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Partnership and profit: Securing the perfect formula

Partnership and profit: Securing the perfect formula

The post-recession climate

Amanda Sachtleben: Has the global financial crisis changed expectations about profit levels?

Scott Cowen: No. As the sun comes up every day, so do budgets. We have fixed ratios globally to meet, so we gear up around them. That means if costs are higher, then we need to get them down and revenue needs to go up. Profits are extremely important.

Dayle Barnes: The year before we [Westcon Group] moved into Datastor, we were quite small. It was actually really beneficial - our revenues rose and the main reason they rose is because we didn’t have a penchant towards the big vendors. We had time to stop and consider. We just stayed where we were, because we were doing well. We made some decisions about vendors that now have put us in a good place. When you are busy and you’re making money, why would you stop what you are doing?

Simon Scott: It is a scenario of leveraging product range against specialisation. As Dayle said, sometimes having a few extra arrows in the quiver that are left field can really change the equation. We try to focus on small things that the customers appreciate. As far as benchmarking and calculating profitability, that is a complicated issue. Our entire company knows what our average margin is every second of the day. So we make sure that all of that information is completely transparent and we are well aware of our target scenario

Amanda Sachtleben: From the perspective of a larger integrator such as Gen-i, Kurt, is there a change in expectation around profitability?

Kurt Brandon: Coming from a smaller environment to a large one, the exposure to the bottom line is a lot smaller. So you have got a lot of people who have never worked at a margin level, or they have worked at a margin level, but within an extremely narrow silo. So they don’t see how what they are doing affects everything else that goes on around them, whether that be from a delivery perspective, whether it be from a sales perspective, or a straight transactional procurement perspective.

Because I am used to looking at that big picture, I wonder why are we doing this here or why are we doing that there? Different parts of the business make different margins and obviously, because we are a large company, we leverage those.

On the procurement side, I personally would like to see our margins go higher, as would everyone here. I come back to a comment that was made earlier. I think we do price gouge, whether it be a Symantec product or someone else’s product. Probably not the people in this room, but you will find someone who is going after a deal will do anything to close it. They will find a way to do it at zero margin to try and pick up the services. It is a lose-lose for everyone. It is a lose for us as resellers and it is actually so much harder to try and recover those lost margins. Then that is benchmarked for the customers.

So how do we keep our value up? That is a difficult question to answer in the marketplace at the moment. But from a Gen-i perspective, I would see how the bottom line rises and we will work with the vendors and with the distributors to achieve that.

Noel Simpson: I think it also depends on what game you are talking about. There is another reseller I won’t name, that I know for a period of time had a maximum margin that they could add to product margin, because they considered procurement to be a loss leader in their business.

The profitability divide

Amanda Sachtleben: Are there major differences today in how vendors and resellers measure profitability?

Noel Simpson: I am going to be a bit brutal here. I don’t think our vendors, outside of the accountants, actually care about our profitability. I think they sit outside of the ability to collect the debts from the resellers. I am very much generalising here. They very much focus on their own business and that acts in way that benefits themselves, over the actual channel members.

Chris Maclean: I actually don’t think it is the distributor or the vendor’s fault. It is up to us to maintain the value and the margins. It is a very competitive market and it takes everyone to be onboard with that concept. If you look in other industries, like the car industry for example, there are kind of unwritten rules that you just don’t go below that margin.

It doesn’t matter what brand of car you are selling. You need a certain number to survive and everyone kind of gets that. Whereas in our game it seems people will just take the deal, whatever the cost, which is just immature thinking. You need to be across every part of the business to have a sustainable organisation.

I think really the reseller community at large has a responsibility to start thinking about where they sit. If they decide that 20 points is the right number, or whatever it is for IT, without obviously price fixing, but understand what is sustainable, then it is up to us to go and enforce that and be brave enough and have the courage to say no when deals go below that. The hard part about it is we need everyone to do it.

Hamish Kibblewhite: Has that behaviour of people driving down below that, has it been more prevalent in the past 12 to 18 months than previously?

Scott Cowen: I think it has because of the economic times. In 2009, vendors were very concerned about the profitability within the channel. There have been reviews of the trade of the key manufacturers to ensure there is profitability within the channel, both at a customer level and at a reseller level. Each of them has looked at different ways to support customers and resellers.

