It's All About Margin

Butler is one of a new wave of aggressive MSPs pushing his sales reps to sell services. Those sales reps are compensated based on value to clients—and that means services. "We compensate our account managers on gross margin and the highest gross margin is in services," Butler said. Acropolis, in fact, has built its business as the outsourced IT department for small and midsize businesses. That means its account managers are driving business value through services and are not spending several hours on the Web or the phone looking to make an additional point or two shopping for the best price on a product, Butler said. Sometimes Acropolis will recommend a product and the client will buy it from a CDW, Best Buy or even a Wal-Mart.

Wrapping individual products, such as servers or printers, around a solution sale has allowed Acropolis to maintain 20 percent margins on hardware or even as high as 30 percent in some cases. Vendors that come to the table with margins of less than 10 percent on their products do not make the grade, Butler said. He said that is as low as he will go because otherwise he can't cover his costs. "If you continue to sell things that don't make you enough money to cover your true costs, the overhead plus some profits, you're going to bleed to death over time," he said.

When it comes to a secondary vendor whose product will simply bolt on to the primary solution, Butler operates strictly on who offers him the best margin. Butler envisions a day when his company recommends but does not supply any highly commoditized products. One sign of the times is Acropolis' first-quarter numbers, which show professional services labor up 55 percent, gross margin up 38 percent, but product sales and merchandise down 18 percent. The message for vendors is to bring more offerings to the table that help VARs like Acropolis sell services. That's a big chasm to cross for product-oriented vendors. Those that cross that chasm will thrive with VARs like Acropolis. Those that don't will end up sitting out the small- and midsize IT business revolution.

What vendors don't get that it's all about margin? Let me know at (781) 839-1221 or via e-mail at [email protected].