The Solution Provider's Balancing ActBy Pedro Pereira | Posted 2007-09-27 Email Print
Opinion: The question is whether to focus your energy on finding new customers or increasing business with existing ones.
Two thirds of solution providers in a recent survey said they get at least 50 percent of their revenue from their three largest customers.
With that in mind, not surprisingly about 90 percent of the survey respondents said they are focusing on new customer acquisition to increase revenues. More than 270 respondents participated in the survey, conducted by Ziff Davis Enterprise with Crimson Consulting. The study polled providers on a range of topics and indicated the channel as a whole is undergoing a rapid transformation to driving the business through services.
The results shed some light on the age-old debate of whether it's better to increase revenue by constantly finding new customers or to boost revenue-generating business with existing customers.
Depending on the individual solution provider's situation, one approach may make more sense than the other. But overall, it is wise to achieve a balance between winning over new customers and selling more services and products to existing ones.
In the survey, some 18 percent of respondents said they get 90 percent or more of their revenue from their top three customers. These solution providers are in a seriously precarious position.
It would take losing only one of its top three customers for one of these providers to see nearly a third of its revenue vanish. For many channel companies, that would prove debilitating and possibly even precipitate their demise.
Of course it's easy enough for me to sit here and say what providers should or shouldn't do. The reality is that new customer acquisition is hard work, as is boosting business with existing clients. And things have become even trickier as the channel undergoes a deep transformation from product-based sales to a services-oriented culture.
Despite the acceptance by an increasing number of customers of new models that revolve around remote maintenance and recurring revenue, some customers still resist anything more involved than replacing laptops and printers every few years. The profit potential of such customer relationships is limited, so providers wanting to increase their services business might want to find new customers.
Seeking new customers while reinventing the business carries risks and potential hardship. But it can produce benefits as well. Some providers adopting the managed services model have found that it's easier to try the new model on new customers than on existing customers, who in some cases resist doing business differently because they are comfortable with the old ways.
In addition to seeking new customers, providers have other options for decreasing their financial dependence on the three largest clients. Chances are in many cases, if they look into it, they would find they can increase their share of business with other existing customers, said Ayman Antoun, vice president for IBM's Americas business partners.
One of his partners, said Antoun, thought he was doing great by getting about $1 million in business yearly from a customer. But then the provider looked into how much the customer actually spent on IT and discovered he was getting less than 10 percent of the customer's overall IT spending.
This shows that those 90 percent of providers that said they want to increase revenue through new customers might want to put some effort into increasing their share of business with existing clients that are not in their top three.
The challenge of course is to find the right balance of new customers and new business with existing customers.
Pedro Pereira is editor of eWEEK Strategic Partner and a contributing editor for The Channel Insider. He can be reached at firstname.lastname@example.org.