For several years now, the multinational vendors have been championing services as a way for resellers to earn fatter margins and compliment the smaller profits to be made from selling their hardware or software products. There are many areas within the broad services label for the channel to investigate and consider incorporating into their business model - from consultancy and integration to post-sales maintenance and support.
The advantage for dealers that offer any combination of these services and deliver efficiently on the promises they make include higher margins, more face-to-face time spent with customers (in which they can peddle upgrades or complimentary kit) and, perhaps most importantly, the opportunity to establish closer working relationships with a controlled number of customers that will come to consider the reseller as their technology partner.
This kind of position of trust is highly sought after in business and usually reserved for the company's lawyer or accountant. But the benefits of achieving these advantages are not earned cheaply because a transition into services will undoubtedly mean the stakes have been raised. Back in the Golden Days, before the IT sector suffered the dotcom crash, a reseller had a simple but profitable business model. This might entail Dealer A buying 50 PCs from Distributor/Vendor B and selling them for a tidy profit to Customer C. Once the boxes were delivered, the customer paid up and the reseller settled with the wholesaler.
Nothing could be easier and everybody made a buck along the way.
But the introduction of services causes significant alterations to a reseller business model. Staff are likely to need higher accreditation for more products if they are going to do more than drop the products off to the end-user. And the more detailed the services offering, the more this requirement is escalated.
More qualified staff, in turn, can command higher pay or will alternatively look to move onto bigger and better things.
Once a reseller has decided to go down this route there had better be enough work coming in to justify the decision. Failure to win a contract is always going to hurt, but it will start to hurt a whole lot more if there is a team of highly skilled engineers sitting around the office twiddling their thumbs because they have nothing to do. These tasks can be sub-contracted to mitigate the cost of having a team of engineers. But it is important to remember that the further a worker gets away from direct employment, the less they are going to care about going that extra mile to earn a trusted advisor reputation which is so important in successfully building this business model.
Then there are other considerations such as service level agreements. Selling boxes has no hidden pitfalls, but once you start flagging your business as a solution provider a customer will want the whole thing delivered on time and within budget. They are also likely to want to see the whole thing working for a while before settling the account in full. Suddenly, the simple reseller business model is having to incorporate a three-month sales cycle.
And if problems are encountered along the way, it will be those additional service revenues the reseller has been chasing that will bite the dust first. Neither end-user nor vendor will be too interested in the circumstances.
So while there are undoubtedly better margins to be earned from building a services element into the business model, moves into this must be carefully planned and well executed. Failure to do so will see more businesses added to the list of hardworking failures that bit off more than they could chew.
Brian Corrigan is Editor of ARN. Reach him at email@example.com