Measure For Measure
The results of the 2007 CRN Profitability Study illustrate why it's dangerous to be focused too much either on the short term or the long term and offer key performance indicators that should help solution providers with planning for both time frames.
The data show the business software practice area yields the highest average gross margins, at 25.5 percent, up a full 4 percentage points from revised 2006 data. It also offers the second biggest opportunity for acquiring new customers, according to the CRN profitability data.
But it also takes longer to see that return. Not only did business software tie for the dubious honor of longest median sales cycle (along with database management and storage management), it also took longer for solution providers to recoup their training investment for business software than all but four other practice areas.
And yet ... custom software development cropped up as a theme for adding value in the mobile technology category, where thin margins on devices have inspired solution providers to become more creative. The mobile practice area definitely turned a corner over the past year: It provided solution providers with the third-largest increase in new customers, and it tied with VoIP for strategic importance—a full 74 percent of solution providers reported that both areas were of at least moderate interest to their customers.
Mean Average of percentages reported by solution providers participating in each market.
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Source: 2007
CRN
Profitability Surveys
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Base: 322 solution providers
Next: ROI highlights
The metrics for security offer another reason why measuring profitability can be an extremely subjective exercise and why looking at just one practice area's performance indicators can be shortsighted.
A cursory glance comparing the results of the 2006 and 2007 profitability reports show that margins for both network security and client/desktop security practices are slipping. That in itself is not unusual as a category matures. What's more interesting is that the services potential for network security is holding steady and the deal size is getting larger. Moreover, selling cycles are shrinking as security becomes more integral to comprehensive network infrastructure sales. So, margins don't tell the whole story here.
It gets even more interesting when you study practice areas in relation to one another. Next year's survey is bound to reveal much about the security implications of VoIP, which outstripped every other category in terms of top-line sales growth by two-to-one with an average increase of 35.5 percent in revenue and 32.6 percent in new customers.
It's not a stretch to assume that VoIP, over the next 12 months, will reshape profitability for network infrastructure in general, where it has helped buoy sales and margins, and both client/desktop and network security, for which it implies all sorts of new risks.
If your expertise lies in peripherals, this year's data also offers validation. Printing/imaging was the only practice area where the services-to-product sales ratio increased, from a revised $2.5:$1 in 2006 to $3:$1 in 2007. Deal sizes were also up; anecdotally, solution providers said leasing conversations were helping build stronger customer ties. Meanwhile, gross margins and top-line sales growth leapt for digital display/signage, while strategic importance for customers rose. Both practices benefited from managed services.
What measures are you tweaking to improve your own profitability?
Client/Desktop Sec., Storage Mgt., Mobile Tech., Database Mgt., E-mail/Colla., Digital Display/
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Signage
Source: 2007
CRN
Profitability Surveys
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Base: 322 solution providers