A Forrester Total Economic Impact™

Study Commissioned By Microsoft

July 2019

The Partner Business

Opportunity For
Microsoft Business
Applications
A Total Economic
Impact™ Partner Opportunity Analysis For
System Integrators Serving Enterprise
Customers
 Table Of Contents
Executive Summary 1
Partner Revenue Opportunities 1
TEI Framework And Methodology 9
Analysis 10
Interview Highlights 10
Partner Characteristics 10
Composite Partner Description 12
Revenue And Margin Opportunities 13
Business Strategy, Assessment, And Visioning Engagements 13
Implementation Projects 14
ERP Implementation 14
CE Implementation 15
Business Central Implementation Revenue 16
ERP And CRM Upgrade Projects 17
Follow-On Project Revenues 18
Managed Services 19
Resalable, Value-Added IP 21
Microsoft Licensing Margin 22
Analysis Of Investments 24
Financial Summary 29
Appendix A: Total Economic Impact 30
Appendix B: Endnotes 31

Project Director: ABOUT FORRESTER CONSULTING

Adam Schlegel
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 Executive Summary
Microsoft Business With growing proliferation of software-as-a-service (SaaS), the question
facing technology and business decision makers is no longer whether they
Applications Practice should buy SaaS, but instead when and for what business functions they
Economics should purchase SaaS.1 The cost efficiencies of SaaS are well understood
today, with SaaS practically eliminating the high upfront hardware and
licensing costs of on-premises software while reducing custom
development efforts in favor of lighter-weight, drag-and-drop configuration.
While the economics of cloud applications are attractive, the Forrester
Analytics Business Technographics® Software Survey, 2018, shows that
global software decision makers choose SaaS primarily for two reasons:
SaaS improves business agility and is much faster to implement and
deploy.2 As such, customers are increasingly expecting partners to deploy
ERP new technologies quickly and to shift their focus to helping customers drive
business and digital transformation.
Practice ROI Microsoft commissioned Forrester Consulting to conduct a Total Economic
Impact™ (TEI) study to examine the business opportunity and return on
37% investment (ROI) system integrators (SIs) may realize by building and
scaling cloud-first customer relationship management (CRM) and
enterprise resource planning (ERP) practices serving enterprise customers
Year 3 Practice Gross using Microsoft Business Applications. Microsoft’s cloud Business
Profit Applications include CRM-oriented workloads, including Microsoft
39% Dynamics 365 for Customer Service, Microsoft Dynamics 365 for Field
Service, Microsoft Dynamics 365 for Marketing, and Microsoft Dynamics
365 for Sales, along with ERP-oriented workloads, including Microsoft
Dynamics 365 for Finance and Operations, Microsoft Dynamics 365 for
Retail, and Microsoft Dynamics 365 for Talent. Forrester also explored the
partner opportunity around Microsoft Dynamics 365 Business Central,
Microsoft’s all-in-one business management solution for small and
medium-size businesses, along with the Microsoft Power Platform.
To better understand the revenues, margins, investments, and risks
CRM associated with building and scaling a Microsoft Business Application
practice, Forrester interviewed 12 global and regional system integrators,
and surveyed an additional 100 system integrators, with well-established,
Practice ROI enterprise-focused ERP and CRM practice areas built around Microsoft
46% Business Applications across North America and the UK. For a full
description of interviewed partners, see the Interview Highlights section on
page 10 of this case study.
Year 3 Practice Gross
Profit Partner Revenue Opportunities
42% The revenue and margin opportunity analysis below, built on a composite
partner representative of those interviewed by Forrester, is intended to be
used as a framework to help partners understand the total business
potential around the Microsoft Business Applications portfolio. Each of the
opportunities below is described in more detail in the Revenue And
Margins Opportunity section of this study.

1 | The Partner Business Opportunity For Microsoft Business Applications

 › Business strategy, assessment, and visioning engagements.
Three-Year Combined Modest assessment and business consulting engagements typically
serve as an entry point for partners looking to capture downstream
Practice Economics implementation, system integration, and managed services work. These
(Risk And PV Adjusted) projects, which are described in detail on page 13, result in clearly
defined, phased road maps for the adoption of modern applications.
Average deal sizes for these projects range from $50,000 for Customer
Engagement (CE) initiatives to $60,000 for Unified Operations initiatives
ROI
and bring gross profit margins ranging from 25% to 30%. Business
40% strategy, assessment, and visioning engagements bring in 2% of the
composite partner’s total gross profit, or $1,011,975, over the three-year
analysis.
› ERP and CE implementation projects. Successful business strategy,
Gross Profit
assessment, and visioning projects convert into much larger
PV implementation and system integration projects, which are described in
$41.7 million detail in the ERP and CE Implementation sections on pages 14 and 15
of the Revenue And Margin Opportunities section of this study.
Implementation projects encompass both technical consulting —
including data, security, development, configuration, and system
NPV integration work — and business consulting — including business
$12 million process reengineering, training, and change management. Average ERP
implementation projects brought project revenues ranging from $1.5
million to $9 million with project timelines ranging from six months to 24
months. CRM implementation projects brought average project revenues
of $550,000 with deal sizes often breaking into the millions for larger
Payback enterprises with more complex needs. ERP and CRM implementation
15 months projects collectively bring in 46% of the composite partner’s gross profit,
or over $19 million over the three-year analysis.
› Business Central implementation revenue. Partners selling Microsoft
Business Central, Microsoft’s all-in-one business management solution,
offer a variety of implementation and professional services. Business
Central implementation projects required less business transformation
work and heavily utilized prebuilt templates and accelerators to help
reduce project costs and timelines. Average Business Central
implementation deal sizes for SIs serving small and medium-size
corporations (SMCs) were just over $350,000 at the time of the
interviews. Over the three-year analysis, Business Central
implementation projects bring in nearly $4.3 million in gross profit for the
composite partner.
› ERP and CRM upgrade projects. A portion of partner projects came
from upgrades and migrations of existing customers running legacy, on-
premises versions of Microsoft Dynamics and other competitive ERP
and CRM applications to modern, cloud Microsoft Business Applications.
Interviewed Microsoft partners indicated that ERP and CRM upgrades
were generally done concurrently, with average project sizes ranging
from $500,000 to $2,000,000 depending on the specific application
version customers were running at the time of upgrade. ERP and CRM
upgrade projects bring in nearly $3.3 million in gross profit for the
composite partner over the three-year analysis.
› Follow-on project revenues. The Microsoft Business Applications
business opportunity for partners went well beyond implementation
services. Follow-on, or next-phase, project work spanned a variety of
domains including business intelligence, reporting, training, and
business process change, and are explained in detail on page 18 of this
case study. Follow-on projects are generally discussed toward the tail-

2 | The Partner Business Opportunity For Microsoft Business Applications

 end of implementation and upgrade projects, with partners making
proactive recommendations on how to further modernize and transform
antiquated business workflows with automation. Attach rates for follow-
on projects were as high as 75% for some partners, with most partners
averaging at least 40% to 50% attach rates at the time of the interviews.
Follow-on project work accounts for 5% of the composite partner’s total
gross profit, or nearly $2 million, over the three-year analysis.
› Managed services. Our interviews revealed that partners were evolving
their business models away from traditional support and maintenance
agreements to include more robust managed services, including
application and incident management, managed update services,
security management, and ongoing development and system integration
support. Managed services brought partners lucrative recurring revenue
streams and saw high adoption among customers, with interviewed
partners demonstrating average attach rates of 50%. Over the three-
year analysis, managed services generate a present value (PV) of
$10 of service revenue nearly $3.7 million in gross profit for the composite partner.
for every $1 dollar of › Resalable intellectual property (IP) sales. System integrators are
Microsoft Business building resalable, packaged IP to complement or accelerate their
Applications licensing Microsoft Business Applications service offerings. Partners often build
margin and target IP at specific industry verticals and lines of business, with
specific partner examples including a revenue recognition module for
Microsoft Dynamics 365 For Finance And Operations, a data warehouse
solution for Microsoft’s Unified Operations SKU, and a supply chain
solution built for the life sciences industry. Other resalable software
solutions built by partners acted as a deployment accelerator for specific
Microsoft Business Applications, with examples including data migration
and project management tools that are packaged with implementation
deals. A more complete accounting of resalable packaged IP solutions
can be found on page 21 of this case study. Resalable IP brings
relatively high gross profit margins and accounts for 5% of the composite
partner’s total gross profit over the three-year analysis.
› Microsoft licensing margin. Microsoft partners that resell Microsoft
Business Applications are entitled to channel margin, rebates, and
incentives that materially impact their profit and loss statements. Microsoft
partners resell Microsoft Business Application licenses under the Cloud
Solution Provider (CSP) and Enterprise Agreement (EA) programs,
provide customer support and service-level agreements (SLAs), and
invoice customers for their Microsoft cloud solutions. While Microsoft
Business Application license pricing, margins, and incentives vary by shop
keeping unit (SKU), these income streams make up 16% of the composite
partner’s total gross profit over the three-year analysis.

