Archives For gross profit

The Average Security Sale Is A Commodity Sale Too

Security is always in the news, and generally ranked high on the company initiatives list.

For ten years I’ve been encouraging resellers to put more focus on security – urgent security issues just seem to move people to buy faster than anything else…

Is SECURITY a good place to put more focus?

Most of the sales reps I know sell security appliances, but avoid higher-end security sales—a truism for both the manufacturer and reseller sides. Gross profits tend to be incremental and relatively low. Something obviously isn’t working on the reseller side.

Get The House & the Cloud – The eBook on Mastering the Security Sale.

Security Appliances Lead to Small Commissions

If you sell security appliances, you’ve likely noticed stiff competition can delay a sale by 9 or more months. You may be able to take your family out for a fast-food meal with your commission check,  depending on your brand name, the brands you carry as a reseller and your product lines’ margins. You’re frequently asked to place an evaluation product onsite, using free installation services to get it up and running. Either way, the manufacturer claims the product installs “in minutes,” so there really isn’t much consulting business for this product, anyway. This hurts both the manufacturer (on the channel development side) and the reseller, who lives on gross profit. You conclude this may not be the right place to focus.

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Early in my career I was a security presales consultant…whenever security came up in a sales meeting they would immediately call me. But too often the resulting meeting would turn into a feature/function battle over appliance brands. Months of debate to close a small appliance sale.

How to Multiply Your Commissions

The House & the Cloud – 2nd edition is a book of hope…and it’s almost ready for print. These issues are a symptom of treating security as a point product.

By the end of my book I hope you’ll understand why every client has a security need—and, by fulfilling this need, you can produce significant profits, regardless of your technology niche or the market you’re calling upon.  In my opinion, when security is approached correctly, it becomes highly profitable, a powerful door opener, and something that is definitely not a commodity sale.

On a recent trip to Chicago, I ran into Steve, an alumnus from one of my Making Money w/ Security workshops. When I say him, I could tell he was happy to see me. He simply said: “I just turned an 80K opportunity into an 800K sale using the principles you taught us in your security workshop!” Many of these principles are in the first edition…

It’s not hard to sell security, but it does require a different approach—one you may not be used to taking. In the end, The House & the Cloud will give you a winning strategy for selling virtually any product or service by tying it to security.

Get the first edition Free right here – and I’ll be sure to notify you when the next edition is finally printed!

Send me the First Edition of The House & the Cloud!

© 2014, David Stelzl

 

P.S.  Learn the Secret of Turning Prospects into Customers – get my latest Special Report Free (CLICK).

 

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Resellers can’t compensate sales people on revenue…

Chances are you compensate on gross profit (GP) if you manage a reseller sales team – and it goes without saying, if you are in sales, your compensation is based on GP.  But there is a bit of deception here that will take a business from profitable to unprofitable very quickly.  There are two places where money continues to leak from retained earnings – 2 holes in the bottom of the ship.

The one I am concerned about here deals with services compensation.

Speaking to Business Owners and Managers

Speaking to owners, VAR presidents, and sales management, are your sales people really paid on GP when it comes to services?  If you pay out based on services revenue, you are killing your company.  If you pay based on projected GP:  (sale price) – burden, you may still be paying on revenue.  Here is what I see happening…

The deal is sold for $1600 (as an example).  If the project is estimated to take 8 hours, the burden might approximate to $800 (using round numbers – yours will vary).  So the GP on the deal is simply $800, and the rep gets a percentage of this.   But what if the actual project time spent on the project is 2 hours over?  Is the cost of the project recalculated, raising the burden to $1000, and leaving only $600 in GP?  It should be.  If you keep the rep whole – by paying them on their estimate, this is actually still a revenue based payout, just at a different percentage than you pay on other things.  It’s revenue because you are not actually counting the true cost.

The Sales Person’s Perspective

The sales person at this point might argue, “But I don’t control the efficiencies of the delivery team, therefore I cannot be held responsible for the loss of GP.”  This is a valid point, but neither can the rep control the street price on product, yet GP is still the metric used for compensation.  When the sales person is compensated without taking the actual invoiced services into account, the company suffers financially.  My advice is to move your compensation to actual GP, and train sales people to value price their deals (meaning you are using fixed prices).  Chances are you can’t bill any significant overage anyway, so why fight this.  Sales managers should also be reporting GP by project on a regular basis to see which reps are accurately quoting services deals.  In most cases I find there is a pattern here.  One group will be on target, and this change won’t really affect them.  Another group will likely have a track record of under-quoting.  This group will resist the change, but the change is necessary.

