Solution Providers Fill Up On Managed Services
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When it comes to overall satisfaction with vendor compensation ranked by technology specialities, managed services is the happiest place in the channel.
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Solution providers engaged with managed services were more satisfied with compensation received from vendors than those in other technology areas, according the 2006 CRN Channel Compensation Survey. Solution providers attributed that top satisfaction rating to the fat double-digit profit margins they are making on monthly managed services subscription fees.
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"Managed services is where all the money is these days," said Jay Tipton, vice president of Technology Specialists, Fort Wayne, Ind., which is making a whopping 60 percent to 70 percent margin on managed services. "I'm pushing to get a total managed services business."
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The survey, which asked solution providers to rate their satisfaction with eight forms of vendor compensation on a scale of 1 to 5, with 5 being very satisfied, showed managed services providers had an average satisfaction rating of 3.6, with
solution providers coming in second at 3.55. Solution providers selling peripherals were the least satisfied, at 3.36, followed by
and
solution providers at 3.4.
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As with solution providers in most other areas, managed services providers gave the lowest satisfaction ratings to margins on products they sell. But their satisfaction with margins, as in most other areas, was higher than that of other solution providers.
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Tipton said as he evolves his business, he envisions being able to drive up hardware margins by including desktops, services and peripherals as part of a complete managed services offering. "At that point, I won't be shopped by customers on hardware prices," he said. "Hardware will be calculated as part of the monthly bill, and if I become an intelligent buyer of hardware and software, I will make more money."
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Free training, meanwhile, was one area where managed service providers gave middling satisfaction ratings. One of the keys to satisfaction in managed services, or any of the technology areas, is looking closely at the training and support costs, said David Dadian, CEO of Powersolution.com, a managed services pioneer in Ho-Ho-Kus, N.J. "We need to minimize the up-front costs of being a partner," he said.
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He also said that in the managed services segment, it is critical to make sure that as a partner you are not going to be hit with software maintenance costs on
infrastructure down the road. When committing to a managed services platform, VARs must be sure they are going to receive the same consideration and support from vendors over time, he said.
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For the most part, solution providers in the managed services area ranked the importance of the eight forms of vendor compensation similar to the average rankings by all solution providers, with margins, maintenance opportunities and professional services opportunities coming in as their top three most important.
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One group that varied starkly from that pattern was back-office software solution providers. Their top three most important forms of compensation included margins, agents' fees and demonstration units, with professional services coming in fourth.
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As Net@Work, gets deeper into business applications, the types of compensation it needs is changing, said Alex Solomon, president of the New York-based company. He now carefully tracks how Net@Work is compensated for renewals. Net@Work also captures 50 percent to 57 percent margin on
and other business applications it sells, compared with 10 percent to 12 percent margins on infrastructure hardware and software. "Infrastructure is necessary to implement, but generally you're doing it because you have new applications you're rolling out," he said.
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Solomon also likes regional consideration preference when it comes to professional services engagements. He selected one vendor because that vendor's professional services organization didn't have a strong presence in New York and wanted to use his company as an extension. "That, for us, is great," he said.
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And because Net@Work is putting so many employees on business applications support, he needs more consideration in the areas of training and staff development. "Don't ask me to spend $3,500. To actually pull someone out of three days of billable time means we're serious," he said. "Don't just look at margins. Have an understanding of what it costs resellers to sell your product."