3 | The Partner Business Opportunity For Microsoft Business Applications

 Financial Summary Business strategy, assessment, and
visioning engagements
Microsoft 2%
licensing ERP
margin implementation
16% projects
Resalable,
value- 26%
Practice added IP
Total 5%
Break-even: benefits $41.7 million
15 months PV, Managed
$41.7M services three-year to
9%
gross profit PV
Total
costs PV, Follow-on
$29.7M projects
5%
CE
ERP and CRM implementation
upgrade Business Central projects
projects implementation projects 19%
Initial Year 1 Year 2 Year 3 8% 10%

Partner Investments
In addition to direct service and solution sales and delivery costs, including functional consultant, developer,
engineer, and IT support staff salaries, which are included in the gross margin calculations in the Revenue And
Margin Opportunities section of this case study, interviewed partners made strategic investments in several
areas to build and scale their Microsoft Business Application practices, detailed in the Analysis Of Investments
section of this study. In modeling the investments needed to successfully establish and grow a successful
Microsoft Business Application practice area, Forrester quantified the following practice investments for the
representative composite partner:
› Incremental staffing expenses. These are the additional salary costs for new hires and to establish and
support a center of excellence (CoE) built to drive growth and improve service profitability for the composite
partner’s Microsoft Business Applications ERP and CRM practice areas in target industry verticals (described
in detail on page 24 of the case study). Typical areas of talent acquisition across partners include practice
leads for specific Microsoft Business Application workloads, industry practice leads for target verticals, and
presales engineers to support business development teams through the scoping process and sales cycle.
› Training and certification costs. These are the annual costs incurred to acquire Microsoft competencies
and train and certify both new and existing functional consultants, solution architects, developers, and
presales engineers on Microsoft Business Application workloads, features, and capabilities.
› Research and development (R&D). These are upfront and ongoing time and materials expenses incurred to
build the composite partner’s value-added resalable IP and to build other tools, templates, and software to
accelerate and maximize profitability of professional and managed service delivery.
› Marketing, sales, and administrative costs. These expenses include incremental marketing and sales
costs for positioning, promoting, demoing, and selling Microsoft Business Applications products, services, and
solutions. Over the three-year analysis, marketing expenditures and SG&A costs ranged from 7% to 10% of
total Microsoft Business Applications practice revenues.

ERP Practice Economics

In addition to Forrester’s analysis of the combined business opportunity for system integrators that build cloud-first
Microsoft Business Application practices, Forrester examined the practice-level economics and profitability of
building an ERP practice around the Microsoft Unified Operations shop keeping unit. Forrester’s analysis found
that an enterprise focused composite partner that sells between six and 12 deals annually over the three-year
analysis is able to generate present value-adjusted total gross profits of $23.6 million over three years versus
investment and overhead expenses of $17.2 million, adding up to a net present value (NPV) of $6.3 million and an
ROI of 37%. The practice break-even point for the composite partner is 15 months.

4 | The Partner Business Opportunity For Microsoft Business Applications

As seen in the chart below, Forrester finds practice-level gross profit margins of 39% by Year 3 of the analysis for
partners that build cloud ERP practice areas around Microsoft Business Applications Unified Operations.

Microsoft Business strategy, ERP Practice-Level Gross Profit Margin

licensing assessment, and
margin visioning engagements 40%
11% 2% 39%
Resalable, 39%
value- 38%
added IP
3% 37%
36%
Managed $23.6 million 36%
ERP
services implementation 35%
8% three-year to
gross profit PV projects 34% 33%
Follow-on 47%
projects 33%
4% 32%
ERP and 31%
CRM
Business Central 30%
upgrade
implementation projects Year 1 Year 2 Year 3
projects
14%
11%

Three-Year ERP Practice Economics (Risk And PV Adjusted)

5 | The Partner Business Opportunity For Microsoft Business Applications

CRM Practice Economics
Forrester also explored the partner business opportunity and practice-level economics of building a cloud-first
CRM practice around the Microsoft Business Application Customer Engagement SKU. Forrester’s analysis found
that an enterprise-focused composite partner that sells between 11 and 24 deals annually over the three-year
analysis is able to generate present value-adjusted total gross profits of $18.2 million over three years versus
investment and overhead expenses of just under $12.5 million, adding up to a net present value (NPV) of $5.7
million and an ROI of 46%. The practice break-even point for the composite partner is 15 months.
As seen in the chart below, Forrester finds practice-level gross profit margins of 42% by Year 3 of the analysis for
partners that build cloud CRM practice areas around Microsoft Business Applications Customer Engagement.

Business strategy, assessment, CRM Practice-Level Gross Profit

and visioning consulting Margin
revenue
Total 3%
licensing CE 44%
42%
margin implementation
22% 42%
45%
40% 39%
Resalable $18.2 million
IP sales 38%
6% three-year total
benefits PV 36% 35%
Managed
services 34%
10%
Follow-on Business Central 32%
project Implementation
revenues ERP and CRM projects 30%
5% upgrade projects 5% Year 1 Year 2 Year 3
4%

Three-Year CRM Practice Economics (Risk And PV Adjusted)

6 | The Partner Business Opportunity For Microsoft Business Applications

Microsoft Business Application Pro Forma Revenue And Margin Opportunity: Three-Year Analysis (USD)
REF. CATEGORY METRIC Year 1 Year 2 Year 3
PL1 Assessment, strategy, and visioning project $360,000 $600,000 $720,000
revenue (Unified Operations)
PL2 Assessment, strategy, and visioning project $550,000 $950,000 $1,200,000
revenue (Customer Engagement)
PL3 Assessment & Total assessment, strategy, and visioning $910,000 $1,550,000 $1,920,000
Strategy project revenues
PL4 Assessment, strategy, and visioning gross $259,350 $441,750 $547,200
margin
PL5 Assessment, strategy, and visioning 29% 29% 29%
gross margin (%)
PL6 Microsoft F&O implementation consulting $8,171,424 $15,199,992 $16,999,992
revenues
PL7 Microsoft CE implementation consulting $6,050,000 $10,450,000 $13,200,000
revenues
PL8 Microsoft Business Central implementation $3,500,000 $5,250,000 $7,000,000
consulting revenues
Implementation
PL9 Project Upgrade project revenues (F&O/CE) $3,000,000 $4,000,000 $5,000,000
Consulting
PL10 Total implementation project revenues $20,721,424 $34,899,992 $42,199,992

PL11 Total implementation project gross profit $6,496,166 $11,604,247 $14,833,297

margin ($)
PL12 Total implementation project gross profit 31% 33% 35%
margin (%)
PL13 Power BI consulting project revenue $900,000 $1,650,000 $2,025,000

PL14 Power apps consulting project revenues $540,000 $990,000 $1,215,000

PL15 Total follow-on project revenues $1,440,000 $2,640,000 $3,240,000

Follow-on
Consulting
PL16 Total follow-on project gross profit margin $478,800 $877,800 $1,077,300
($)
PL17 Total follow-on project gross profit margin 33% 33% 33%
(%)
PL18 Total managed services revenues $1,521,900 $3,956,940 $7,102,200

PL19 Managed Total managed services gross margin ($) $506,032 $1,428,455 $2,698,836
Services
PL20 Total managed services gross margin (%) 33% 36% 38%

PL21 Total resalable IP revenue $603,600 $1,549,800 $2,697,300

PL22 Resalable IP Total resalable IP gross margin ($) $258,039 $736,155 $1,409,339

PL23 Total resalable IP gross margin (%) 43% 48% 52%

PL25 Licensing Channel license resale gross profit $999,724 $2,610,591 $4,631,029
margin ($)
PL26 Total all revenues $26,373,069 $47,668,015 $62,607,762

