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Benchmarking Partner Profitability

August 25, 2010

What is the right Benchmark for a Solution Provider’s Operating Margins ? The first question you may ask is: What are other SPs’ Margins? Well the way to get the answer is to take a look at a Solutions Provider that’s traded on the public stock exchange. For example INX is a very successful Cisco partner:Google Financial Example: INX a Publicly Traded Solution Provider.

It probably won’t surprise you that many of the companies in this economic environment are showing a loss. It doesn’t really help for developing Benchmarking goals. To give you some good numbers to work I went back a few years before the recession using my own data in the chart on this page. A good Benchmark to use is 5% Operating Margin. If you’re beating that you’re doing just fine.

Do you agree with the benchmark of 5%? Should it be much higher? Are you a sole proprietor that includes lifestyle costs in the business?

Definitions of terms:

Gross Margin: Gross income divided by net sales, expressed as a percentage. Gross margins reveal how much a company earns taking into consideration the costs that it incurs for producing its products and/or services. This includes Cost of Goods Sold and Cost of Services Sold. This is “how much money you make on the project”. Don’t forget to include the money from rebates.

Cost Structure: The expenses that a firm must take into account when manufacturing a product or providing a service. This includes overhead costs such as Management, Rent and variable costs such as Sales people. This is “How much money it costs you to win the business”

Operating Margins: Operating income divided by revenues, expressed as a percentage.

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