Software

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In the three segments evaluated for the 2007 CRN Profitability Study, top-line sales growth was above 10 percent: Business software led the pack with 15.1 percent, followed by database management at 11.9 percent and e-mail/collaboration at 10.4 percent.

At the same time, the average gross margin for business software rose to 25.5 percent, the highest gross margin reported for this study. Database management offered the second highest gross margins of the study at 20.2 percent, off from a revised 22.3 percent in 2006. Average gross margin was 17.1 percent for e-mail/collaboration software.

Other notable metrics: The database management segment offers the biggest average deal size of all the categories in the study, as it did last year. But it also presents VARs with the longest time to recoup their investments in training.

To stay focused on profitability, Cumberland, Maine-based Northern Collaborative Technologies finds itself doing what software VARs across the board must do—lean on services. "In the collaborative solutions space, the big money is in services," said Andrew Pollack, Northern Collaborative's owner and president. The profit comes from expanding on the basics, he said, adding, "I say to customers, 'OK, you've got Notes, now what do you want to do with it?' " To expand its services, Northern Collaborative has added security. "I do a lot more security review work than I did before," Pollack said. "People want to know that their e-mail and application data is really secure, and if it isn't, they want to know what I can do to get them there."

Next: The bottom line on software profitability

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