PL27 Grand Total Total all gross margins $8,998,111 $17,698,998 $25,197,002

PL28 Total all gross margin % 34% 37% 40%

7 | The Partner Business Opportunity For Microsoft Business Applications

Partner Outcomes
Based on in-depth interviews with 12 system integrators and a survey of another 100 Microsoft partners with ERP
and CRM practice areas built around Microsoft Business Applications, Forrester built a financial analysis based on
a representative, enterprise-focused composite partner that sells the Microsoft Business Application deals
captured in the table below, titled “Composite Partner Sales By Year.” The full description of the composite partner
can be found in the Composite Partner Description section on page 12 of this case study.
Forrester’s analysis found that a composite partner based on these interviews experiences present value-adjusted
total gross profits of $41.7 million over three years versus investment and overhead expenses of $29.7 million,
adding up to a net present value (NPV) of just over $12 million and an ROI of 40%. The practice break-even point
for the composite partner is 15 months.
ERP, CRM, And Combined Practice-Level Gross Profitability For System Integrators
Gross Profit Margins (%) By Solution Area
45% 42%
39% 39% 40%
40% 36% 37%
35% 34%
35% 33%
30%
25%
20%
15%
10%
5%
0%
Year 1 Year 2 Year 3
ERP CRM Combined

Composite Partner Sales By Year

PROJECT TYPE YEAR 1 YEAR 2 YEAR 3
ERP (Unified Operations) deals 6 10 12
CRM (Customer Engagement)
11 19 24
deals
Business Central 10 15 20
Upgrade (includes ERP and
3 4 5
CRM)
Total deals sold annually 30 48 61

8 | The Partner Business Opportunity For Microsoft Business Applications

 TEI Framework And Methodology
From the information provided in the interviews, Forrester has constructed
a Total Economic Impact™ (TEI) framework for system integrators and
service providers exploring a potential investment in building Microsoft
Business Application practice areas for ERP and CRM.
Forrester took a multistep approach to evaluate the business impact of
building cloud-first ERP and CRM practice areas around Microsoft
Business Applications.

DUE DILIGENCE
Interviewed Microsoft stakeholders and Forrester analysts to gather data
The TEI methodology relative to Microsoft’s Business Application portfolio and the associated
helps companies business opportunity for system integrators.

demonstrate, justify, PARTNER INTERVIEWS

Interviewed 12 organizations and surveyed an additional 100 system
and realize the integrators with Microsoft Business Application practices to obtain data
tangible value of with respect to investments, revenues, margins, and risks.

business initiatives to COMPOSITE PARTNER

Designed a composite partner based on characteristics of the interviewed
both senior organizations.
management and
FINANCIAL MODEL FRAMEWORK
other key business Constructed a financial model representative of the interviews using the
TEI methodology and risk-adjusted the financial model based on issues
stakeholders. and concerns of the interviewed organizations.

CASE STUDY
Employed four fundamental elements of TEI in modeling the SI business
opportunity: margins, investments, flexibility, and risks. Given the
increasing sophistication that enterprises have regarding ROI analyses
related to business investments, Forrester’s TEI methodology serves to
provide a complete picture of the total economic impact of investment
decisions. Please see Appendix A for additional information on the TEI
methodology.

DISCLOSURES
Readers should be aware of the following:
This study is commissioned by Microsoft and delivered by Forrester Consulting.
It is not meant to be used as a competitive analysis.
Forrester makes no assumptions as to the potential ROI that other
organizations will receive. Forrester strongly advises that readers use their own
estimates within the framework provided in the report to determine the
appropriateness of an investment in building a new practice area.
Microsoft reviewed and provided feedback to Forrester, but Forrester maintains
editorial control over the study and its findings and does not accept changes to
the study that contradict Forrester’s findings or obscure the meaning of the
study.
Microsoft provided the partner names for the interviews but did not participate
in the interviews.

9 | The Partner Business Opportunity For Microsoft Business Applications

Analysis
BUILDING AND SCALING CLOUD-FIRST ERP AND CRM PRACTICES
AROUND MICROSOFT BUSINESS APPLICATIONS

Interview Highlights
For this study, Forrester conducted 12 interviews with system integrators with Microsoft Business Application
practices and ERP and CRM specialties. Interviewed partners include the following:

PARTNER PRACTICE # OF PRACTICE

TYPE AREAS REGION EMPLOYEES REVENUE INTERVIEWEE
National system CRM, ERP, North
1,200 $300M Partner, consulting
integrator BI, America
Global system
CRM, ERP Global 175,000 $10B+ Director
integrator
Regional system CRM, ERP, Western
450 $60M CTO
integrator SMC Europe
Global system North
CRM, ERP 1,500 to 2,000 N/A President and COO
integrator America
North
Global system CRM, ERP,
America, 1,300 $140m SVP
integrator SMB
APAC
Regional system
CRM, ERP EMEA 450 $70M Practice director
integrator
National system North
CRM, ERP 200 $50M CEO
integrator America
North
Regional system
ERP America, 215 ~$50M+ President and founder
integrator
Europe
National system
CRM, ERP Europe 180 $25M COO
integrator
Global system 500 for Dynamics
CRM Global $29B (total) Principal, advisory
integrator CE
Regional system
CRM, ERP Europe 683 $108M CEO
integrator
National system North
CRM, ERP 250 $60M SVP
integrator America

Partner Characteristics
Percentage of
Interviewed Microsoft partners had the following common characteristics: ERP deals
› Partners had overwhelmingly cloud-first Microsoft Business
Application practices. Microsoft’s leading Business Application
92% deployed in the
cloud over the
partners were overwhelmingly cloud-first, with well over 90% of all last 12 months
ERP and CRM deals struck over the past 12 months being deployed
in the cloud. Forrester concurrently surveyed 100 system integrators
across North America and Western Europe and found that 64% of Percentage of
ERP deals and 70% of CRM deals were deployed in cloud over the CRM deals
past 12 months. 99% deployed in the
cloud over the last
12 months

10 | The Partner Business Opportunity For Microsoft Business Applications

› Partners were experiencing double-digit year-over-year service
revenue growth for both their ERP and CRM practice areas.
System integrators interviewed for the study were struggling to keep up
with demand at the time of the interviews. These partners had average
projected service revenue growth of 17% year-over-year for their
Microsoft Business Application ERP practice areas and 24% year-over-
year growth for their Microsoft Business Application CRM practice
areas.
Average Forecasted Customer Engagement Service Average Forecasted Unified Operations Service
Revenue Growth Over Next 12 Months Revenue Growth Over Next 12 Months

24% 17%

› Partners were hyper-focused on acquiring net-new customers.

Across interviewed SIs, 65% of Microsoft Business Applications “Some of our legacy on-
business came from net-new logos, with 42% of interviewees premises and traditional
indicating that 80% or more of their Business Applications revenue was
support and maintenance
generated from new customers. Several customers revealed that
business is going to shrink.
legacy Microsoft Dynamics AX, GP, NAV and SL and Microsoft
That’s a big hit for us. . . . We
Dynamics CRM on-premises customers weren’t moving to the cloud as
keep investing in our
quickly as anticipated. Others knew that net-new logos would be the
lifeblood of their businesses, with one director at a global system [Microsoft] Dynamics
integrator stating, “Some of our legacy on-premises and traditional business, which is growing
support and maintenance business is going to shrink. That’s a big hit 23% to 25% year over year.”
for us. . . . We keep investing in our [Microsoft] Dynamics business, Director, GSI
which is growing 23% to 25% year over year.”
› Partners leveraged the modular nature of Microsoft Business
Applications to land and expand and “surround the core.”
Partners rarely stopped after deploying a single Microsoft Business
Application. “At least half of our customer base expands workloads
after the first implementation project,” remarked one partner. Many
Microsoft partners saw the breadth of the Microsoft Business
Applications portfolio and the degree to which the lines of business are
currently underpenetrated with cloud business software as a massive
opportunity. The CTO of a European regional system integrator
explained: “We never go in just to do one project. So, we have some
key strategies to build out deals into larger deals, going with adoption
and business consulting, and then adding a service-level agreement
on managed services.”

11 | The Partner Business Opportunity For Microsoft Business Applications

› Shifting business mix and growing focus on recurring revenues
and resalable IP. In their shifts to cloud-first business models, partners
“We never go in just to do one
were rapidly shifting away from traditional large-ticket projects and
project. So, we have some key
maintenance contracts to recurring and annuity revenue streams
generated from follow-on projects, more robust managed services, and strategies to build out deals
packaged, resalable value-added IP. Follow-on projects partners were into larger deals, going with
chasing at the time of the interviews covered a variety of domains adoption and business
spanning business intelligence, change management and adoption, consulting, and then adding a
and business process reengineering. Furthermore, constantly service-level agreement on
changing business and regulatory environments meant that partners managed services.”
could now play an ongoing role in supporting their customers business CTO, European RSI
applications beyond just rudimentary maintenance and help desk
services. Forrester’s economic analysis finds recurring and annuity
revenues generated form follow-on project work, managed services,
and resalable IP growing from 14% to 21% of the composite partner’s
total gross profit.

