How Do You Measure Up?

Some solution providers dream of the days when their businesses generated 65 percent gross margins. For the Best in Class solution providers surveyed as part of CMP Technology's Institute for Partner Education & Development's ongoing profitability research, that dream is a reality.

Best in Class (BIC) solution providers average 65 percent blended gross margins—a combination of hardware, software and services—compared with an industry average of 35 percent. What's more striking is that those eye-popping margins weren't the result of any one-time deal or unusually strong quarters but came about because of consistent patterns of behavior and business models geared toward maximum profitability, said Ryan Morris, director of channel intelligence at IPED, a sister organization to CRN.

And Morris said virtually any solution provider can emulate BIC qualities to improve profitability within his or her own business. "What we are looking for are patterns of behavior that any company can implement and sustain over time," he said.

IPED's focus on solution provider profitability comes at a time when the channel isperhaps undergoing its most dramatic metamorphosis yet. Solution providers that entered the channel some 20 years ago were often businesspeople who saw an opportunity in technology. Many younger solution providers, by contrast, are technologists who saw an opportunity in business. As such, they must learn basic business skills such as marketing, cash flow management, hiring and retaining employees to hit the profitability bars of BIC solution providers.

"We have a business here that's doing its thing and everyone goes home with a paycheck, but we haven't seen that type of business opportunity [BIC gross margin numbers]," said Michael Demars, president of Competitive Computers, a Claremont, N.H.-based solution provider that specializes in small businesses and has annual revenue of about $2 million.

Demars said he started the company when he was 15 years old because he loved technology, but acknowledged he lacks some basic business skills that could lead to more profits. "I'm not convinced that I'll ever quite get to those numbers, but I also feel like that I need to know more [about the IPED study]. I've gotten the technical education over the years through many certifications and training, but I can't really write a business plan."

Next: Slicing and dicing the Profitability Study results