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Raise Recurring Revenue; Transition to a Managed Services

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									Communities VentureTech Network

                             Raise Recurring Revenue
                             Transition to a Managed Services Model
                              by Julie Bos

                             Few solution providers would argue that maintaining         more than 600 solution providers conducted by
                             profitability in the IT market is an ongoing challenge.     Service Leadership, a consulting firm specializing
                             After all, product-centric businesses are regularly         in advising owners and executives of IT solutions
                             undermined by dropping unit prices, low profit              companies on business best practices.
                             margins, and “comparison-shopping” customers who
                             frequently choose to buy direct from manufacturers.         According to CEO Paul Dippell, solution providers with
                                                                                         less than 50 percent of their revenue coming from
                             Solution providers focused on managed services,             services demonstrated an average pre-tax profitability
                             however, can side-step many of these issues and             of only 4.2 percent.
                             secure profitability that isn’t as affected by the buying
                             whims of their customers.                                   Those with 70 percent or more of revenue coming
                                                                                         from services, on the other hand, attained much
                             In fact, research shows that services-centric               higher averages — typically around 7.6 percent.
                             businesses typically experience much higher                 The most effective solution providers in this category
                             profitability than their product-centric counterparts.      frequently attained peak profit margins of 18 percent
                             Plus, these services-focused businesses enjoy               to 20 percent.
                             increased shareholder return, and greater long-term
                                                                                         Making the Decision Isn’t Enough
                             value to their customers.
                                                                                         Clearly, adding services is critical to profitability.
                             The relationship between business model and                 Yet despite the appealing profit potential, making
                             profitability was confirmed in a recent survey of           a successful transition to a new business model isn’t
                                                                                         always easy. As a result, many solution providers
                                                                                         experience mixed financial results — even when they
                                                                                         believe they’re on the right track.


                                                                                         Why?


                                                                                         According to Dippell, the business model required for
                                                                                         selling managed services is distinctly different than
                                                                                         the traditional model used by most solution providers,
                                                                                         as is the account management model. Many VARs
                                                                                         are hesitant to adopt a new style, but those who
                                                                                         insist on sticking with the model they’re most familiar
                                                                                         with — the product-resale business model — will likely
                                                                                         continue to experience disappointing results.


                                                                                         “By adopting a proper services-centric business model,
                                                                                         however, solution providers can indeed improve
                                                                                         profitability, and speed their growth by improving their
                                                                                         customer acquisition and retention levels.”




 8 | www.ingrammicro.com/advisor | August 2005
                                                                           VentureTech Network Communities

Best Practices Can Help                                       Results | Learn effective ways to deliver your
In upcoming issues of the Advisor, we will feature            managed services, how to parlay your expertise into
articles devoted to sharing knowledge, best practices,        additional recurring revenue opportunities, and
and making a smooth and speedy transition to a                what you should expect from your services business
services-centric business model. Specifically, the            over time.
series will explore the following topics:
                                                              If you want to make a successful transition to a
Financials | Learn how to manage the key financial            service-centric business model, let our new Advisor
drivers of profitability and how to improve your              series be your guide. For more information about
company worth through managed services.                       Ingram Micro’s managed services resources, contact
                                                              our Services Marketing Group:
Organization | Find out how to effectively structure
your services business, align your sales and service          • Nicole Aptekar, group manager,
organizations, and build a service offering that                (714) 382-3372
drives profitability.
                                                              • Keith Wilson, senior marketing manager,
                                                                (714) 382-2746
Expansion | Learn ways to attract new service
customers, and get tips on designing your                     Or for individualized consulting, education or advice,
service offering around the exact needs of your               contact Service Leadership at (972) 758-4199 or
customer base.                                                info@service-leadership.com.




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                                                                                                          August 2005 | www.ingrammicro.com/advisor | 9

								
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