But First

Before doing anything, make sure your top sales people’s projects are reviewed, and that you have a way to make sure they continue to make good money.  You don’t want to lose them.  Those who are mediocre or poor in performance, may leave – that’s actually good.  Redistribute your territories, rebuild your profits, and when the time is right, replace those who have left.  Your financial picture can be turned around in a matter of a few months.

© 2012, David Stelzl

 

Photo by Hannah Stelzl

I am focused on entrepreneurship!  When my wife and I first started homeschooling our children we caught the vision for a different kind of education.  One that would build the not-so-academic side of those we are raising, but still equip them with the essential reading, writing, and arithmetic skills needed to succeed.

My schooling history has made me more risk adverse than I’d like.  It’s taken me twenty-five years to unlearn the principles of:

– Mastering the No. 2 Pencil

– Only submitting what was asked for

– Never thinking outside the box – putting away all creativity

– Thinking that wisdom is somehow related to memorizing a certain number of biology terms

(and the list goes on)…

Photo by Hannah Stelzl

With this in mind, my kids are working on businesses – all the time, thinking about how to create new opportunities, serving the basic needs of those around us, establishing value, setting fees, and selling.   This year marks another year of Sarah’s annual Valentine’s Day Cookie bake.  This year she sold over 200 cookies by cold calling with a compelling message.  Some even gave additional money or donated without accepting cookies!  Of course she had help from Tiny-Tim who enjoys cooking (and perhaps even more, eating the left overs.)

Through this project we’ve studied how to discover a new opportunity, how to avoid working at McDonalds for mininum wage, how to sell to strangers (cold calling), how to develop a message that sells,…but also, how to count the cost of goods sold (COGS), the difference between sales, gross profit, net profit, and losses due to wrong or canceled orders.  Fortunately we have not had to deal with customer service issues on this particular project, but we’ve covered that in other projects, and hope to minimize this in the future.

Photo by Hannah Stelzl

What are you doing today to extend beyond what you learned in school – to think creatively, and to find business opportunities where there don’t seem to be any?

 

© 2011, David Stelzl

We had snow in North Carolina!

Here’s another example of losing big, this time on scheduling with managed services or staffing.

The client asks to have someone on site full time.  This is a great deal as it represents recurring revenue.  They can’t afford a full time IT person (or perhaps project team member), so they contract with you to have the person three days each week.  The obvious way to make this work is to have that person show up on Monday, Wednesday, and Friday for eight hours each day.  You agree on a rate and begin work.

In this case, the sales person wins; at least short term.  The rate is $120 per hour, with a burden of $75.  This leaves $45 per hour in gross profit, on which the sales rep will be paid.  There are 24 hours billed each week, or just under 100 per month.

On the back end, Technical Services is stuck with a contract that takes their engineer on site three days per week, or 24 out of 40 hours per week.  This leaves 16 hours of unused time, which can only be used on Tuesday’s and Thursdays.  What are the chances that someone will sell a contract using that same person only on Tuesday and  Thursday?  From my experience, not very good.  The engineer’s utilization rate is now at 60%, or just over break-even.  I’m sure some work will come in, but not enough to get these numbers where they need to be.  Take vacation, sick time, and training time out of this person’s year and you will be at or below break-even before you know it.  Even if they do manage to pull in a few dollars over break-even, it’s not a good deal for the company and won’t make up for falling margins on product sales.  The goal of managed services and staffing is not to break-even, but to produce stronger profits to make up for the downward trends on product margins.

A final note:  If this same contract is sold for two days each week, say, Tuesday and Thursday, the loss is much greater.  Never take such a deal!

© 2010, David Stelzl

Resellers, VARs, Solution Providers, and Channel Managers – this is an important lesson on the profitability of services.  While your (or your partner’s) services may be very profitable, they may not be as profitable as they seem.  As the market has commoditized, I’m seeing far more short product/install contracts…less consultative, long term engagements.  This is particularly  true in the mid and smaller markets. What is the result.

Listen and see how calculations on profit, gross profit, and net profit are sometimes confusing.  To the sales rep, all GP is good – you get paid, right?  To the person with P&L responsibility, the numbers don’t always add up…I frequently run into people who initially think they have strong services margin.  When I show them how to calculate it, we find profits to be much lower apart from the product sales.

© David Stelzl, 2010

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