We have got one vendor, and I’m not sure if this has been passed on through to the channel, that pays us our rebate six monthly rather than quarterly. Their thinking is that the rebate then won’t get passed through to the channel, so distributors won’t use it to win the business against the other [distributor] in competition. Other versions of this are making it depend on certification levels, whether you get certain levels of discount. There is also the early opportunity method, where if you name the dealer you can get up to a certain percentage. The key then is not to pass it out to the street if you actually have that. We don’t have control of that, the vendors don’t have control of that, the resellers do, and we can’t predict how it is going to be.

Noel Simpson: Has anyone actually participated in a profitability survey from a vendor? If not, I think that in itself says something. You know, they haven’t voluntarily asked the question, ‘how profitable are you?’ If they are not asking about profitability, are they really concerned about it?

Amanda Sachtleben: Jeff, could you comment on that from Symantec’s perspective?

Jeff Arndt: We are absolutely geared and structured to try and make you profitable with Symantec. But one of the things I am interested in from around the table, is that it is almost impossible to sell Symantec by itself. So if you can’t operate a Symantec opportunity then that would preclude you from participating in a business opportunity. There are other manufacturers and vendors that we are relying on to provide the business outcome the customers need.

Symantec has a very broad portfolio and we participate in all markets. I think it is partners that can add to the value beyond just an opportunity registration. I would have thought it would still be worth putting some skin in the game.

Kurt Brandon: When you are working with multiple vendors you need to be quite brutal about who you train, why you train them, what you’re doing with them and the returns you are actually going to get back off those people.

It is quite a tough situation, especially when the vendors change every 18 months. This week it is revenue, next week it is certifications, next week it is something else. Symantec is going through programme changes at the moment, while Microsoft is shifting their whole partner programme. There are costs to the business and I get scared when I look at what it is actually going to cost us to make those changes, just to transact.

Steve Martin: I think the concept of having a profitability survey, as Noel mentioned, is an interesting one. We may be only a small percentage of your business and most vendors are only a small percentage of your business. But collectively they come together with your services and your other bits and pieces to make up the business. I wonder about the value of any vendor going out and saying, ‘tell me about your profitability’, and whether you would get honest replies. I think the concept has merit, but I am not sure that the results will return what you want to see.

Noel Simpson: One of the challenges that you have in running your own business is understanding what is an adequate performance for your business and different departments. There is a significant lack of benchmarking metrics, in New Zealand particularly. Working with Intuition was quite handy in the fact that they actually did, through Cisco, profitability surveys with Cisco resellers, and you could directly benchmark yourself against profitability, revenue; the metrics you might run through your business. I take your point, Steve, about a profitability survey when Symantec is a small part of the overall business. But some people do it and I found that very valuable in setting our benchmarks for growth.

Opportunity registration

Steve Martin: From Symantec’s perspective, I am certainly very keen to learn, as is [my colleague, enterprise channels director] Jeff [Arndt], about the programmes that work for you. Our focus as a vendor is to make sure that our partners are profitable, because if you’re not profitable you [will] have no interest in partnering with us. Profitability has become a core focus for us. Jeff and I are certainly keen to take away some of your feedback on what we might be able to do better at Symantec to drive the profitability of your businesses. What is been the best practice and [what are] some of the most exciting things you have seen from a partner profitability perspective in terms of programmes delivered?

Chris Maclean: Noel [Simpson] and I were talking about this. We are both big fans of the upfront rebate and deal registration, because it allows you to qualify in or out pretty early before presales. The net rebate is used to fund the presales investment. If you can’t register the deal, then you can assume it might not be worth bidding for and just save the money. So I would certainly value that as being one of the better [elements of a profitability programme]. It means the channel is not having to do 15 quotes for a piece of business.

Scott Cowen: As a distributor, we would validate that. It is definitely the trend across a lot of vendors now, and we have seen feedback to that effect from the channel. It also provides some protection for the incumbent [in a deal]. Because traditionally, if the incumbent’s across what is happening in the account, they are the ones that actually have the insight and it makes it harder for the challenger.

Hamish Kibblewhite: But that challenge actually brings some lateral thinking and some innovation back into the solutions and into the market. Because if you haven’t got deal registration to fall back on, you have to be looking for other ways of making that opportunity. I think that actually sometimes brings some real vigour into the contest.

