Proven Profitability Formulas
Transforming a solutions worldview into a better balance sheet has become a daily routine for these solution providers, who share their bona fide best practices
3:00 PM EDT Fri. May. 12, 2006
From the May 15, 2006 issue of CRN
Page 2 of 3
|
John Marks, CEO of JDM Infrastructure, a solution provider in Chicago, said he, too, is seeing greater margins by striking alliances with smaller vendors that have made a commitment to working with the indirect channel. “Lots of profitability comes from the second-tier manufacturers, the niche guys,” he said. “Their technology tends to be proprietary and if you sell the customer on their technology and what it does, these guys have said that the channel deserves to make money. They are dying to partner with you. And they are channel-only, and they are friendly. And they allow you to make 30 percent on a solution.” Marks cited companies such as Astaro, a firewall and network management and security software vendor in Boston; Xirrus, an enterprise wireless LAN vendor in Westlake Village, Calif.; and IronPort Systems, a Web security software vendor in San Bruno, Calif. “These guys go direct [to solution providers] and a lot of these second-tier vendors are really good channel partners,” Marks said. Some solution providers say managed services, specifically those scaled to address SMB customers, has emerged as a robust profit engine over the past 12 months. “We really didn’t have hosted services a year ago,” said Pete Busam, executive vice president and COO of Decisive Business Systems, a solution provider in Pennsauken, N.J. “Now we have five major products that we’ve wrapped and rolled out in our co-location facility. We host them all in our facility and just charge a monthly fee. The new managed services include hosted Citrix, hosted Exchange, hosted network management, managed firewall services and co-location of custom applications. Busam said that in just one year, managed services vaulted from virtually nothing to become Decisive Business Systems’ highest-margin business behind IP telephony solutions. Chernick, too, said that he has revamped his managed services offerings to address even the smallest businesses in his customer database and prospecting area. “We’ve retooled as far as our thinking goes to help those people who don’t have the wherewithal to have a full-time IT staff,” he said. “We’ve added the necessary equipment and software to do an ASP model for very small businesses.” He said small businesses can buy a couple of desktops. Meanwhile, Camera Corner Connecting Point can manage the server and the data in its hosting center, and the customer can go to the Internet to access their data. “It’s just a click on an icon and away they go,” Chernick said. “I have one small homebuilder who uses two laptops and who doesn’t even have an office. Now we can say to small businesses, ‘Do you want to buy a server and manage it yourself, or for a setup fee and a small monthly fee, do you want us to manage it?’ ” By the way, solution providers whose bread-and-butter market is in SMB accounts say hardware margins on servers and storage remain steady and continue to be a strong contributor to the bottom line, with signs that 2006 will be a strong year for these technologies. In its recent earnings report, IBM, for example, said while overall server sales were soft in the first quarter, sales at the lower-end of its server lines was strong. Both IBM, Armonk, N.Y., and Hewlett-Packard, Palo Alto, Calif., are seeking to capitalize on this trend by focusing on the profitability equation that they can offer channel partners through ongoing program revisions.  IBM Business Partners said the shift toward lower-end servers bodes well for their SMB customers. “We had an exceptional first quarter; our server business was up year over year about 17 percent,” said Joe Mertens, executive vice president of San Antonio-based Sirius Computer Solutions, one of IBM’s largest U.S. business partners. “The xSeries business was exceptionally strong for us, up over 100 percent.” HP solution providers, too, say HP’s rebate and pricing models are starting to boost their overall profitability picture. Don Richie, president of Sequel Data Systems, an HP-only solution provider in Austin, Texas, said his overall gross profit margins are running 2.5 points higher this year than last year. “We’ve seen our high-end storage margins increase in large part because of the new [pricing and rebate] models that HP’s come up with,” Richie said. Last year, HP introduced a new channel-pricing model focused on Big Deal enterprise accounts that rewarded solution providers based on profitability rather than a fixed percent of list price. Richie said that strategy helped boost high-end storage margins by more than 2 points. “We are also seeing our HP back-end dollars grow significantly,” he added, noting that he expects his gross margins to increase even more because of HP’s new Attach Plus rebate that went into effect May 1. Attach Plus rewards solution providers with increased rebate money for attaching more HP products and services into a single solution. While it’s too early to say how successful Attach Plus will be at improving solution providers’ balance sheets, the new program provides just one more piece of evidence that as solution providers rethink their profitability propositions, they won’t be going it alone—the vendors, large and small, that they choose to represent will play a critical role in reshaping the bottom line. |
FEATURED PROMOTIONS
RELATED STORIES >>
>> More On Managed Services:
>> More On Nexus Information Systems:
LATEST NEWS >>
November 25, 2009 03:53 PM
November 25, 2009 03:17 PM
November 25, 2009 03:13 PM
November 25, 2009 02:46 PM
November 25, 2009 02:21 PM
RELATED BLOG >>
Zlago offers hosted desktop services for small businesses, complete with e-mail, security and storage, which VARs can private-label to their customers.
ADVERTISEMENT
CHANNEL SERVICES >>
