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Services-led Partners Driving Twice The Gross Margin Vs. Product-led Peers

‘All these big MSPs are starting to have two-thirds of their revenue being services-led because you double profitability compared to the traditional resale model,’ said Bob Skelley, CEO of The Channel Company at XChange 2019.

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Recurring Revenues Drive Tangible Profit Differences

Within a solution provider’s services business, the percentage of recurring revenue has a material impact on the company’s gross profit margin.

For a product-led solution provider where 30 percent of services revenues are recurring, gross profit is 36 percent, according to the survey. That compares to a s ervice-led solution providers with 60 perent recurring revenue, with gross profit of 55 percent.

Skelley said the direct ties between recurring revenue and gross profit margin make it even more clear that solution providers need to shift their business to being services-led compared to reselling products if they want higher margins.

“This is a double effect. First, there’s an impact of services in general on profit margin. Then there’s the percentage of those services revenue that are recurring that has a material impact on the gross profit for your services business,” said Skelley.

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