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Making the pieces fit the profitability puzzle

Making the pieces fit the profitability puzzle

As many channel companies claw back to a position of cautious optimism, the issue of profitability remains crucial.

Foremost among the reasons why is the need to assess whether industry-wide expectations about the level of profit that is realistically achievable has risen, fallen, or stayed the same.

With renewed business confidence, but still not at pre-recession levels, one could expect companies to have lowered their sights.

However, a recent Reseller News roundtable, held in partnership with security vendor Symantec, would suggest otherwise.

This event brought together senior channel members with diverse perspectives across the reseller, distributor and vendor sectors.

The common thread was surprising: hard times haven’t meant a lowering of profit expectations. Budgets roll on and money must be made, even amid the commoditisation of several technologies across the software and hardware markets.

As our columnist Brett Roberts said in Reseller News on 20 August – price is a crucial factor in the way users view a product or technology system’s value.

Readers will know that price wars can prove disastrous for resellers, resulting in lowered profitability across the board.

Channel members at the roundtable agreed that the industry as a whole has a responsibility to work together to keep profit levels high.

Symantec’s small and medium business and distribution director Steve Martin raised a salient point at the roundtable: if his company isn’t paying out enough marketing funds to partners, it can’t expect a good return.

In reality, cooperation should never be superseded totally by competition, because competition is healthy for the consumer. This obviously isn’t about collusion on price either, because that is illegal.

However, the concept of corporate responsibility to maintain profit and the perception of value is required, and this needs to be put in the context of the long-term sustainability of the IT sector - not just making a quick buck off the back of one project, product or deal.

Distributors also have a vital role to play in this concept of partnership. They can be the meat in the sandwich, because their loyalties are split between vendors and resellers.

But they are an important conduit so that vendors, resellers and distributors are communicating effectively, and ensuring effective return on investments for all parties.

Another important factor in the profitability equation is a constant review of the market, along with a feedback loop, to ensure it is a true two-way street. Vendors may have included certain elements in their partner programmes that are relevant at one time, but this relevance lessens or increases with technology cycles, the state of the market and consolidation between firms.

Market appropriateness is also crucial – what might produce profitability in the Asia Pacific region, or further abroad, won’t necessarily be successful here.

Vendors and distributors need to ensure they have forums in place to gain this feedback from resellers – and this needs to be a cross-section of small to large companies from around the country.

The participants at the roundtable also emphasised how difficult it is to get buy-in from the channel when a time commitment is involved for training and events.

But vendors and distributors need to innovate to ensure these are worthwhile investments for resellers.

Vendors will then secure the sort of investment in time and resources required from resellers, for them to commit to the roadmaps and plans that contribute to long-term profitability.


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