Composite Partner Description

Based on the interviews, Forrester constructed a TEI framework, a
composite partner, and an associated ROI analysis that illustrates the
areas financially affected. The composite partner is representative of
the 12 SIs that Forrester interviewed and is used to present the
aggregate financial analysis in the next section. The composite partner
that Forrester synthesized from the partner interviews has the following
characteristics:
› The composite partner is a North American-headquartered regional
system integrator. The composite partner has annual revenues of
$500 million and 500 employees spread across offices located in the
US, Canada, and Western Europe.
› The composite partner focuses primarily on enterprise customers
across three industries: retail, manufacturing, and professional
services. The organization plans to hire a practice lead and build out
specialization for the banking and financial services industry in the
coming years.
› The partner has both ERP and CRM practice areas built around
Microsoft Dynamics 365 Unified Operations and Microsoft Dynamics
365 Customer Engagement, respectively. Furthermore, the composite
partner serves small and medium-size businesses using Microsoft
Dynamics 365 Business Central.

12 | The Partner Business Opportunity For Microsoft Business Applications

Revenue And Margin Opportunities
Total Gross Profit (USD)
PRESENT
REF. BENEFIT YEAR 1 YEAR 2 YEAR 3 TOTAL VALUE
Atr Business strategy, $259,350 $441,750 $547,200 $1,248,300 $1,011,975
assessment, and visioning
engagements

Btr ERP implementation projects $2,561,741 $5,053,997 $5,975,497 $13,591,236 $10,995,193

Ctr CE implementation projects $1,896,675 $3,474,625 $4,639,800 $10,011,100 $8,081,791

Dtr Business Central $1,097,250 $1,745,625 $2,460,500 $5,303,375 $4,288,775

implementation revenue
Etr ERP and CRM upgrade $940,500 $1,330,000 $1,757,500 $4,028,000 $3,274,609
projects
Ftr Follow-on projects $478,800 $877,800 $1,077,300 $2,433,900 $1,970,119

Gtr Managed services $506,032 $1,428,455 $2,698,836 $4,633,323 $3,668,246

Htr Resalable, value-added IP $258,039 $736,155 $1,409,339 $2,403,533 $1,901,831

Itr Microsoft licensing margin $999,724 $2,610,591 $4,631,029 $8,241,343 $6,545,713

Total benefits (risk-adjusted) $8,998,111 $17,698,998 $25,197,002 $51,894,111 $41,738,252

Business Strategy, Assessment, And Visioning

Engagements
The most typical entry point for system integrators supporting their
customers’ journeys to Microsoft Business Applications was a short The table above shows the total of all
benefits across the areas listed below,
strategic engagement. These strategy engagements enabled partners to
as well as present values (PVs)
assess customers’ current IT environments and infrastructure, make discounted at 10%. Over three years,
recommendations on business process change, and design system the composite organization expects
landscapes and architecture. These projects helped partners better risk-adjusted total benefits to be a PV
scope future workstreams for the system integrators and typically of more than $41.7 million.
resulted in clearly defined, phased road maps for the adoption of modern
applications across the business.
Average deal sizes for these entry point strategy engagements varied widely across interviewed partners, from
a low of approximately $20,000 for highly structured, repeatable workshops to a high of over $500,000 for a
more comprehensive, 12-week engagement to build and implement a completely new operating model.
Business strategy, assessment, and visioning engagements had average project sizes of $50,000 for Customer
Engagement initiatives and $60,000 for Unified Operations initiatives, with gross profit margins for both ranging
from 25% to 30%.
In modeling the revenue and margin opportunity associated with delivering business strategy, assessment, and
visioning projects, Forrester assumes:
› Business strategy, assessment, and visioning projects attach to
enterprise-level Unified Operations and Customer Engagement deals.
Business Central and upgrade strategy work is accounted for in the
revenue categories titled “Business Central implementation projects”
and “ERP and CRM upgrade projects,” respectively.
› The number of projects sold each year grow over time, as shown in
rows A1 and A2 in the table below.

13 | The Partner Business Opportunity For Microsoft Business Applications

› As mentioned earlier, average project sizes are $50,000 for Customer
Engagement initiatives and $60,000 for Unified Operations.
› Gross profit margins on business strategy, assessment, and visioning Impact risk is the risk that the business
projects are 30% before adjusting for risk. or technology needs of the
organization may not be met by the
Given the high variability in the average deal sizes for these entry point investment, resulting in lower overall
strategy engagements and the propensity for some partners to subsidize total benefits. The greater the
these projects through the presales process, Forrester adjusted this uncertainty, the wider the potential
revenue area downward by 5%. Over the three-year analysis, business range of outcomes for benefit
strategy, assessment, and visioning engagements bring a PV gross profit estimates.
of $1,011,975.
Business Strategy, Assessment, And Visioning Consulting: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
A1 Number of net-new customers, per year (F&O) 6 10 12

A2 Number of net-new customers, per year 11 19 24

(CE/CRM)
A3 Average assessment, strategy, and visioning $60,000 $60,000 $60,000
project deal size (F&O)
A4 Average assessment, strategy, and visioning $50,000 $50,000 $50,000
project deal size (CE)
A5 Total assessment, strategy, and visioning A1*A3 $360,000 $600,000 $720,000
project revenue (F&O)
A6 Total assessment, strategy, and visioning A2*A4 $550,000 $950,000 $1,200,000
project revenue (CE)
A7 Average gross profit margin 30% 30% 30%

At Business strategy, assessment, and visioning (A5+A6)*A7 $273,000 $465,000 $576,000

engagements
Risk adjustment ↓5%

Atr Business strategy, assessment, and visioning $259,350 $441,750 $547,200

engagements (risk-adjusted)

Implementation Projects
In virtually all cases, successful business strategy, assessment, and
visioning engagements converted into much larger Microsoft Business
Application implementation and system integration projects.
Implementation projects encompassed both technical consulting —
including data, security, development, configuration, and system
integration work — and business consulting — including business
process reengineering and transformation, training, and change
management. Implementation projects fell into three categories: 1) ERP
implementations; 2) CRM implementations; and 3) Business Central
implementations, which are described in the following sections.

ERP Implementation
At the time of the interviews, system integrators were delivering an
average of 12 ERP implementation projects annually. Project sizes for
ERP implementation projects varied widely, with partners reporting
project sizes as low as $500,000 and as high as $13 million. Projects
were delivered by teams of solution architects, developers, functional
consultants, project managers, and developers, with team sizes ranging

14 | The Partner Business Opportunity For Microsoft Business Applications

from four full-time equivalent (FTE) employees for smaller projects up to
20 FTE employees for the largest projects. The majority of ERP
implementation projects ranged from $1.5 million to $9 million in project
revenue with project timelines ranging from six months to 24 months.
The average deal size across interviewed SIs for ERP implementations
was just over $4.5 million. The average project timeline for an ERP
implementation was 21 months at the time of the interviews.
In modeling the revenue and margin impact of ERP implementation work
for the composite partner, Forrester assumes:
› The partner sells two large, 500-user ERP deals per year, bringing in $4 million in total project revenues per
deal, which is on the conservative side of ERP implementation project sizes. Project timelines for ERP
implementations are 21 months. As such, nine months of project revenues are realized in the subsequent year’s
revenue calculation in the economic model.
› The partner sells between four and 10 medium-sized ERP deals per year, which bring in average deal sizes of
$900,000 and have project timelines under 12 months.
› Project gross margins grow from 33% in Year 1 of the analysis to 37% in Year 3 of the analysis as the
composite partner continues to invest in intellectual property and its center of excellence to streamline project
delivery.
Given the variance in project sizes, delivery timeframes, and project profitability across partners, Forrester
adjusted this benefit downward by 5%, yielding a three-year risk-adjusted total gross profit PV of nearly $11
million.
ERP Implementation Projects: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3

Number of net-new customers, per year

B1 Part of A1 2 2 2
(F&O) — large deals (500 to 1,000+ users)

Number of net-new customers, per year

B2 Part of A1 4 8 10
(F&O) — medium deals (250 to 500 users)

B3 Average deal size — large F&O deals $4,000,000 $4,000,000 $4,000,000

B4 Average implementation deal length 21 21 21

B5 Average per-project monthly billings B3/B4 $190,476 $190,476 $190,476

Average large F&O deal annual (B1PY*B5PY*9)+(B

B6 $4,571,424 $7,999,992 $7,999,992
implementation project run rate 1CY* B5cY*12)

B7 Average deal size — medium F&O deals $900,000 $900,000 $900,000

B8 Average medium F&O deal annual run rate B2*B7 $3,600,000 $7,200,000 $9,000,000

B9 Total F&O implementation deal revenues B6+B8 $8,171,424 $15,199,992 $16,999,992

