Margins Vs. Revenue
The bottom line: You can have all the revenue in the world, but if your products have no margin, you won’t be making money.
If you want to become a profitable reseller, you realistically have two options. The first is to focus primarily on services. In my business, we use hardware and software products as a way to get in the door to provide services to our clients. We focus on implementing overall solutions for their businesses and then add installation, testing, training and maintenance agreements to augment margin.
The second option is to specialize in providing industry-specific solutions. Whether they’re specifically for retail stores or law firms, these solutions require a higher level of knowledge that can set you apart from other resellers. You need more background to sell these packages, such as legal bill-back features or retail point-of-sale and inventory-tracking solutions, because you have to understand how the products work within a specific environment.
Selling these solutions is innately more complicated than selling products, but that also means there’s more training involved and more expertise needed. By the same token, that also represents a higher margin for the reseller.
You can sell a client 10 license agreements for Microsoft Office and five laser printers, both of which require basic installations. Sure, you’ve made a sale, but the margin is going to be small and the client won’t require further assistance. On the other hand, if you sell five multifunction laser printers that can be customized using industry-specific software, as well as 10 Microsoft license agreements, the sale is much more profitable. Products such as printers can be commoditized easily, and there’s increasingly less differentiation between the manufacturers as technology advances. However, MFPs can be customized to a specific customer environment, making them more profitable.
The key to survival is looking beyond the products themselves and focusing more on providing added value. And value almost always equals profits.
You can reach frank Ballatore, president and CEO of Ridgefield, Conn.-based New England Computer Group, at [email protected].