Today’s business environment challenges profit margins in a number of ways:
- Product sales alone struggle to sustain cash flow
- Competition is fiercer than ever
- Customer needs are constantly changing
- Clients are increasingly turning to cloud-based services
- Budgets everywhere are under enormous pressure
Tarsus Distribution’s General Manager, Mark Campbell, has some great advice for value-added resellers looking to move past these challenges and into increased profitability.
For starters, resellers can:
- Keep a close eye on margins
- Squeeze inefficiencies out of their businesses
- Find new ways to solve customer challenges
Of course, there are other strategies they can employ as well to further boost their profit margins. Of these, Campbell says the following:
Start with an internal review of the business
As a reseller, you cannot control the currency exchange rate, component shortages that cause price spikes, clients’ IT budgets or import duties. But you do have some control over your operations and your cost base. For example, you can review suppliers to make sure that your partners are cost-competitive.
You can also evaluate whether you are making optimum use of your employees’ time, as well as automate business processes like catalogue management and quoting. You might find that you’re spending an inordinate amount of time on manual data capture, for instance, when you could be capturing data on a smartphone app.
Seek opportunities to diversify
Many resellers started out by selling a particular vendor’s products, focusing on a class of product (such as accounting software or point of sale), or addressing the needs of a single vertical industry. Diversification often offers opportunities to improve your margins, particularly if you can add consulting and other services to your product mix.
Diversification may require you to build new skills and infrastructure, a potentially expensive exercise. However, it is also possible to branch into new markets through partnerships with distributors, vendors or other resellers.
You can also look at which new markets you can effectively enter using the assets, skills and clients you already have.
Diversification can be an effective way to build up your scale—so that you can push higher volumes, even if margins remain low—or to move up the value stack. For example, instead of simply selling a software licence for a security tool, you could partner with a law firm to provide compliance consulting as well.
Understanding the once-off and ongoing costs of each deal you sign
When signing a deal with a client, the cost pricing of the products you are selling and the billable hours of your team are easy enough to estimate.
But it’s also important to keep a close eye on factors such as manufacturer rebates and the cost of support, logistics, staff training, infrastructure such as support centres, and sales in a deal.
This is especially true where you may need to provide support to the client over the duration of a two- to three-year contract.
Find ways to add value to justify a premium price
Adding value to your customer experience can often be a more effective strategy than trying to outcompete the market on price.
If you can provide great advice to your customers about the software or hardware they should buy, they might turn to you because they know they’ll get the right solution for their business.
Rapid turnaround times on repairs and support can also differentiate your business in a world of mediocre service. Free and fast delivery can also give you a bit of an edge.
Some customers will pay more for a notebook if they know it will be delivered within 24 hours and that you can provide onsite support on the same day if something goes wrong.
Increase your average order value
One of the best ways to improve profitability is to focus on improving your average order value.
You can achieve this goal by cross- and up-selling to your customer, ensuring that you can offer a range of products and services that complement your core offering.
This can also be effectively done by quoting or justifying appropriate options to the solution, software, accessories or service upgrades. Once you have the client’s attention, you should maximise its spend without significantly increasing your cost of sales.