Noel Simpson: What I was saying to Chris [Maclean] before is the challenge you have is around a value-added resale - you have a significant cost in your presales solutioning process. There is nothing worse than going through that process and spending three hours on a solution and then having the customer or someone else take the intellectual property and then strip the margin out of it.

So what the deal registration process does is make sure upfront that if you are going to engage, you register. If you do deal registration you have five percent or 10 percent that can help pay for the presales [investment]. If you can’t do deal registration it sends a very strong signal that maybe someone else has registered it or you shouldn’t be investing that money, and therefore it saves you from doing just that. It helps protect and repay your presales investment, but on the flip side it actually stops you from making that investment in the first place if the customers are already quietly engaged with somebody else. I am a big believer in that deal registration process and I will partner with a vendor that has a deal registration process over one that doesn’t.

Kurt Brandon: Deal registration is very, very important. There are some vendors who are moving away from that, which does affect how we look at those deals, as Noel has just said. Putting deal registration against margin, which effectively strips margin out, especially when you have open book contracts with customers, removes the value of the reseller. All it does is gouge the margin and gouge the pricing. But we look at upfront deal rebates in the same way. We can use that to leverage cost and that is very important to our business.

Simon Scott: As an online reseller, we don’t have a presales force and we don’t proactively look for customers. Our customers come to us usually for a couple of reasons and sometimes it is because they’re not happy with their existing reseller. The benefit in our partnership with Symantec is the customer can still retain their Symantec product range and other products, because we are happy to support them. They don’t have to retain the reseller that they effectively don’t like any more. So we are an anomaly, because we have a different model.

The training investment

Amanda Sachtleben: What are the incentives for partners to make the shift to specialisation and to commit to training to support this?

Steve Martin: Symantec’s focus around specialisation is to reward the partners that have the expertise in certain categories of the market, which has a double-edged effect. Firstly, it narrows the field of competition to those that do know what they are talking about. Secondly, its intent is to reward those who are clearly investing in those spaces with better benefits and privileges and profitability around those technologies. I would like to ask the table if having trained and certified staff in a particular technology category makes it more profitable or less profitable for you?

Hamish Kibblewhite: We do invest and it is more profitable, absolutely. That may not always come from say value added services, but from that knowledge enabling us to help the channel to make better sales and find other opportunities. Where we have a higher capability, we get a better result.

Chris Maclean: I believe that if we focus not just on passing the training, but actually think about what [a vendor is] trying to teach us, there is probably even more to gain from it.

I have seen so many examples of people getting the rubber stamp and that is the last they ever think about it. When actually there is a huge amount of value in some of this training, if you take the time to listen and absorb it and build it in your business process.

Dayle Barnes: It is amazing how many put on free training and they struggle to get people there. People used to say there was no budget for training, but now that barrier has been removed people say there is no time. I can think of two companies that I can’t name - one is in security and one in virtualisation - they’ve skilled up and they are the experts in the marketplace. I know if I come against these staff, I am going to lose. If I go to the races and put a dollar each way on every horse, I’m going to collect. It’s going to be minimal, depending on how many horses are in the race. You’ve just got to put your money down and back yourself to make that call, because as Noel indicated, if you try and set a fire in everything, you’ll spend a lot of time training and you’ll become a generalist.

Chris Maclean: I have been to a couple of vendor sales training sessions and it was just a beer and pizza afternoon, which was a waste of time.

Kurt Brandon: The key is certification at the end of training. A number of times we have had people spend a week doing training, but where is the certification? We had to shift how some people were dealt with, in regards to the money that is not refunded back to your cost centre. We had to get a little harsh, but it is a very frustrating position to be in. Specialisation forces you to rationalise, it forces you to make choices. When you are investing that money behind it and you get that proper feedback, and you know that people are listening, you know they’re not taking onboard how important this is for the business. So you have to educate them. You have to do it softly, but you get that message across.

Steve Martin: We are both responsible for our collective brand. You take our products to market and install them in a customer’s environment. Specialisation, training and certification, in my view, ultimately leads to more profitable business. You know what you are talking about and you are far more likely to implement a successful solution quickly, as distinct from problems and challenges that require ongoing tech support that drag down your profitability and drag our reputations down.

MDF in the mix

Amanda Sachtleben: Are vendor marketing development funds being maximised in today’s market?

Noel Simpson: Generally, yes. There can be quite a lot of work to actually get the payment or to spend money that meets the vendor’s philosophy of how they want it to be spent.