B10 Gross profit margin 33% 35% 37%

Bt ERP implementation projects B9*B10 $2,696,570 $5,319,997 $6,289,997

Risk adjustment ↓5%

ERP implementation projects (risk-

Btr $2,561,741 $5,053,997 $5,975,497
adjusted)

CE Implementation
According to partners, Customer Engagement and CRM projects
generally required less integration, data migration, and change

15 | The Partner Business Opportunity For Microsoft Business Applications

management work, which corresponded to a shorter project delivery
timeline and lower overall average deal size for implementation. Given
these dynamics, partners were able to deliver more than double the
number of CE implementation projects relative to ERP projects. This was
a necessity at the time of the interviews, with partners predicting 24%
year-over-year service revenue growth over the next 12 calendar
months.
CRM implementation projects brought average project revenues of just
over $550,000, with deal sizes often breaking into the millions for larger
enterprises with more complex needs. Most projects averaged three to
28
six months, though several global system integrators had a significant Average number of net-
volume of multiyear projects at the time of the interviews. new CRM deals, per
For the composite partner, Forrester assumes:
partner, annually
› The partner sells between 11 and 24 CE implementation deals
annually over the three-year analysis, as seen in row C1 below.
› Average deal sizes for CE implementation projects are $550,000, as
seen in row C2 in the table below.
› Project gross margins grow from 33% in Year 1 to 37% in Year 3, as
the composite partner continues to invest in intellectual property and its
center of excellence to streamline CE project delivery.
Given the aforementioned variance in average deal sizes for CE,
Forrester adjusted this benefit downward by 5%, yielding a three-year
risk-adjusted total gross profit PV of just over $8 million.
CE Implementation Projects: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
C1 Number of net-new customers, per year (CE) 11 19 24

C2 Average implementation deal size $550,000 $550,000 $550,000

C3 Average CE annual run rate C1*C2 $6,050,000 $10,450,000 $13,200,000

C4 Gross profit margin 33% 35% 37%

Ct CE implementation projects C3*C4 $1,996,500 $3,657,500 $4,884,000

Risk adjustment ↓5%

Ctr CE implementation projects (risk-adjusted) $1,896,675 $3,474,625 $4,639,800

Business Central Implementation Revenue

Partners working with small and medium-size businesses (SMBs) offered
implementation and professional services for Microsoft Dynamics 365
Business Central, Microsoft’s all-in-one business management solution.
Business Central implementation projects, often coined as “velocity”
projects by Microsoft partners, were relatively quick and cost-effective,
requiring much less business transformation work relative to enterprise-
level business application deals.
To deliver these projects profitably, partners used prebuilt templates and 21
accelerators to streamline delivery. As such, Business Central Average number of net-
implementation deal sizes were just over $350,000 at the time of the
interviews. Lastly, given the high velocity of project delivery and double-
new Business Central
digit service revenue growth projected for Microsoft Business Central deals, per partner,
according to Forrester’s survey of 100 system integrators across North annually
16 | The Partner Business Opportunity For Microsoft Business Applications
America and Western Europe, each partner supporting the workload was
able to close, on average, 21 deals per year. For the composite partner,
Forrester assumes:
› The partner sells between 10 and 20 Business Central deals annually
over the three-year analysis, as seen in row D1 below.
› Average deal sizes for Business Central implementation projects are
$350,000, as seen in row D2 below.
› Project gross margins grow from 33% in Year 1 to 37% in Year 3 of the
analysis, as the composite partner continues to invest in tools,
templates, and accelerators to streamline delivery of these projects to
SMBs.
Given that small businesses are not a homogenous group and have
varying degrees of business and IT complexity, Forrester adjusted this
benefit downward by 5% to account for potential gross profit risk, yielding
a three-year risk-adjusted total gross profit PV of nearly $4.3 million.
Business Central Implementation Revenue: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
D1 Number of net-new “velocity”/Business Central 10 15 20
customers
D2 Average implementation deal size $350,000 $350,000 $350,000

D3 Average business central annual run rate D1*D2 $3,500,000 $5,250,000 $7,000,000

D4 Gross profit margin 33% 35% 37%

Dt Business Central implementation projects D3*D4 $1,155,000 $1,837,500 $2,590,000

Risk adjustment ↓5%

Dtr Business Central implementation projects (risk- $1,097,250 $1,745,625 $2,460,500

adjusted)

ERP And CRM Upgrade Projects

A significant portion of partner projects came from upgrades of current
customers running Microsoft Dynamics AX 2009 and 2012, or other
competitive on-premises ERP and CRM vendor solutions. ERP and CRM
upgrades were generally done together as a single project. Project sizes
and timelines varied depending on the specific Dynamics version or
other legacy business application that was running within the end
customer’s environment at the time of upgrade. Partners indicated that it
cost anywhere from $500,000 to $2,000,000 to modernize a client on
Unified Operations and Customer Engagement, although deal sizes
could approach that of a net-new business application deployment in
certain circumstances.
For the composite partner, Forrester assumes:
› The partner sells between three and five ERP and CRM upgrade
projects annually over the three-year analysis, as seen in row E1
below.
› Average deal sizes for ERP and CRM upgrade projects are
$1,000,000, as seen in row E2 below.
› Project gross margins grow from 33% in Year 1 to 37% in Year 3 of the
analysis with continued research and development and IP investments.

17 | The Partner Business Opportunity For Microsoft Business Applications

Several SIs interviewed for this study were almost exclusively focused on
net-new logos, with one partner indicating that over 90% of its consulting
billing was from new clients. Furthermore, upgrade deal sizes varied
quite a bit based on the baseline condition of each specific client’s
infrastructure and business processes. Given this variability, Forrester
adjusted this benefit downward by 5%, yielding a three-year risk-adjusted
total gross profit PV of nearly $3.3 million.
ERP And CRM Upgrade Projects: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
E1 Number of CRM and ERP upgrade projects, per 3 4 5
year
E2 Average upgrade project size (F&O and CE) $1,000,000 $1,000,000 $1,000,000

E3 Average upgrade project annual run rate E1*E2 $3,000,000 $4,000,000 $5,000,000

E4 Gross profit margin 33% 35% 37%

Et ERP and CRM upgrade projects E3*E4 $990,000 $1,400,000 $1,850,000

Risk adjustment ↓5%

Etr ERP and CRM upgrade projects (risk-adjusted) $940,500 $1,330,000 $1,757,500

Follow-On Project Revenues

The partner business opportunity around Microsoft Business Applications
went well beyond implementation. Next-phase, or follow-on project, work “Seventy-five percent of our
spans a variety of domains including business intelligence, reporting, clients who use us to deploy a
digital strategy, management consulting, and change management, just Dynamics 365 application will
to name a few. In addition, follow-on project work often included use us to deploy another one
additional Microsoft Business Application deployment projects. One in the future.”
global system integrator revealed that 75% of implementation projects
Principal, Advisory, GSI
lead to follow-on deployment projects for additional Microsoft Business
Applications. Another national system integrator saw the customer
journey as a multiyear road map, with the objective of generating quick
wins early, and then moving on to tougher, more complex issues. The
COO of that NSI stated: “For [Microsoft] Customer Engagement (CE), we
tend to start with Sales Force Automation and then think about Field
Service after that. Field Service is more complicated than Sales Force
Automation, so we want to go get that early win with the customer, and
then move on too meatier areas.”
The most common follow-on project area across interviewed partners
was business intelligence and workflow automation projects, which saw
attach rates as high as 75% for some partners, with most partners
averaging at least 40% to 50% attach rates for this type of work. The
SVP of a national system integrator commented: “For us, we are seeing
additional service revenue come from BI and analytics strategy projects.
Seventy-five percent of our [Business Application] clients buy some type
of BI work. This is not just Power BI; this is data warehousing work that
sets the foundation for Power BI and visualization and reporting work our
clients need.”
For the composite partner, Forrester assumes:

18 | The Partner Business Opportunity For Microsoft Business Applications

› The total number of Microsoft Business Application deals sold,
inclusive of ERP, CRM, and Business Central implementations along “For us, we are seeing
with upgrade projects, grows over time, as represented in the table additional service revenue
below in row F1. come from BI and analytics
strategy projects. Seventy-five
› The attach rates for Microsoft Power Platform follow-on work grows
percent of our [Business
from 40% in Year 1 of the analysis to 45% for Years 2 and 3 of the
Application] clients buy some
analysis, on the conservative end of the partner findings.
type of BI work. This is not just
› Average deal sizes for Microsoft Power Platform follow-on work were Power BI; this is data
$120,000, which includes $75,000 of Power BI work and $45,000 of warehousing work that sets
workflow automation work with Power Apps and Flow. the foundation for Power BI
› Follow-on work brings project gross margins averaging 35%. and visualization and reporting
work our clients need.”
Partners have a large spectrum of follow-on project opportunities that
spans multiple Microsoft cloud solution areas. In quantifying the gross SVP, NSI
profitability impact of follow-on project work, Forrester risk-adjusted this
benefit downward by 5% to account for variance in project attach rates
and deal sizes. Over the three-year analysis, gross profit from follow-on
project work totaled a risk-adjusted PV of just under $2 million.
Follow-On Project Revenues: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
F1 Total number of projects sold 30 48 61

