Channel managers still extol the tremendous profit margin available from the sale of their products. These days, with more resellers transforming into MSPs, those exhortations fall on deaf ears. The question most channel partners now have for vendors is “what services can I wrap around your product for sale to my customers?” With reselling competitors discounting your product price to basis points, that’s where THEIR channel margins are going to come from.
Are you still telling channel partners about the channel margin available on your products? You must know by now that it’s falling on deaf ears. They know better, and it’s not your fault. They know their competitors will discount that channel margin down to basis points, a fraction of a percent. They’ve been doing so for decades.
What is important is that you recognize dynamics that are changing rapidly in the channel and how you can most effectively leverage them to drive partners to choose you and drive sales with you.
Stop Selling for Resale
The concept of our “sales channel” is simple. A product goes from its manufacturer to a distributor who sells it to a reseller who, finally, sells it to a customer. We say “reseller” because of an old IBM policy that “only IBM can sell IBM” so they came up with the idea that we purchase their products for resale.
That happened back in the early 1980’s, as did the beginning of the downward pricing spiral that evaporated channel margins.
After a few years of highly creative innovation coming up with all manner of ways to replace those lost channel margins, many resellers began adding new services for their customers. As this strategy flourished, many resellers saw the expense involved in processing product sales, the heavy cost of credit, and the almost non-existent channel margins available and began flocking away to become service providers full-time.
Many of these new service providers quickly eliminated product sales from their offerings altogether, preferring to partner with catalog-based warehouse operations and other large product providers.
The New Role of Products in the IT Channel
From the customer’s perspective, hardware is still hardware and software is still software. They require less hardware because much of their core computing operations are now conducted in the cloud, so they need fewer servers, storage, and related items. The role of software has changed, too, with much of it being delivered for their use as Software-as-a-Service (SaaS).
But there is another avenue down which products have traveled that is of far greater interest to today’s channel service providers.
Many products have become significant enablers of new, innovative services that are very appealing to customers. This manifests in two very exciting ways.
Go Where Your Partner’s Real Profits Come From
As stated earlier, IT channel partners know better than to expect any profit to come from the sale of products. Only headaches. That said, how does a vendor capture their interest?
What your channel partners want most to know, and what will drive them to find value for themselves in the sale of your products, are the services they can create and wrap around your products, to create higher channel margins.
By the way, this is as true of cloud subscriptions as it is of any hardware, software, or other product.
The questions they should be asking, and that you should be answering even if they don’t ask, include:
- Can they charge for initial consultation and planning prior to deployment of your products?
- Can they charge for provisioning of related services connected to your products?
- Will customers require significant training to use your products, which partners can provide?
- Can installation, implementation, and deployment of your products be charged for?
- How much user support should your products require? Will they justify a support contract?
- How long is your warranty? How long before they can sell extensions and enhancements to it?
- What adjacent services and products can they offer customers alongside your products?
- Do they offer a program in which they assign services to you as a certified partner and pay you to deliver them when customers buy from someone who is not a certified partner?
- How well do they promote their certified service provider program?
Upfront services bring immediate revenue with high-margins. Training and support services add more monthly recurring revenue (MRR) with excellent channel margins. For your partners, the goal is to include, bundle, and offer as many services surrounding your product as possible.
Enable New Services for Your Partners to Deliver
Many software providers and some hardware manufacturers have realized that their resellers are far more focused on services for their superior margin production. They have back-burnered the resale of their products. Instead, they offer their products to service providers as tools which enable them to deliver new services they couldn’t produce on their own before.
In some cases, they build software tools that help MSPs analyze customer networks more deeply. In others, they enable automation of everything from virtual machine relocation to repeating tedious tasks. Some expand upon data backup capabilities and capacities. Still others automate cloud operations, while others help customers better manage their software licensing and cloud spend.
Go Where the Action Is
Sounds like a cliché, but the fact is that the channel partners you’ve always depended upon no longer wish to sell any products, including yours. They do however, continue to see services as their path to riches. That is, indeed, where the action is. Go there. Build tools for them. Enable them. You’ll find it a far more satisfying partner engagement than you’ve ever known before.