Simon Scott: We try to appeal to different vendors. Because we’re web-based, we have a wonderful opportunity to conduct advertising campaigns, report on sell-through and general traffic. Everything we do is extremely measurable and we have found that vendors in general very much appreciate that. Whereas other resellers at the table might have services as their primary or secondary tier of management development, for us it is advertising. Quite often the ad campaigns that we conduct on behalf of the vendors, we almost structure them so that they’ll reflect a special deal that is available to the entire market. So we say to the vendor, ‘we don’t care if we catch all the orders. If your sales across the entire reseller channel go up, then please consider that we may have done that’.

Scott Cowen: What we have found is that some resellers are better geared towards doing marketing campaigns than others. Some are more engineering and sales-focused. We have got resources that can actually help put campaigns together. We have set up telemarketing services and a telemarketing team to act on behalf of the reseller, which has been successful.

For the larger multinationals, there are a lot of restrictions on how money can be spent. Going back to some of the basic themes, it is about getting the message out there to the customer, whether it is via phone, email, voice, and then follow-up. So it is actually going back to the good old basic marketing in some respects and doing it consistently.

Hamish Kibblewhite: The challenge we have is finding innovative campaigns that actually either drive or change behaviour. Telemarketing is an easy one. You make a phone call, you do or do not get a return. But if you look at other campaigns, do you actually get a change of behaviour, do you actually get a marginal gain and activity from that? One of the things we are seeing is combining multiple vendors and doing joint campaigns. It has actually shown quite an interesting return and getting more attention in the market.

Amanda Sachtleben: Steve, how can a vendor try to ensure that dollars are not left on the table?

Steve Martin: Part of our strategy is we are actually marketing to our partners on spending our marketing dollars. Everybody leads a busy life at work and outside of work. We have found that we had to go and better market what is available around profitability. I have stood in front of audiences here and around other parts of the country and said, ‘we have this money to spend with you, please come and spend it’. Jeff and I measure our partner profitability programmes by the amount that we pay out. If we are not paying out enough, you as the partner community aren’t seeing the value in the programme or the initiative that we are trying to drive.

Noel Simpson: The core issue is small to medium-sized resellers don’t have a marketing department. They have someone within the business who does marketing and when they get busy they forget about you, because someone else is yelling louder for their attention.

Some of the clever vendors I have seen, come to you with a 10-point solution for spending that money. They will engage an external communications and marketing company and say, ‘we’re going to spend $10,000 worth and you can tune it to suit your company’.

Kurt Brandon: The key for me, coming back to the vendor community, is it is measurable. Sometimes if something goes out through their marketing channels, you can’t measure the effectiveness.

Noel Simpson: If you’ve got $10,000 to spend, it might be spent poorly because you are not a marketer, you are an IT guy. The alternative is to spend $5000 with a marketing communications company organising and delivering it, and you would still get that outcome. They are already trained with that vendor in terms of the product and the way to do things.

Steve Martin: One of the barriers we continue to face is partners don’t have a list of who their customers are, so can’t give a third-party marketing company a list of people they want to market to. We can find lists in the marketplace. But part of our focus when we market or we partner with you as an organisation, is we want to help you grow your opportunities with your existing customer base. If we do a marketing campaign with somebody else then they are potentially acquiring your customers. Our focus is on helping you to grow deeper relationships from Symantec’s point of view in your existing customer base, because that is where you get true wins.

Are rebates effective?

Amanda Sachtleben: Are there examples of best practices where rebates are concerned?

Noel Simpson: I find it more effective when vendors say, ‘I expect you to lead with my brand, I expect you to invest in training and maintain the training’. Otherwise, you soon get demoralised with ever-increasing revenue requirements and then you just get discouraged and move on. They don’t react quick enough to recognise what is going on. There are some that take more of an engaging approach and tie it back to the training.

Chris Maclean: The market is made up of all sorts of different vendors. Some operate on a lower margin, but on lower costs, while other operate on high volume and in areas where they can make a margin.

Simon Scott: We are extremely focused to sales target-related percentages and rebates. We are not afraid of hitting that wall and trying to get past that wall. Our motto used to be ‘it is not about money, it is about free trips’. Our entire sales force is told they’ll get a trip and everyone focuses on selling whatever they can, without being proactive in that sales process. So it is a completely inbound sales process where we are focused on achieving free trips for selling volume. Our rebate scenario is based on reasonably achievable targets, but with a healthy stretch.

