintain accurate records of where each device is located, what condition it’s in, and what the associated contracts are. This can be challenging without good software.

Hardfin: A trusted resource for your HaaS journey

Device-as-a-service represents an emerging business model for MSPs. Many providers are enthusiastic about the opportunities that HaaS/DaaS offers, but unsure how to get started. When the time is right, we’ve got resources and insights that have you covered—on everything from structuring your HaaS offering to executing revenue recognition and asset accounting to making sense of start dates in your HaaS contracts. See our guide to hardware financial operations for more information on hardware-as-a-service.

Hardfin’s software platform is the command center for managing your hardware-as-a-service offering: It streamlines asset tracking and commercial management for owned, leased, and sold devices in one comprehensive reporting solution. If your team is curious about implementing HaaS, we’d love to help.