Profits Drive Loyalty

For any successful solution provider, profitability begets loyalty. In other words, the more a vendor helps drop profits to the bottom line of the solution provider, the more likely it is that the solution provider is going to recommend the products of that vendor to its customers.

This is an important fact of life for vendors to remember in an era when there is minimal product differentiation. But where a lot of vendors go wrong in this equation is that they assume profitability for the solution provider is tied to product margins rather than all the activities around the product.

The fact is that most solution providers make their money by providing services around the product. And most solution providers incur their biggest costs building out those services. So if a vendor is truly interested in the long-term health of its solution provider channel, the two things to focus on are helping to drive services opportunities and strategic investments that drive down the costs of delivering services.

What that means in practice is solution providers are more loyal to vendors that don’t compete with them for high-margin services revenue. And they are even more loyal to companies that use their direct-sales force to directly touch customers in a way that drives more services revenue to the solution provider.

Of course, the art of the direct touch is that it has to be made in concert with the solution provider because, otherwise, the vendor usually just winds up pushing a product in a way that is usually out of touch with the total multiproduct solution sale that the solution provider is trying to sell.

But focusing on the selling of profitable services isn’t enough. The cost of delivering these services is probably the single biggest expense a solution provider faces. So anything that a vendor does to reduce the costs associated with supercilious certifications is going to be well-received so long as that effort is balanced in a way that keeps valuable certifications in place that truly recognize the value that partners have by becoming experts in a given product.

Furthermore, vendors that go a step further by linking solution providers up with subject matter experts that can serve as consultants to the end customer can make a substantial bottom-line difference. And finally, making sure that they freely distribute intellectual capital about best-of-breed solutions developed by their engineering staffs is another critical place where vendors can make a difference.

The problem with all of the above is that they are intangible investments that are hard to quantify. It’s an article of faith on the part of the vendor that they will pay off.

Alas, because most vendors have a crisis of faith when it comes to the channel, they tend to want to rely on prescriptive solutions to partner profitability that rely heavily on margin manipulation in return for increased attached rates that are easily quantifiable.

But at the end of the day that type of forced fealty by fiat is going to fall on deaf ears because product margins today make up an increasingly smaller percentage of the solution provider’s profit equation.

Given all that, the best thing any vendor can do today is stop thinking like a vendor trying to manage an extended sales force. Instead, they need to think more like a solution provider trying to run a profitable business. Once they do that, they may finally understand once and for all the real role a vendor plays in the channel.

Michael Vizard is editorial director of Ziff Davis Media’s Enterprise Technology group. He can be reached at michael_vizard@ziffdavis.com.