F2 Attach rate for Power Platform 40% 45% 45%

F3 Total number of Power BI Projects F1*F2 (rounded) 12 22 27

F4 Average Power BI deal size $75,000 $75,000 $75,000

F5 Average Power Apps deal size $45,000 $45,000 $45,000

F6 Total follow-on project revenues F3*(F4+F5) $1,440,000 $2,640,000 $3,240,000

F7 Gross profit margin 35% 35% 35%

Ft Follow-on projects F6*F7 $504,000 $924,000 $1,134,000

Risk adjustment ↓5%

Ftr Follow-on projects (risk-adjusted) $478,800 $877,800 $1,077,300

Managed Services
As partners increasingly sought to move away from a transactional mindset toward a more service-oriented,
recurring revenue business mix, partners were eager to capitalize on growing customer demand for more
robust managed services that align with the needs of modern business application users in the cloud. As
such, partners were evolving their managed services portfolios away from traditional support and
maintenance agreements. Managed services offered by partners around their cloud-first ERP and CRM
practices included application management and incident management, managed update services, security
management, and ongoing development and system integration support.
Microsoft partners provided the following anecdotes when speaking about the necessity of offering robust,
proactive managed services as part of their Microsoft Business Applications practices:
› “Ten percent of our [managed services] business is traditional break-fix today, with the other 90% being
net-new enhancements.”
› “All of our customers have at least one or two [Independent Software Vendor] solutions integrated into their
[Microsoft Dynamics] F&O deployment, and our traditional support offering can’t accommodate this.”

19 | The Partner Business Opportunity For Microsoft Business Applications

› “With the Dynamics 365 release cadence, our customers need support with update management. They
have multiple environments to update four times a year and need skilled technical architects to resolve any
issues as they arise.”
Managed service pricing was typically done on a custom but fixed-price basis, with pricing done either at the
organizational level or the individual seat level. Enterprise managed service agreements ranged from $6K
per year on the low end to a high of $250K per year for more premium managed services for enterprise
customers. Per-seat managed services pricing ranged from $50 per user, per month to a high of $70 per
user, per month. Pricing was generally tiered from bronze to gold packages with service-level agreements
and the specific services included in each package impacting the price. Attach rates for managed services
averaged 50% across all partners interviewed for the study, although one GSI had an 80% attach rate for
managed services at the time of the interview.
For the composite partner, Forrester assumes:
› The attach rate for managed services is 50% of Microsoft Business Application implementation and
upgrade customers across the three-year analysis.
› Bronze package managed services are priced at $6,000 per organization, per month, and account for 25%
of all managed service sales.
› Silver package managed services are priced at $8,000 per organization, per month, and account for 40%
of all managed service sales.
› Gold package managed services are priced at $12,000 per organization, per month, and account for 35%
of all managed services sales.
› The partner has 5% annual churn on managed services contracts.
› Managed services gross margins range from 35% in Year 1 of the analysis to 40% by Year 3 of analysis.
Given the variance in pricing, attach rates, and gross profit margins for managed services across interviewed
Microsoft partners, Forrester adjusted this gross profit figure downward by 5%. Over the three-year analysis,
Microsoft Business Applications managed services brought risk-adjusted gross profit margins totaling a PV
of nearly $3.7 million.

20 | The Partner Business Opportunity For Microsoft Business Applications

Managed Services: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
G1 Total customers 30 78 139

G2 Attach rate 50% 50% 50%

G3 Total managed services customers G1*G2 (rounded) 15 39 70

Bronze managed services package,

G4 25% $6,000 $6,000 $6,000
monthly pricing
Silver managed services package, monthly
G5 40% $8,000 $8,000 $8,000
pricing
Gold managed services package, monthly
G6 35% $12,000 $12,000 $12,000
pricing

G7 Months per year 12 12 12

G3*((G4*25%)+(G5*40
G8 Managed services annual run rate %)+(G6*35%))*G7 $1,602,000 $4,165,200 $7,476,000

G9 Churn rate 5% 5% 5%

G10 Churn-adjusted managed service revenues G8*(1-G9) $1,521,900 $3,956,940 $7,102,200

G11 Gross profit margin 35% 38% 40%

Gt Managed services G10*G11 $532,665 $1,503,637 $2,840,880

Risk adjustment ↓5%

Gtr Managed services (risk-adjusted) $506,032 $1,428,455 $2,698,836

Resalable, Value-Added IP
Microsoft partners interviewed for the study were building and selling a
variety of vertical and cross-industry software applications at the time of
“We have accelerators for Field
the interviews. Often, these resalable pieces of intellectual property were
technical accelerators to speed up implementation timelines and help Service and some other IP
automate very manual implementation workflows. In these instances, that basically fills in the gaps
partners either gave away, or charged a nominal fee, for their IP to get in the core product. If we didn’t
their foot into the door for lucrative, multiyear business application build this, we’d be doing the
implementation or modernization deals. In other instances, partners were same 20 to 30 customizations
able to commercialize their resalable IP with a per-user monthly fee. for each customer. So to make
For instance, one SI built an accelerator for Microsoft Dynamics 365 for our projects efficient, we built
Field Service that had a nearly 100% attach rate for which it charged $10 an accelerator and charge a
per user, per month. The practice director at the partner said: “We have monthly fee for it. “
accelerators for Field Service and some other IP that basically fills in the Practice Director, SI
gaps in the core product. If we didn’t build this, we’d be doing the same
20 to 30 customizations for each customer. So to make our projects
efficient, we built an accelerator and charge a monthly fee for it.”
For the composite organization, Forrester assumes:
› The composite partner builds an add-on set of tooling that lights
various supply chain capabilities within Microsoft Dynamics 365
Finance And Operations. The organization charges $29 per user, per
month for a license and attaches this IP to 50% of ERP deals.

21 | The Partner Business Opportunity For Microsoft Business Applications

› In addition, the composite partner builds an accelerator for Customer
Engagement projects that attaches to 50% of CE deals and is priced at
$10 per user, per month.
› Gross profit margins grow from 45% in Year 1 to 55% by Year 3 of the
analysis, as it is able to improve software functionality and better
commercialize the software with customers.
Partner gross profit margins on resalable IP sales will vary significantly
by use case and client base. As such, Forrester adjusted the gross profit
figure associated with resalable IP downward by 5%, yielding a three-
year risk-adjusted total gross profit PV of over $1.9 million.
Resalable, Valued-Added IP: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
H1 Total F&O users 1,600 3,800 6,300

H2 Total CE users 5,500 15,000 27,000

Supply chain intelligent inventory IP (attach

H3 50% 50% 50%
rate)

H4 CE accelerator (attach rate) 50% 50% 50%

Supply chain intelligent inventory IP price

H5 $28.50 $28.50 $28.50
(per user, per month)
Field service accelerator IP price (per user,
H6 $10.00 $10.00 $10.00
per month)
Supply chain intelligent inventory IP run
H7 H1*H3*H5*12 $273,600 $649,800 $1,077,300
rate

H8 Field service accelerator IP run rate H2*H4*H6*12 $330,000 $900,000 $1,620,000

H9 Gross profit margin (%) 45% 50% 55%

Ht Resalable, value-added IP (H7+H8)*H9 $271,620 $774,900 $1,483,515

Risk adjustment ↓5%

Htr Resalable, value-added IP (risk-adjusted) $258,039 $736,155 $1,409,339

Microsoft Licensing Margin

Partners receive margin and other incentives for reselling Microsoft Business Applications and other Microsoft
technologies to customers. The amount of margin that can be made by a partner depends heavily on whether it is
a Microsoft Licensing Solution (LSP) or Cloud Solution Partner (CSP), and whether its customer purchase licenses
through CSP or with an Enterprise Agreement (EA). For the composite partner, Forrester assumes:
› Only 40% of large, 500-user Unified Operations deals are sold by the partner under an EA. Furthermore, given
the implementation timeline for a large-scale Microsoft Business Applications ERP projects, Forrester assumes
that only 50% of licenses are deployed in the first year of any given project. The number of licenses sold
annually can be found in row I1. Average EA margin is assumed to be 50% of Year 1 billings in the year it’s sold.
› Smaller ERP, CRM, and Business Central deals are sold through CSP. Forrester assumes the composite
partner sells 90% of user licenses that are deployed through CSP and makes, on average, 15% margins on
each license sold each year after accounting for incentives and rebates.
› The composite partner has 5% annual churn on Microsoft Business Application licenses.
› Lastly, the composite partner spends 15% of its licensing margin on sales costs and programs to boost user
adoption of Microsoft Business Applications.
Over the three-year analysis, the composite organization yields a PV of over $6.5 million in gross profit from

