Networking

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VoIP infrastructure

Not only do VoIP solutions share the mantle for the fourth highest average gross margins in the 2007 CRN Profitability Study (along with network security) at 18.4 percent, solution providers report that top-line sales for the category grew by an average of 35.5 percent over the past 12 months. This was almost double last year's average increase for this segment, and it was almost double the average increase for the other 12 technology practices in the study.

"2006 was a banner year for increases in VoIP sales," said Robby Hill, CEO of Hillsouth, a $1.7 million solution provider in Florence, S.C., that represents vendors including 3Com and Cisco Systems and that has been selling VoIP installations since 1999. "Our customers want it more and more."

That sentiment is clearly reflected in the dramatic decrease in the sales cycle associated with VoIP: Solution providers report that the typical sale now takes about three months to close, down from the five months reported last year and the same length of time reported for network infrastructure in general. When it came to strategic importance for customers, VoIP and network infrastructure flip-flopped results compared with last year: Close to three-quarters of surveyed solution providers said VoIP has more than a moderate level of importance to their customers' businesses, up from 68 percent last year. This compares with 61 percent reporting the same for network infrastructure, down from 75 percent last year.

For Michael Demars, president of Competitive Computers, a solution provider in Claremont, N.H., that focuses on businesses with an average of 20 to 25 seats, conversations about network infrastructure now must naturally include control of the VoIP application component.

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While he appreciates the higher margins the area is currently driving, that's not the main driver for Competitive Computers' increased technical and relationship investments in VoIP. For Demars, it's a matter of keeping tighter control on what he is able to support well, a major concern for his business as it introduces additional managed services offerings across the network.

"More than anything, I would like to be able to offer the total solution to my clients so that I don't have a situation where my infrastructure is handling voice traffic and I'm being asked to handle voice traffic and I can't be paid to support it," he said. "It's a natural extension of our core business."

Jason Goelde, principal with MBM Computer System Solutions in Troy, Mich., cautioned that margin envy is the wrong reason to be involved with VoIP. In his regional market, where economic health is tied closely to the ailing automotive industry, clients are watching their IT dollars closely and are more likely to take a phased, hybrid approach.

"The margins can be pretty tight. It comes down to the money being in labor. The important thing for the phone system is that [customers] need to continue maintenance on them," Goelde said.

According to the study, the average deal size for VoIP solutions was up slightly to $29,600, double that of the typical network infrastructure sale at $17,400. Hill reports that his best success with VoIP comes in midsize companies, and the best time to introduce the discussion is when the company is considering an infrastructure upgrade—even if it isn't ready to invest in VoIP immediately, this is when the conversation starts.

Generally speaking, Hill's average voice deal to accommodate 200 users runs $75,000 to $100,000, he said, while the typical price tag for a 100-user project is around $50,000. Blended margins currently run between 25 percent and 30 percent, down from the 40 percent range Hillsouth derived when it originally entered this business. But it's still an average of 10 percentage points above most other practice areas considered in the 2007 CRN Profitability Study.

Network Infrastructure
VoIP
•Sales Cycle ^
3 months
3 months
•Services-To-Product Sales Ratio ^
$3:$1
$2.50:$1
•Deal Size
$17,400
$29,600
•Strategic Importance To Customer*
61%
74%
•Time To Recoup Training Investment
4.4 months
5.5 months

Source: 2007

CRN

Profitability Surveys

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Base: 322 solution providers

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*Percentage of solution providers reporting more than moderate level of importance to their customers' businesses (scores of 5-7 on a scale of 1-7)

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^Median