Small business owners must adapt and innovate to stay ahead of the curve. That’s especially true for IT channel firms who have spent the last few years adjusting to a flurry of technological and business model changes that de-emphasize traditional transactional product sales and turn the spotlight on consulting and managed IT services.
But change isn’t easy and despite early predictions, most solution providers are not committed to 100% cloud and managed services model. Instead, they’re taking a hybrid approach that mixes their traditional offerings with new, recurring services that their clients want and need to meet their strategic business goals. That’s how they are differentiating their organization and ensuring customers remain loyal.
Of course, offering that broader portfolio of services, solutions and programs can take a toll on profitability and be quite stressful to manage effectively and efficiently if not done right. That was a major point of emphasis for GetChanneled’s Ted Roller during his recent CompTIA educational session at Ingram Micro ONE.
Why is operational efficiency so crucial for IT solution providers? The latest CompTIA Research shows that solution providers’ margins have declined by a factor of four in every tech category. That not only erodes profits, but threatens the very existence of firms both big and small (and in between). “In order to stop or, better yet, reverse that decline, IT services companies have to get a strong handle on their operational and process efficiencies,” stressed Roller.
Why are margins declining for IT solution providers? The answers are numerous according to CompTIA, from increased competition to more standardized products and services (commoditization), to inefficiencies in sales, operations and management processes. The latter, according to Roller, is something providers can more easily address and, with the right focus, see fast results.
“The whole focus is to figure out how to put more money in the bottom line,” added Roller. “The single, best thing you can do is to hire the right people and work with them to establish processes that make your deliverables easy to understand, effective and highly repeatable.” Additional takeaways that will lead to operational improvement include:
Control the controllable
Identify defined processes and assess functional capabilities.
Target margin leaks
This is everything on your business
Define who is responsible
For product discounts and price controls, and tighten the controls.
Ensure your team
identifies, tracks and receives rebates and incentives from manufacturers.
If tech team utilization is below 60%, this should be a primary area to focus improvement efforts.
Establish a rate of return for every marketing campaign and for specific sales programs. Implement control costs, incentivize ideas for lowering the cost of sales and increasing close rates.
Make a list of key processes (such as credit control, sales and marketing, service delivery etc.) and tie metrics to each so your team can monitor progress and adjust their strategies.
“Operational efficiency starts with improvements to your existing processes and then ensuring each is easily repeatable,” noted Roller. “From sales and accounts receivable to your payroll procedures, take every opportunity to streamline and improve. Just making a small change in one of your company’s most critical processes can bring a great return on the investment.”
The more repeatable the model is the more expenses solution providers will drive out of their business. “The key to making it all work,” said Roller, “is ensuring that the company’s resources are focused on things that truly matter to the success of the organization, as well as the customers the team supports.”