22 | The Partner Business Opportunity For Microsoft Business Applications

Microsoft licensing margin.
Microsoft Licensing Margin: Calculation Table
REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3
I1 Net-new number of F&O licenses (B1PY*500 users*50% 500 1,000 1,500
(EA) deployed in
YR1)+(B1CY*500 users*50%
deployed in YR1)
I2 Number of F&O licenses (CSP) (B2*150 users)+I2PY 600 1,800 3,300

I3 Number of CE licenses (CSP) (C1*500 users)+I3PY 5,500 15,000 27,000

I4 Number of business application (D1*150)+I4PY 1,500 3,750 6,750

licenses (CSP)
I5 Unified operations plan license price $135.28 $135.28 $135.28
(per user, per month)
I6 Customer engagement plan license $75.67 $75.67 $75.67
price (per user, per month)
I7 Business Central plan license price $100.00 $100.00 $100.00
(per user, per month)
I8 EA license billings I1*I5*12*40% sold $324,672 $649,344 $974,016
through EA
I9 Unified Operations & CE CSP (I2*I5*12*90%)+(I3*I6*12 $5,371,412 $14,888,383 $26,886,751
license billings *90%)
I10 Business Central license billings I4*I7*12 $1,800,000 $4,500,000 $8,100,000

I11 Total EA Billings (churn-adjusted) I8*(1-.05) $308,438 $616,877 $925,315

I12 Total CSP billings (churn-adjusted) (I9+I10)*(1-.05) $6,812,842 $18,418,964 $33,237,414

I13 EA license margin I11*50% $154,219 $308,438 $462,658

I14 CSP license margin I12*15% $1,021,926 $2,762,845 $4,985,612

I15 Total channel licensing margins I13+I14 $1,176,145 $3,071,283 $5,448,270

I16 Gross profit margin 85% 85% 85%

It Microsoft licensing margin I15*I16 $999,723.65 $2,610,591 $4,631,029

23 | The Partner Business Opportunity For Microsoft Business Applications

Analysis Of Investments
Total Investments
PRESENT
REF. COST INITIAL YEAR 1 YEAR 2 YEAR 3 TOTAL VALUE
Jtr Incremental staffing $3,873,825 $0 $4,943,631 $5,361,148 $14,178,604 $11,987,380
costs
Ktr Training and $1,581,300 $0 $2,485,350 $3,131,100 $7,197,750 $5,987,750
certification costs
Ltr Research and $1,650,000 $330,000 $330,000 $330,000 $2,640,000 $2,470,661
development
expenses
Mtr Marketing, sales, $0 $2,769,172 $4,004,113 $4,601,670 $11,374,956 $9,283,917
and administrative
costs
Total costs (risk- $7,105,125 $3,099,172 $11,763,094 $13,423,918 $35,391,310 $29,729,708
adjusted)

In addition to direct service delivery costs, including functional

consultant, solution architect, developer, and IT support staff salaries,
which are included in the gross margin calculations in the Revenue And
Margin Opportunities section of this study, Microsoft partners made a
number of strategic investments to grow and scale their Microsoft
Business Application practice areas.

Incremental Staffing Costs

The table above shows the total of all
In establishing and scaling their ERP and CRM practice areas around the costs across the areas listed below, as
Microsoft Business Application portfolio, partners made both upfront and well as present values (PVs)
ongoing talent acquisition investments. With year-over-year service discounted at 10%. Over three years,
revenue growth rates of 17% to 24% projected over the next 12 months, the composite organization expects
firms were scrambling to hire difficult-to-find functional consultants with risk-adjusted total costs to be a PV of
the right industry and line-of-business expertise. In addition, just over $29.7 million.
organizations struggled to find experienced solution architects and
change management resources.
This problem was compounded by the breadth of capabilities across the
Unified Operations and Customer Engagement Microsoft Business
Application SKUs. When speaking about the Customer Engagement
SKU, one partner noted, “With Sales Force Automation, Field Service,
Project Service Automation, Microsoft Relationship Sales Solution, and
Marketing, no single consultant can know the whole product. . . . We
have to hire lots of people to become specialists.” This challenge was
just as acute in Unified Operations where partners were hiring
accountants and supply chain specialists and pouring money into training
them up on Microsoft Dynamics 365 Finance And Operations.
Interviewed partners employed a variety of strategies to identify and
onboard new talent to meet their firms’ growing Microsoft Business
Application demand. For example, several partners hired university
graduates and spent tens of thousands of dollars in training and
certifying them to become Microsoft Business Application specialists.
Others tried to recruit, hire, and retrain consultants from other ERP and
CRM vendors.
For the composite partner, Forrester assumes:

24 | The Partner Business Opportunity For Microsoft Business Applications

› The partner hires four Business Application practice leads — two
focused on Unified Operations and another two focused on Customer
Engagement.
› The partner also hires three industry vertical leads for the
manufacturing, retail, and professional services industries during the
initial phase of this analysis. In Year 2 of the analysis, the partner hires
a practice lead for the banking and financial services industry.
› In addition, the partner builds a center of excellence for each of the
organization’s four core industry verticals. The CoE consists of six
solution architects and four developers, all of whom allocate
approximately 30% of their billable hours to activities related to the
CoE, including knowledge management, IP development, and best
practice proliferation.
› All staff salary expenses, shown in rows J5 through J7 below, include a
salary overhead burden rate to account for benefits and payroll taxes,
which is assumed to be 30% of annual salary expenses in this
analysis. In addition, the model assumes 2% annual salary increases Implementation risk is the risk that a
proposed investment may deviate from
for each of these roles.
the original or expected requirements,
Forrester realizes that salaries will vary by region, skill set, exact resulting in higher costs than
position, and level of experience. As such, incremental salary expenses anticipated. The greater the
have been risk-adjusted upward by 10%. Over the three-year analysis, uncertainty, the wider the potential
range of outcomes for cost estimates.
incremental salary costs totaled a PV of just under $12 million for the
composite partner.
Incremental Staffing Costs: Calculation Table
REF. METRIC CALC. INITIAL YEAR 1 YEAR 2 YEAR 3

J1 Business Application practice leads 4 4 4

J2 Industry vertical practice leads 3 4 4

J3 Presales engineers 6 8 10

J4 Center of excellence costs $1,333,428 $1,777,904 $1,777,904

Average fully burdened salary, 2% annual

J5 $190,948 $194,767 $198,662
Business Application practice lead salary growth

Average fully burdened salary, 2% annual

J6 $162,208 $165,452 $168,761
vertical market practice lead salary growth

Average fully burdened salary, 2% annual

J7 $156,303 $159,429 $162,618
presales engineer salary growth
(J1*J5)+(J2*J6) $3,521,659.
Jt Incremental staffing costs $4,494,210 $4,873,771
+(J3*J7)+J4 44

Risk adjustment ↑10%

Incremental staffing costs (risk-

Jtr $3,873,825 $0 $4,943,631 $5,361,148
adjusted)

25 | The Partner Business Opportunity For Microsoft Business Applications

Testing And Certification Costs
In the face of growing demand for Microsoft Business Application services and a challenging talent shortage for
experienced functional consultants, solution architects, developers, and other key talent, partners made heavy
ongoing investments in training and certifications. Training programs included coaching, in-classroom learning,
and eLearning curriculums for all staff, along with programs tailored to new university graduates. One partner
built a four-month training program to train new university graduates, its core talent pool, to become Microsoft
Business Application consultants at a cost of over €22,000 per pupil.
In Forrester’s survey of 100 Microsoft Business Application partners, 74% had attained the Cloud Customer
Relationship Management Gold while 64% had attained the Enterprise Resource Planning Gold Competency.
Given that competencies are a core differentiator for customers in their vendor selection process, partners are
increasingly investing in Microsoft competencies in addition to their other investments in staff training and skill
development.

Microsoft Competencies Attained By Microsoft Business Application Partners

Which of the following Microsoft competencies does your firm hold today as it relates to you Microsoft Business
Applications practice areas?

