Archives For margin

Here are some ways to increase fees without penalizing your clients.

  1. Measure risk – Impact and likelihood, of a disaster, jointly place a value on it and set your fee accordingly.
  2. Look for problem areas that consistently show up across the companies you do business in.  Come up with solutions and use this material to call higher.
  3. Trade product gross profit for recurring revenue.  This builds annuity rather than a one-time transaction.
  4. Use Assessments rather than traditional open-ended questions to discover larger opportunities.
  5. Be willing to give away assessments in order to reach higher-level people in the account.  This leads to selling larger value priced deals.
  6. Propose options to build adjacent business in the accounts you are already working.
  7. Build greater expertise into your consulting group to offer more complex solutions
  8. Develop presentation skills that appeal to the executive level.  You’ll find that you are worth more to them than the next guy.
  9. Pass up smaller transactions to create more time for complex deals that offer greater reward.
  10. Develop stronger marketing programs to position your company as the expertise leader, rather then the low price leader.

© 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

Lots of channel talk out there…Juniper is revamping reseller training online to address complaints from their channel, Fortinet coming out with an MSSP program, probably in response to the SMB and midmarket growth in managed services offerings – of course all of the AV companies out there are doing this or headed that way, and numerous comments on the CRN forums concerning whether partners should be exclusive or committed to one vendor in a given area.  The problem with just about all of the programs out there is this: Vendors are not always addressing the root problem – resellers need more GP (Gross Profit).  This won’t come through install services, and increasing product sales doesn’t necessarily mean more GP either.  Sales must come earlier in the sales cycle with shorter sales cycles driven by high touch solutions, consulting, and low cost of sales in terms of people resources.  So what do channel managers need to do?

  • Understand the reseller profit model – it’s nothing like the vendor’s…
  • Provide sales training that focuses on selling, not speeds and feeds
  • Help resellers build your technology into solutions that drag other product areas within that reseller
  • Learn about marketing and help/support VAR marketing efforts
  • Clarify how deals are protected from direct reps and competition
  • Don’t over distribute which hurts the street price
  • Remember that GP is what matters – not revenue.

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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How are resellers showing an ROI on managed services deals in order to sell them?  (If you are in channels, I’d be interested in hearing what you are seeing from your partners as well).  Here are some observations along with a White Paper I have written on using assessments to accelerate sales cycles by providing justification to the buyer through risk.

WHITE PAPER: (click and download the Assessment document)

  1. Differentiation and closing the deal seems to have little bearing on the platform; Nable, Zenith, LPI, Kaseya,…some are  better than others technically, but none are great.  The differentiation seems to be in the offering and services provided locally more than the platform.  The better implementations are largely customized and target only small and mid-market opportunities.  After that it’s custom or OEM’d.
  2. Companies that try to show an ROI simply invite an audit of past service calls.  This leads to long sales cycles.
  3. The initial offering may look promising, however once the reseller’s current customer base has been exhausted, sales plateau.  New customers are needed…but hard to find.
  4. Small businesses won’t sign up for monitoring unless the seller can show some kind of justification.  Often they can not.
  5. Reporting is poor among most platforms – the client doesn’t receive much value here.  Trying to creating quarterly value is often a struggle leading to resellers putting their SE’s on site to demonstrate value.  This is done without an accurate counting of the opportunity cost, and is often the thing that makes the monthly contract unprofitable (something generally hidden in the financials.)

Personally I have found that assessments work as deal accelerators (when they focus on risk analysis) – we’ve done them in every sized account; some complementary, others for a fee.  The deal is closed when justified by demonstrating a high likelihood of loss.  What are you seeing?  I’d love to hear your comments on this and the white paper!  If it’s helpful, feel free to pass it on.

© David Stelzl, 2010

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If you are reselling technology your business may be headed for trouble.  Don’t expect an economic recovery without taking steps to change your approach to the market…find out why in this video.  In this video I speak candidly to small and mid-sized resellers about market trends and what factors play into future growth and stability.  It’s a sobering message.