How do you HaaS?

Hardware as a service (HaaS) is becoming more common with MSPs.  Clients benefit from the reduced upfront capital expenditures and having up to date equipment.  MSPs benefit by establishing consistency and uniformity between client networks, increasing client “stickiness “ and increasing their company’s value with the purchase of depreciable fixed asset.

While selling HaaS is more popular there are multiple models for how to sell it.  A true HaaS offering has specific criteria regarding who owns the hardware and how it is billed on recurring invoices.  Many MSPs have hybrid-HaaS offerings that that are like equipment rentals or leases or product resale.

Here we describe the various types of HaaS offerings and the differences in tracking the revenue and costs associated with each one.

True HaaS

A true HaaS offering is where the MSP is billing their clients a fixed monthly fee for hardware and service bundled into a single line item. The client cannot see how much of the monthly billing is for service and how much is for hardware.

In this model, the hardware is owned by the MSP, ownership is never transferred from the MSP, and the monthly fee does not change. As the device reaches end of life, the MSP usually provides a new device at the same monthly fee.

• • Initial device purchase goes to a fixed asset account to be depreciated.
  • Monthly recurring service is recorded in the same account as other managed service revenue.

However, you will also want a monthly cost to go against a hard COGS for managed services account, so your monthly P&L reflects both revenue and costs for this service. This is accomplished with a recurring journal entry moving 1/36th of the purchase price from your fixed asse to your hard COGS every month for 36 months. (This assumes a 3-year lifespan of the hardware.  Use 1/60th if it is a 5-year lifespan, etc.)

Rental HaaS (HaaR)

A rental HaaS offering is like true HaaS in that the hardware is owned by the MSP and stays with the MSP.  However, rather than billing the device and service in a single line item, these are broken out into two-line items.

• • Initial device purchase goes to a fixed asset account to be depreciated.
  • Monthly recurring rental revenue goes to a separate rental income account.
  • Monthly recurring service is recorded in the same account as other managed service revenue.

Lease HaaS

With lease HaaS, the ownership of the device may transfer from MSP to the client at the end of the lease term. When purchased, the device is considered a depreciable asset of the MSP but at the end of the lease term the client is presented with options to purchase or return the equipment.

When invoicing a lease-type HaaS, the monthly device and service charges are separate line items.

• • Initial device purchase goes to a fixed asset account to be depreciated.
  • Monthly recurring service is recorded in the same account as other managed service revenue.
  • Monthly recurring rental revenue goes to a separate lease income account.
  • If client purchases the hardware revenue goes to product income account

This fee can be $1 or Fair Market Value (there are rules about what an MSP can charge at the end of the lease period).  Either way, the purchase is handled like a standard hardware sale. There are would not be any COGS for the final sale as the item has already been depreciated.

3rd Party HaaS

With 3rd party HaaS, the vendor/manufacturer is selling a product to an MSP via a HaaS model and the MSP in turn sells the product to their clients with a HaaS pricing model.  There are two types of 3rd Party HaaS scenarios which are distinguished by whether the end user client is made aware of the monthly fee for the device.  The monthly device fee is either bundled into a flat monthly Managed Services fee or the device HaaS services are billed on separate lines This distinction determines how the recurring revenue and costs are classified in your accounting software.

3rd Party HaaS (bundled with Managed Service fee)

• • No initial device purchase.
  • Monthly recurring service is recorded in the same account as other managed service revenue.
  • Monthly recurring costs will be entered into the hard COGS for managed services.

3rd Party HaaS (separate line item on recurring invoice)

• • No initial device purchase.
  • Monthly recurring service is recorded in the same account as other managed service revenue.
  • Monthly recurring service goes to a product income account.
  • Monthly recurring costs will be entered into a product COGS account.

Regardless of how you HaaS, Visionary 360 can provide guidance to help you set up the required products so there will be a seamless transition from quote to Manage to accounting software.