Cloud Customer Relationship Management Gold 74%

Enterprise Resource Planning Gold 64%

Enterprise Customer Engagement Gold 59%

Enterprise Operations Gold 39%

Enterprise Resource Planning Silver 19%

Cloud Customer Relationship Management Silver 15%

Enterprise Operations Silver 7%

Enterprise Customer Engagement Silver 6%

Other 4%

None of the above/don't know 2%

Base: 100 Microsoft Dynamic partner respondents
Source: A commissioned study conducted by Forrester Consulting on behalf of Microsoft, May 2019

For the composite partner, Forrester assumes:

› Over the course of the analysis, the composite partner trains between 60 and 120 consultants, solution
architects, and presales engineers across its Microsoft Business Application ERP and CRM practice areas.
› Average training costs, inclusive of unbillable hours, professional learning and facilitation services,
curriculum development, coaching, travel and expenses, and other fees total $24,600 per employee. This
figure assumes high-intensity training for new university graduates and ongoing training for high-cost,
experienced consultants, solution architects, and developers.
› The composite partner spends $30,000 annually on gold-level Microsoft competencies and certifications.
Exact training requirements will vary across partners depending on the capabilities of their existing workforce
and staff on-the-job experience deploying Microsoft Business Applications. To account for these variations,
Forrester risk-adjusted this expense item upward by 5%, resulting in a three-year total PV of just under $6
million.

26 | The Partner Business Opportunity For Microsoft Business Applications

Testing And Certification Costs: Calculation Table
REF. METRIC CALC. INITIAL YEAR 1 YEAR 2 YEAR 3
K1 Number of consultants trained, per 60 95 120
year

K2 Average annual training costs $24,600 $24,600 $24,600

K3 Gold competency/certification $30,000 $30,000 $30,000

testing fees
Kt Training and certification costs K1*K2+K3 $1,506,000 $0 $2,367,000 $2,982,000

Risk adjustment ↑5%

Ktr Training and certification costs (risk- $1,581,300 $0 $2,485,350 $3,131,100

adjusted)

Research And Development

All partners made upfront and ongoing research and development investments to build out new service offerings
and to build intellectual property that they could package with their Microsoft Business Application deals. For
instance, one partner dedicated a team of eight practice leads and consultants to build out packaged, repeatable
workshops to improve service profitability for its CRM Business Applications practice. As mentioned earlier,
vertical and cross-industry software applications that could be packaged and sold to multiple customers were also
a very common R&D investment area for system integrators interviewed for the study.
Forrester assumes that the composite partner invests $1.5 million in R&D during the initial period of the analysis
to build out its managed service capabilities and value-added resalable IP for both ERP and CE customers. In
addition, the organization spends $300,000 annually on ongoing maintenance and development of its resalable IP
offerings. Forrester risk-adjusted this cost upward by 10% to account for variability in the time and resource costs
partners incurred for building minimum viable products (MVPs) of their resalable IP offerings. Over the three-year
analysis, research and development expenses total a risk adjusted PV of just under $2.5 million.
Research And Development: Calculation Table

REF. METRIC CALC. INITIAL YEAR 1 YEAR 2 YEAR 3

Lt Research and development $1,500,000 $300,000 $300,000 $300,000
expenses
Risk adjustment ↑10%

Ltr Research and development 5% of year 1 $1,650,000 $330,000 $330,000 $330,000

expenses (risk-adjusted) rev

Marketing, Sales, And Administrative Costs

Partners make outlays for marketing and sales to position, promote, demo, and sell their capabilities and
intellectual property around Microsoft’s cloud-based Business Applications portfolio. Given partners’ emphasis on
bringing in net-new logos and the lengthy sales cycles for both ERP and CE deals, marketing, sales, and
administrative costs are substantial, equating to 7% to 10% of total Microsoft Business Applications practice
revenues.
Marketing, sales, and administrative costs can vary based on each partner’s emphasis on bringing in net-new
logos and the specific markets and regions they do business in. Forrester adjusted this cost upward by 5% to
account for these factors, yielding a three-year risk-adjusted total PV of approximately $9.3 million.

27 | The Partner Business Opportunity For Microsoft Business Applications

Marketing, Sales, and Administrative Costs: Calculation Table

REF. METRIC CALC. YEAR 1 YEAR 2 YEAR 3

M1 Total business applications practice $26,373,069 $47,668,015 $62,607,762
revenue
M2 Selling, general, and administrative 10% 8% 7%
costs and marketing costs (percentage
of revenue)
Mt Marketing, sales, and administrative M1*M2 $2,637,307 $3,813,441 $4,382,543
costs
Risk adjustment ↑5%

Mtr Marketing, sales, and administrative $2,769,172 $4,004,113 $4,601,670

costs (risk-adjusted)

28 | The Partner Business Opportunity For Microsoft Business Applications

Financial Summary
CONSOLIDATED THREE-YEAR RISK-ADJUSTED METRICS

Cash Flow Chart (Risk-Adjusted)

The financial results calculated in the
Benefits and Costs sections can be
Total costs used to determine the ROI, NPV, and
payback period for the composite
Total benefits organization’s investment. Forrester
Cumulative net benefits assumes a yearly discount rate of 10%
for this analysis.
Cash $30.0 M
flows
$25.0 M

$20.0 M

$15.0 M

$10.0 M

$5.0 M These risk-adjusted ROI,

NPV, and payback period
values are determined by
-$5.0 M
applying risk-adjustment
-$10.0 M
factors to the unadjusted
-$15.0 M results in each Benefit and
-$20.0 M Cost section.
Initial Year 1 Year 2 Year 3

Cash Flow Table (Risk-Adjusted)

PRESENT
INITIAL YEAR 1 YEAR 2 YEAR 3 TOTAL VALUE
Total
($7,105,125) ($3,099,172) ($11,763,094) ($13,423,918) ($35,391,310) ($29,729,708)
investments
Total gross
$0 $8,998,111 $17,698,998 $25,197,002 $51,894,111 $41,738,252
profit
Operating profit ($7,105,125) $5,898,939 $5,935,904 $11,773,083 $16,502,801 $12,008,544

ROI 40%
Practice break-
15.0
even (months)

29 | The Partner Business Opportunity For Microsoft Business Applications

Appendix A: Total Economic Impact
Total Economic Impact is a methodology developed by Forrester
Research that enhances a company’s technology decision-making
processes and assists vendors in communicating the value proposition Present value (PV)
of their products and services to clients. The TEI methodology helps
companies demonstrate, justify, and realize the tangible value of IT The present or current
initiatives to both senior management and other key business value of (discounted) cost and
stakeholders. benefit estimates given at an
interest rate (the discount rate).
The PV of costs and benefits feed
into the total NPV of cash flows.
Total Economic Impact Approach

Benefits represent the value delivered to the business by the Net present
product. The TEI methodology places equal weight on the value (NPV)
measure of benefits and the measure of costs, allowing for a
full examination of the effect of the technology on the entire The present or current value of
organization. (discounted) future net cash flows
given an interest rate (the discount
rate). A positive project NPV
normally indicates that the
investment should be made, unless
Costs consider all expenses necessary to deliver the other projects have higher NPVs.
proposed value, or benefits, of the product. The cost category
within TEI captures incremental costs over the existing
environment for ongoing costs associated with the solution. Return on
investment (ROI)

A project’s expected return in

percentage terms. ROI is
Flexibility represents the strategic value that can be calculated by dividing net benefits
obtained for some future additional investment building on (benefits less costs) by costs.
top of the initial investment already made. Having the ability
to capture that benefit has a PV that can be estimated.
Discount
rate

The interest rate used in cash flow

Risks measure the uncertainty of benefit and cost estimates analysis to take into account the
given: 1) the likelihood that estimates will meet original time value of money. Organizations
projections and 2) the likelihood that estimates will be typically use discount rates
tracked over time. TEI risk factors are based on “triangular between 8% and 16%.
distribution.”

Payback
period
The initial investment column contains costs incurred at “time 0” or at the
beginning of Year 1 that are not discounted. All other cash flows are discounted The breakeven point for an
using the discount rate at the end of the year. PV calculations are calculated for investment. This is the point in time
each total cost and benefit estimate. NPV calculations in the summary tables are at which net benefits (benefits
the sum of the initial investment and the discounted cash flows in each year. minus costs) equal initial
Sums and present value calculations of the Total Benefits, Total Costs, and investment or cost.
Cash Flow tables may not exactly add up, as some rounding may occur.

30 | The Partner Business Opportunity For Microsoft Business Applications

Appendix B: Endnotes

1 Source: “Quantifying The Business Value Of SaaS,” Forrester Research, Inc., February 15, 2019
2
Source: Forrester Analytics Global Business Technographics Software Survey, 2018

31 | The Partner Business Opportunity For Microsoft Business Applications