The IT Vendor / Distributor Lead Allocation Process Needs Fixing

September 17, 2018

IT Vendors and Distributors know their success hinges on that of their channel. In the digital age, that is a function of how fast and well their channels transform.

Today’s IT landscape

 
Seattle IT vendor distributor landscape

The nature and magnitude of the change required for a Reseller to be competitive and profitable in a Cloud-first world, and particularly the “subscription economy”, was probably best stated by JB Wood in Consumption Economics: The New Rules of Tech when he pointed out “The most dramatic impact of the Cloud will not be felt in your product line. The true disruption will be to your business model.” IT Vendors and Distributors alike face the imperative of accelerating their channel’s business model transition.

IT Vendors have the benefit of high product-related margins, and strong operating profitability to achieve this. Microsoft, Sage, Oracle, and SAP for instance all post EBITDA levels exceeding 20%, according to NASDAQ and NYSE data. Distributors, however, exist on wafer-thin margins and miniscule profits. Ingram Micro, Tech Data, and ALSO for example all currently post EBITDA under 2%.

Although very different beasts economically, IT Vendors and Distributors both know that many in their channel simply will not make the required business model transition, making it critical to identify who is likely to, and concentrate on supporting them.

Challenges to effective lead allocation

 
IT vendor distributor agreeing deal with partner

In the main, both IT Vendors and Distributors focus their channel development efforts on and proactively manage the Resellers who are either the biggest or who shout the loudest. Neither guarantees success – indeed, quite the opposite.

  • Scarcity of skills: In large part, this is because the technical skills needed in an age of digital transformation are so scarce, and in such demand, that their availability in the IT Reseller community effectively defines the addressable market for an IT Vendor’s products. Gaining market momentum for “leading edge” technologies like Artificial Intelligence and Machine Learning, for example, require the support of exceedingly rare data scientists who often work for smaller IT Resellers. Locating them is like finding a needle in a haystack.
  • Products and inventory mismatch: Absent a mechanism to match their products with individual Resellers’ skillset “inventories”, Vendors will almost certainly fail to optimize revenue growth and market share, and Distributors will fail to improve their “share of wallet”. The shortfall risks being significant.
  • Generating leads: Lead distribution is also particularly problematic for both Vendors and Distributors. Generating a marketing qualified lead can cost anywhere between $200 to $2,000 (according to CloudSpeed research) depending on the type of potential deal sought, and random allocation of such leads means that this investment is totally wasted much of the time.
  • Marketing funds misspent: Absent a mechanism for allocating leads among suitable Resellers, marketing funds are significantly misspent. There is a double-jeopardy here as well – lacking an objective basis for lead allocation, Vendors and Distributors often “hedge their bets” and distribute the same lead to multiple Resellers. This has the spillover effect of creating an increased cost of sale at the channel level, and consequently diminished profitability at the very time aggressive revenue growth is being pursued and must be funded.

This content originally appeared on CloudSpeed.

Download the full whitepaper here.

Learn more about the changes that are transforming the IT industry.

Download now

Download the full whitepaper here.

Learn more about the changes that are transforming the IT industry.

Download now

Channel economics in an era of technological disruption

Learn more

Information technology industry analysis for 2019

Learn more

The IT Vendor / Distributor Lead Allocation Process Needs Fixing

Learn more