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Partner says “vendor is not profitable” – is that accurate?

August 26, 2010

Measuring your businessAs a consultant working with Solution Providers many times I heard the business owner make statements (assumptions) about how profitable a particular product, service or vendor was. What I found is that most partners didn’t measure their business well enough to be able to make a cogent, fact based statement about any P&L by product, service or vendor. Frankly, the partners that did measure their business significantly outperformed those that did not.

When your vendor’s channel manager hears your concerns about profitability they generally are not trained to know how to respond; however, if they hear “Year to date our server resell revenue with your company is flat, rebates are lower than last year by $50,000 and our profitability on servers with you if off by 10%” you’ve given them something to work with. If they can’t help you at least you also have good information on how to manage your business priorities.

It’s important to have real time data on your entire business by total revenue stream. In the example shown its possible that a manager would focus on Services since the Gross Margins are more attractive; however,  you would want to know that a third of your bottom line is coming from hardware! That business needs to be protected or it’s going to be very painful for the business.

You can’t manage what you don’t measure. Investing in good reporting systems is essential for making your business more profitable.

Are you spending too much time analyzing your business when you should be out there talking to clients or are you not spending enough time creating dashboards and metrics to manager your business?


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.

Retail Game: Developing Strategy for Channel Partners

August 25, 2010

Did you ever notice that your grocery market’s sale items are usually in the back of the store? Grocery stores are very sophisticated at knowing what products drive traffic to their store – some times at a loss. They are also very good at tempting you to buy their most profitable items such as produce and flowers. The market also fills their low volume shelf space with high margin slow movers such as a laundry basket. Why is this relevant to a Solution Provider? Because you need to think about your business with the same strategic process?

For example, is Hardware a “Traffic Builder”  (the on sale turkey), Manages Services the “Winner” (Bakery item that you can only get here), Video Conferencing the “Sleeper” (would you like to try our meatloaf) and the Printers the “Loser” (Doughnut)?

The first step is to break your products and services into different buckets. Then make a chart and place the name of the product or service into a category. This is a great activity for a management offsite. It will help you develop your strategy and help you to differentiate over your competition.

Look for future postings that will present you with ideas for “Winners” and “Sleepers” to add to your assortment.  Also, How to Differentiate Your Business (make a competitive partner’s “Winner” your “Traffic”) and Do you want Fries with that….

How do you categorize your revenue “buckets”?

This blog will be about one thing and that’s helping you run a more profitable business.