Noel Simpson: Some mid-market, and more so large clients, believe that there is value in negotiating a cost-plus agreement for procurement in return for a preferred or exclusive supply arrangement. I think the level of rebate can significantly impact on partner profitability. If the rebate is suddenly changed it can actually hurt. So when dealing with those larger clients, flexi-price and rebates materially make a difference to your bottom line

Kurt Brandon: Some put the rebate against the margin. But coming back to the deal registration programme once again, some people put that deal registration payment against margin and some don’t.

If we are in that open book scenario, where the customer is buying five points above what we paid for it, that all goes out the window if the amount is actually placed on that purchase order. I know of a couple of small resellers who do nothing but register deals. They have a person to do that full-time, but don’t know if they are going to get the business or not. Someone just went through the phone book, basically, and registered all these companies. They happened to register Telecom and Telecom bought something from that vendor the following week.

Jeff Arndt: But they were following the rules with the registration process and that was what was in place. We, in effect, allowed that behaviour. The length of time that we have for people to run an opportunity is four times the average sales cycle for the most of our technologies.

Chris Maclean: We had an example recently where we generated some quite significant demand from a customer. But within the time it took to drive from Mount Wellington to the city for a visit to the customer, someone called them. They had registered it by the time we got back, and the vendor said ‘tough luck’.

Noel Simpson: My naïve perspective on it is this: deal registration is there to reward presales investment. So it is not ‘first in, first served’, it is there to reward the presales investment.

Steve Martin: We use slightly different language – we say deal creation rather than presales. But if you have created the opportunity, you are the only one who owns that.

Into the cloud

Amanda Sachtleben: How will the hosted delivery model impact on profitability as adoption grows?

Jeff Arndt: It seems after the GFC and the downturn there is pent-up demand now. The conversations we were having with partners are, how can they move to this type of model because this is what our customers want.

Hamish Kibblewhite: Partners that I talk to see it as an opportunity. I think it is seen as something that is going to add to profitability

Noel Simpson: I think it will ultimately weed out some of the smaller guys that don’t have the capital to do it, or they don’t have the delivery capabilities to deliver a sustainably, solid platform, if they are going to build their own.

Kurt Brandon: Cloud is a large part of our strategy. One of the benefits we do have is the ability to have the software onsite, have the hybrid and have the fully-blown cloud model for the customer. As Noel said, you have got to have the scale to deliver. It is going to be quite difficult for the smaller players.

Steve Martin: Those partners that have moved or are moving towards cloud-based services are likely to increase their profitability, because it fundamentally changes the game of IT from procurement plus services to an integrated technology and services solution. It allows those partners to add healthier margins and be more in control because it is no longer about a widget that you can buy from a 1000 different people, and working out who is going to give me the best price. It is now about a service and you can better differentiate on your services. Over the long term all markets become commodities. But the long term in this space is many years.

Top and bottom of the class

Amanda Sachtleben: How can the channel sector achieve best practice in terms of profitability and, conversely, how have these programmes been ineffective?

Noel Simpson: An effective programme encourages conversion, so if you convert a customer you get an exclusive margin on it for a period of time.

Amanda Sachtleben: What about on the distributor side?

Scott Cowen: We are mainly dealing with large US multinationals, so the ones that we like the most have a strong New Zealand or Australian influence in the way they are finely leveraged. Even though we are in a global village, New Zealand is unique from other countries and obviously we are smaller as well. There needs to be a framework we can modify. To add to that, it is also not just about a rebate programme, the key is making sure it is a partner programme, and partner is the piece that is underlined. The ones that have that in their DNA are very interested in making sure it works for the channel, as well as the distributor. They are the ones that seem to be listening and modifying and getting it right.

Dayle Barnes: The key thing about any programme is just simplicity. People don’t want to do all this weird and wacky stuff, they just want to know if they do X, Y is going to happen. Also, there should be relatively good time plans, because some of my vendors that have erred from it have been slow coming up or delivering on what they have promised. People want instant gratification.

Kurt Brandon: What you said before was key, Scott. It is about partnership, not just about getting a cash payment. It is about what we can build around the business, how we can partner and how we can take this to market, because we are all in this together.


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