IT Reseller Profits Are Shrinking. Now What?

September 3, 2018

In an era of technological disruption, profitability is often the first casualty for a technology Reseller. Recent research from the Cloudspeed Partner Strategy Survey (March 2018) indicates that over half of all IT Resellers are now posting marginal or negative EBITDA as they adapt their business models for survival in a Cloud-first world.

Why are IT Resellers losing profits?

 
IT resellers losing profits making a decisions

IT Resellers often find themselves competing with others offering the same product at the core of their solution, as much as half the time according to the CloudSpeed Capital Adequacy Study (2018). To win these deals, discounts of up to 25% have become increasingly routine, and charge-out rates have consequently come under significant and increasing pressure.

Superior utilization and differentiation are the only remedies for a technology Reseller caught in the grip of shrinking services margins, and since the customer now demands concrete business outcomes rather than technology itself, Resellers must provide a tangible demonstration of specific capabilities to prospects and existing customers alike to justify higher bill-out rates and achieve sustained profitability. For further detail, see Consumption Economics: The New Rules of Tech, by J.B. Wood.

How can an IT Reseller regain market share?

 
IT resellers market share

In the end, there are only 3 dimensions on which a Reseller can effectively differentiate a services business – by the depth, breadth, or quality of its expertise. All need to be substantiated to be effective.

However, there are other ways to that technology Resellers can make up lost ground:

  • Demonstrate capabilities more effectively: Common Reseller tactics are no longer effective. Convincingly illustrating superior depth or breadth of expertise is more than a matter of showcasing technical certifications, since most Resellers have them. Superior expertise quality cannot be fully conveyed by case studies alone. Since it is easy to claim expertise whether a Reseller possesses it or not, the Customer has no way of validating what a Reseller asserts, no real differentiation results.
  • Staff retention and advancement: Giving employees opportunities to develop and learn are also critical to sustained profitability. As Richard Branson has pointed out, “Your company should act as a springboard for ambitious employees, not a set of shackles”. Truth be told, few Resellers today can credibly claim that status.
  • Strategic partnerships: Forming strategic alliances or making strategic acquisitions to achieve meaningful differentiation requires a Reseller conducting extensive due diligence to validate the “expertise synergies” being sought, and avoid damaging a Reseller’s reputation or making an inappropriate purchase of another firm.
  • Need for more transparency: Across the industry, critical shortfalls in the visibility and transparency of IT Reseller capabilities inhibit the best Resellers’ ability to differentiate themselves, win and retain customers and staff, form appropriate strategic alliances, and improve their profitability.

This content originally appeared on CloudSpeed.

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