2008: A Bright Outlook - Staying Profitable
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Staying profitable
Sixty-two percent of the 393 solution providers that participated in
the Outlook 2008 survey said they expect increased profitability of at
least 10 percent from 2007, and they are looking at a variety of ways
to make that happen. Acquiring new customers was cited by 54 percent of
survey respondents as a profit-boosting strategy, followed distantly by
increasing solution-based sales (24 percent), increased sales to
existing customers (24 percent), and new and incremental services
revenue (21 percent). Managed services came in at 17 percent, which is
respectable for a stillemerging area.
The emphasis on new customer acquisition makes sense, said Dan
Schwab, vice president of marketing at D&H Distributing. Because
the bulk of channel companies focuses on small and midsize clients,
they are always recruiting customers among newly opened restaurants,
doctors' offices, law firms or real estate offices, Schwab said.
According to the survey, small companies of 99 and fewer seats will
make up 29 percent of expected revenue for solution providers, and
medium companies, with 100 to 999 seats, 23 percent. In comparison,
large customers are expected to produce 22 percent of revenue;
government/education/public organizations, 15 percent; and consumers,
11 percent. "The lifeblood of your business is always acquiring new
customers," Schwab said.
Starr, of I.T. Works, agreed: "You have to have a constant new
customer acquisition strategy in place." Starr, whose company has a
strong focus on networking, telephony and mobility, said he gets many
new customers from other solution providers who refer their clients to
I.T. Works for that type of work. "We do a lot of partnering," he said.
The Outlook 2008 survey also found that most solution providers
aren't focused on reducing costs or increasing markups. Many channel
companies in recent years have worked to reduce costs, and the poll
seems to indicate VARs are mostly satisfied with their cost structures.
Only one fifth of solution providers said they will focus on lowering
costs to boost profits.
Meanwhile, 14 percent said they intend to achieve profit growth
through increased markups. Not surprisingly, this is not a popular
strategy because of its inherent risks.
"Increasing prices is simply a shortsighted fix to a long-term
profitability problem," Bova said. "Raising prices means that
everything still revolves around price, and VARs are still thinking of
their value and profitability based solely on price."
Instead, Bova said, solution providers should do business in smarter
ways. "VARs need to streamline their back office, reduce their number
of vendors— which will in return reduce the support costs and training
costs—and start partnering with other VARs."
