Strategies for stretching your margins

“You have to be very innovative,” said Thando Mayo, president and CEO of Calgary-based SAP integrator Open Business Process Inc. (OBP). ”You have to take advantage of the latest technology trends to create solutions with minimal labour.”Mayo looks to products like PCAnywhere, VPN software and other remote access programs to allow OBP to deliver services at low cost, without compromising quality.

Ottawa-based Nova Networks has also recognized the value of remote access for cost-effective service delivery, said director of IT services John Leggitt.

“We have some smaller clients who pay a couple of thousand dollars a month for us to manage their networks,” he said. “We can do most things remotely; we have tools installed onsite so we can view client machines.”

Nova also manages backups for 40 or 50 clients. If anything goes wrong, Leggitt’s technicians know about it and correct the problem before the client is even aware that there was an issue.

“We have some clients who pay over $10,000 a month for maintenance and monitoring, and we’re looking after them well,” he noted, adding, “if we never see them, we’re doing well” – and, in the process, increasing margins, since on-site visits are expensive.

Service is key, agreed Paul Patterson, manager of marketing and communications for Lexmark Canada. “I think, today, partners have to be more creative, and be more trusted advisors to their customers, providing a broad range of services,” he said.

Smart VARs and resellers should be investing in managed services, said David Allen, Intel’s director of distribution sales for North America. “It’s an opportunity to create a royalty-type model. You can manage a lot remotely, without dispatching a technician.”

But, he added, it’s important to get on board early with new technologies and initiatives. “That’s where the margin is,” he said. “Where there’s mystery, there’s margin.”

However, Mary Ann Yule, director of marketing and procurement for Toronto-based CDW Canada, said that “margins are a double-edged sword. One way to increase them is by operational excellence and increasing productivity.”

“You have to have an understanding of the end-to-end customer experience,” she went on. ”Where you can, remove steps to save money, from catalogue or ad to customer delivery and post-sales satisfaction. If you look at the process, you will find all sorts of places where you can improve.”

One way margins get eroded is by providing too much for free, suggested Darren Hamilton, Canadian partner business manager at ProCurve Networking by HP. When a reseller does a lot of work up front on a proposal, only to see the customer shop its efforts around to get a better price, it’s self-defeating.

“If you’re providing something of value, then it’s not free,” he said. “It’s as simple as saying (to the potential customer), ‘I’ll consult with you, and if you buy from me, the consulting hours are free.’ If a partner invests time and resources, he should be paid.”

See the opportunity
Some consulting during the sales cycle can open opportunities for lucrative cross-selling. Leggitt says that Nova has a full-time IT architect on staff who helps clients find the best solutions for their needs. Then the company offers services to help implement them.“Then we have sold a solution, not just a piece of hardware,” he said. And by tapping into our resources, it’s properly set up.”

Yule agrees: “Anytime you can sell a complete solution, you can make more margin.”

The reseller’s approach to the deal can make a huge difference, too.

“Disconnect the cost of goods from the value the customer perceives,” advised Harry Zarek, president of Compugen. “Move from a cost-plus model to a value model.”

Or, he suggested, if that model is too complex, make a point of not offering exactly the same things offered by other resellers, thus avoiding direct comparisons that erode margins.

“Package differently, so customers can’t play you against others,” he said. “The worst thing is having (a customer) say’ I want widget 123.’”

Hamilton agrees. “Selling on price is dangerous. Customers then want SKU-level detail.”

“The successful partners I have seen don’t lead with products,” he added. “They lead with their own professional services as an entry to adding value for the customer. That way, there is less likelihood that the solution will be shopped around.”

Treating any customer contact as an event rather than an ongoing relationship is also a huge error, said Ted Schnarr, director of reseller operations at Xerox Canada. “Then the sale stops when you get the P.O. for the hardware. If a customer orders toner one month, and not the next, no-one pays attention. You’ve lost a customer, and you don’t even know it.”

He advises following customers’ purchasing trends, and if they change, find out why.

“Start a conversation,” he said. ”That’s probably the most precious thing (in a relationship).”

Even if the initial deal was lost, said Hamilton, continue the dialogue. “Just because an opportunity has been lost, it doesn’t mean there’s no opportunity with that customer,” he said.

“There’s always buyer’s remorse. The customer may have bought on price, but issues have come up that the partner can help with. Stay engaged at some level. You just don’t know what can happen.”

Vendors can help resellers with those conversations, said Patterson.

“From a printing perspective, we’re seeing a lot of opportunity for partners to offer managed print services,” he said. The partner doesn’t necessarily have to make a huge investment to participate, either – Lexmark’s Fleet Manager service is provided by Lexmark, but the business relationship is between the partner and the customer.

The sale of consumables is as important as the sale of the device, added Schnarr.

“I think there’s a good solid subset of resellers that have focused on their ‘print practice’. They’re reaping the benefits of the annuity stream.”

Some successful resellers, he noted, have backgrounds in selling copiers, where the “cost-per-click” model is standard. Xerox offers tools and frameworks that can be adopted fairly easily by any reseller.

For example, Xerox Page Pack, a tool that allows resellers to sell a fully loaded cost per page without making a large investment or taking a financial risk, will soon launch in Canada.

“I strongly emphasize that selling consumables makes (printing) a more fun business to be in – more profitable, and a more sustainable business model,” said Schnarr.

“It’s a huge value for the customer to know its print volumes, and costs, and to see trends. It totally changes you from a commodity provider to a valued consultative partner.”

Cutting partners’ expenses can also go a long way towards increasing margins.

“We used to have rebate money for resellers,” said Intel’s Allen, ” but we concluded it didn’t work. Those dollars were being passed through (to customers) in the form of price drops.”

Now, he said, the company offers a wide range of no-cost marketing activities such as templates for local advertisements, and offers 100 per cent reimbursement of the cost.

“The initial response has been good. Whenever anyone says 100 percent of costs are covered, that’s a good thing.”

Use deal registration
Zarek recommends involvement in vendors’ deal registration programs, too. “If you can prove that you’ve been involved early, you end up protected,” he said. “It’s a recognition that you’ve made an early investment in selling the customer.”But, added Mayo, for it to work, vendors need to make the interaction as efficient as possible. “It’s the back office that bogs the small guys down,” he noted.

“Having a single point of contact helps, and having a price structure of services that’s easy to translate to the client, without having to go through complex forms.” He likes the tools on SAP’s Partner Edge portal that provide best practices for client interaction.

Hamilton agrees. “We have learned that, in order for partners to capitalize (on programs), we can’t bury them (in paperwork), or there goes their profitability. Our responsibility is to make sure we’re rewarding partners that are out there working for us. It’s got to be a healthy business for both of us.”

In the end, said Yule, you have to price effectively. “You have to be methodical about it,” she said. “Lay out a strategy, and measure against it.”

“If you did great, celebrate. If you didn’t do well, learn from it.”

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Lynn Greiner
Lynn Greiner
Lynn Greiner has been interpreting tech for businesses for over 20 years and has worked in the industry as well as writing about it, giving her a unique perspective into the issues companies face. She has both IT credentials and a business degree

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