Margins Improve, But They're No Longer The Main Course

As was the case last year, solution providers in the 2006 CRN Channel Compensation Survey rated product margins as still the most important, but also least satisfactory, form of vendor compensation, an indication that they are looking elsewhere for profits these days.

The survey did show vendors were making some improvements in this area. For example, the number of respondents who said they were able to hold on to 100 percent of those margin dollars rose to 20 percent from 18 percent.

But other benefits that don't so much compensate a solution provider outright but rather that enhance their business strategies—such as professional services opportunities, maintenance opportunities, sales and marketing support, managed services options and free training—are what really get solution provider owners and managers talking and selling.

Pat Grillo, president and CEO of Atrion Communications Resources, a security VAR in Branchburg, N.J., said the margin question is just the first in a series of check offs when it comes to choosing new vendors or sticking by ones with which he already is allied. His company expects to earn 18 points to 20 points on products, to start. But he added: "We can do with a little less if it's a product that wraps around better with our services."

Other factors Grillo considers include how easily and expensively his sales team can get their hands on demonstration equipment, what sorts of funds the vendor advocates and distributes for marketing activities and his company's potential revenue stream in the second year of the relationship, which needs to be at least $1 million.

Grillo also is focused on the vendor's education and certification policy. Obviously, he'd love for these activities to cost him nothing, he said. "We're putting more of an onus on [vendors for] the technical training."

Likewise, Marty Andrefski, vice president of sales and operations at IntegraOne in Allentown, Pa., said one of the things his systems integration firm is monitoring more closely these days is the cost of training he devotes to certain relationships. "We're getting to the point where we're telling vendors they have to help pay. They're starting to bend a little bit," he said.

Chuck Orrico, president and co-owner of Dyonyx, a Houston-based integrator that splits its revenue 50-50 between government and commercial accounts, said he applies a different compensation matrix to his vendors depending on the particular market he's discussing, although access to training is one of the most critical factors.

Vendors seem to be listening. The 2006 CRN Channel Compensation Survey, which asked 408 solution provider managers to rate the importance of and their satisfaction with eight types of vendor compensation, found that solution providers were most satisfied with free training provided by vendors. In terms of importance, free training ranked fourth, after margins, professional services opportunities and maintenance opportunities.

If there was another bright spot in the survey, it was in professional services, which solution providers rated second both in importance and in satisfaction. Maintenance opportunities also delivered above-average importance and satisfaction ratings. The message seemed to be that solution providers are focusing more on the recurring revenue that their value-added services deliver than margins and rebates. "You draw what you want out of a vendor," said Jennifer Wright, vice president of Wright Business Technologies, a communications VAR and managed services provider in Houston.