For many years it’s been no mystery that most IT products don’t yield much if any profit margin for channel partners. So have you ever wondered how vendors attract channel partners and motivate them to sell their products?
Follow the Money
It’s also been just as clear that channel partners make the majority of their profits from the sale of their own services. Yes, many also make good money selling cloud and other services produced by vendor-partners, but their most profitable sales come from the same services that recover their payroll, training, tooling, and other costs.
Alert vendors have recognized this and have acted upon it, and in doing so have made themselves very attractive partners by having an answer to the eventual challenge channel service providers will inevitably face.
It’s Five Times Easier…
It’s common wisdom that it is five times easier to sell more to an existing customer than it is to create a new one. To create a new customer one must find good candidates, penetrate any hurdles to gaining their interest, persuade them to consider engagement, and ultimately start closing sales. With existing customers most of the heavy lifting has already been done, the customer is already convinced of your quality, and all you need to do is present your newest offerings.
And there it is.
To present new offerings you must have new offerings to offer! Many service providers hit a wall when they have sold as many services from their portfolio to a customer as that customer will buy. The only thing left to do is to add new services to the portfolio.
So where are you going to find new services?
Further reading: From VAR to MSP: Managing the Shift from Push to Pull
Don’t Sell Software, Sell Services
It may sound counter-intuitive, but smart software developers are today encouraging their channel partners to NOT sell their software to customers.
Instead, they’re encouraging those partners to learn how to deploy and use their products so they can use them on behalf of their customers. Long ago this was referred to as a “consultant’s license” but the concept is simple. Use the software as a tool with which to create and deliver new services you never offered before.
One of the earliest examples is Nintex, who themselves started out as a systems integrator building SharePoint customizations for their customers. They soon realized they could package those customizations and offer them as products. Over a short time, they transformed into one of the most respected software providers in the channel. Thousands of other channel partners purchase licenses from Nintex that they then use to build customizations for their customers. The cost of the software is simply bundled into the cost base for the service.
BitTitan is another great example. Many of their channel partners buy their cloud migration software products to use in customer migrations. Rather than compete on price with other resellers, BitTitan partners bundle the cost of the migration products in with the cost of their own services and calculate a price based on that total. The customer never knows how much of what they paid went to purchasing use of the software and how much went to paying for the partner’s labor. In fact, they often don’t know what products the partner used as migration tools.
Further reading: Are You Still Calling Yourself a ‘Reseller?’
Expand Your Portfolio, Increase Your Profits
When smart channel executives interview a new channel account manager, they now tell them not to waste their breath talking about available margins on their products. They know better.
Now they ask them what new services their products will enable them to add to their portfolio. They prefer services they’ve never thought of offering before. Financial management. License and subscription management. No-code application development. Process automation. The list goes on.
They want to know more about deployment training, technical support training, functional customization, report customization, and any available monitoring opportunities to build out a bigger managed service suite.
They ask for more information about reusable engagement models they can build their services around. And any vendor who offers customizable marketing collateral that will promote the channel partner’s services combined with their own products will find enthusiastic reception. These partners used to depend upon marketing development funds (MDF) based on a percentage of sales. Now they seek a new kind of co-operative marketing that actively promotes both partner and vendor.
Ask the Question
Channel partners should be prepared to ask the question of every channel account manager they meet with. “What new services can I create and offer based on your products?” Great answers to this question are leading the most exciting new developments in the channel community today.