Money Talks: 5 Ways To Boost Solution Provider Revenue3:00 PM EST Mon. Aug. 19, 2013
If the rise of the cloud has told us anything, it's that the technology market can move pretty fast. For solution providers, this pace of change can be a challenge, as many of the ways the channel traditionally made money become less and less reliable.
But there are certain best practices a solution provider can adopt to ensure long-term success, according to Paul Dippell, CEO of Service Leadership, a channel-focused consultancy dedicated to helping solution providers run more profitable businesses.
During his opening General Session at UBM Channel's XChange 2013 event, taking place this week in Washington, D.C., Dippell shared five ways solution providers can make more money starting today. Here's a look.
When it comes to best practices for running a solution provider business, Dippell stressed that there isn't a one-size-fits-all approach. In fact, those best practices vary greatly depending on whether a solution provider runs a product-, break/fix- or services-driven business.
In a break/fix-driven model, Dippell said, the more work a solution provider drives per customer, the more profitable that business is. But, in a managed services-driven model, it's the opposite; the less work per customer, the more profitable the business. Solution providers have to keep this top of mind, he said, and manage their different install bases accordingly.
"It pays for you to know which of these lines of business is predominant for you because best practices appropriate to that line of business are what are actually going to produce a result," Dippell said. "If you are still break/fix-centric and are implementing managed services best practices, your profitability will go down."
While investing in a private cloud business may seem like a no-brainer, Dippell urged solution providers to think twice before taking the leap -- at least for right now.
According to Dippell, the private cloud business is an especially risky one for solution providers, largely because the market itself is still so immature. "If you are doing any private cloud right now, you know that Microsoft and VMware are in a knock-down, drag-out fight to win that market, so major parts of your licensing costs are zooming up and down all the time."
Dippell said his prediction is that only 5 percent of the solution providers building private cloud infrastructures will still be in that line of business in a couple of years. For now, he suggested solution providers instead stick to white-labeling private clouds that are "wrapped deeply in layers of managed services" and leveraging that brand.
When it comes to selling managed services, don't assume you have to sell them at market price, Dippell urged solution providers. "It's a false assumption," he said.
Many solution providers fear customers won't pay more than market price for services, but that's not necessarily the case, Dippell told the crowd. In fact, he said, best-in-class managed service providers never stick to market prices. As long as your value proposition is rock-solid, and you are targeting the right customers, selling services above market price is completely feasible, Dippell told solution providers.
"Stop market pricing. You can't make money at it," he said. "The best-in-class, SMB managed service providers, regardless of whether they are in a major market or a fourth-tier market, are charging north of $150 a user, a month for fully managed services."
For a solution provider, sometimes less is more, Dippell said.
According to research done by Service Leadership, the most successful solution providers on the market today sell the narrowest range of offerings and stick to only a handful of loyal vendors. This, he said, helps them standardize their technology stacks across clients and, ultimately, launch into other, adjacent markets.
"The fastest-growth solution providers with the highest profit sell the narrowest range of stuff," Dippell said. "They are extremely loyal to key vendors, and they standardize the stack."
For long-term success, solution providers should target customers who are spending more on operational, rather than capital or up-front, expenses, Dippell said. These operational expenses are tied closely to managed services and the cloud, rather than one-off product-driven sales, he added.
"For the last five years, the profitability of the solution providers that have depended on the customer making capital expenses has turned solidly down," Dippell said. "They are fighting a tide."