Selling Products Along with Your Services, Profitably
Like it or not, products are an integral (and important) part of any IT Service business. Product sales and services sales go hand-in-hand, drive each the other, and produce a whole that is much bigger than the sum of the parts. With the latest product and services automation tools available today, if you’re not realizing a healthy balance of product and services revenue you’re likely leaving serious money on the table, and setting yourself up for erosion of your existing customer base.
Back to the Future: A bit of VAR History
The term VAR (Value-Added-Reseller) came about as an evolution of the pure product dealer or reseller, who could make enough money on the margins they got pushing hardware for the large product vendors they represented. As margins got smaller and products got more commoditized, the dealer/reseller started to “add value” by either bundling together several products – often from a variety of vendors – to create so-called turnkey “solutions” and/or services combined with the product – such as training and implementation.
With the proliferation of more complex networks and systems, the break-fix repair and maintenance services side of the business expanded, and with the advent of Remote Monitoring and Management (RMM) tools, the Managed Services business model evolved, moving many VARs into an almost pure services business model, positioning themselves as “trusted technology advisors.” IT “consultants” now abound, and many firms have completely given up on the product sale: “I’ll tell you what to buy, Mr. Client… then you can go out and get it from someone else.”
Don’t Change Your Business Model – Use Today’s Technology To Expand IT!
That’s all well and good, and you certainly should NOT think about changing a successful business model that is working for you. But here are some things to consider in evaluating potential big opportunities that you may be missing:
1. Product Sales Drive More Services Sales. You may or may not be making big margins on product sales today, but there are a variety of services and accessories/upgrades that can be attached to a product at the time of the sale – configuration and installation, training, warranties, etc. – that could make the transaction more profitable. Today’s IT Business Management tools will automate the process of up-selling and cross-selling, and produce reminders when products are nearing their end-of-life timeframes.
2. Services Drive More Product Sales. MSPs who know what they are doing are in a prime position to move A LOT of hardware. Let’s face it, you are on the front lines of your clients’ networks and you see what hardware and software is missing or inadequate for you clients’ operations. And, you are the resource to replace the items that fail and need immediate replacement. You are in close contact with your client and their business operations, and are in the perfect position to recommend for them future major technology projects.
What’s more, you have the opportunity to offer and deliver the consumables and supplies that often carry a nice annuity for certain types of technology products. Today’s Back-Office Quoting and Automated Procurement software can get you in the game for all these things.
3. The Opportunity for NEW Revenue. Admit it. Your customers are already going online to buy technology products from someone else, but with today’s technology, there’s no reason you can’t make it just as easy to buy the exact same products from you – at the exact same costs (maybe even lower) – and still make money.
That’s because there are hosted e-Commerce tools designed specifically for IT resellers. The best ones will give you total control over the products and prices that show up in your quotes or in your online store, include tools to automatically pull the best pricing from multiple distributors and let you set up different pricing and products for different customers.
Find a solution with built in tools that automatically recommend accessories and companion products or push close outs and specials and you can drive incremental sales without involving a dedicated salesperson or other resources. In fact, with the right purpose-built e-commerce solution you can make margin even on low cost items because the transactions can be automatically processed, end-to-end, with little to no intervention.
So, spend some time looking at your own business. Have you reduced the product side to making recommendations to clients, or can you bring some of that business back inside? If you abandoned the product side because costs were high and margins low, today’s e-commerce automation tools might just change that equation for you.
Bob Godgart is the CEO of Autotask Corp., developers of Autotask hosted professional services automation software, the VARStreet family of advanced quoting and e-commerce tools and Taskfire, a hosted service desk and ticket management system sold by IT solution providers for businesses of all sizes with internal IT resources. Monthly guest blogs such as this one are part of MSPmentor’s annual platinum sponsor program. Read all of Bob’s guest blog entries here.