IT executives want to get out of the business of managing their IT infrastructure. At the same time the IT market is rapidly moving away from premise technology to cloud service delivery. So why is it so difficult for tech resellers (partners) to make the math work for building a profitable business selling both premise and cloud-based solutions? It seems so simple; end customers want it, and the market is rapidly moving in this direction. But tech resellers have been left struggling with staffing models, service delivery models and costs that don’t align with the new reality of servicing IT customers with cloud services. It is difficult for tech resellers to find the right mix of staff, expenses, and capital budgets to operate at a healthy profit margin in this rapidly evolving market.
Overall Message: “Don’t Guess – Model Your Business Growth First to define your Partner’s Path to Profitability”
It is too easy for resellers to get it wrong. This costs them time, capital and valuable staff while they are trying to figure it out. There are too many examples of failed reseller businesses that have attempted to “repair the airplane’s engine while they are still flying.” Your resellers need help to model all aspects of their revenues, staffing, expenses and other investments before determining the optimal profitability model for their business.
Seven Key Business Modelling Factors for Successful Reseller Hybrid Business Transition:
1) Product mix
2) Growth plans
3) Marketing investment levels
4) Staffing expenses
5) Pricing and margin assumptions
6) Analyze each alternative with a full profit and loss (P&L)
7) Model alternative scenarios to optimize business performance
These factors should be simulated individually and collectively as a part of overall business model to help resellers (partners) select the best mix for profitable growth. An efficient tool for supporting this hybrid cloud business modelling process should allow a reseller to simulate all of these impacts in as little as 10 minutes.
1) Model Hybrid Reseller’s Product Mix: Most re-sellers you are working with have ongoing businesses with a mix of existing license, implementation services, maintenance services, and recurring (cloud-delivered) product and service offerings. Each of these lines of business have different costs, different staff and service requirements, different sales requirements and different profitability levels. A reseller needs to look at them individually and collectively to get a good view of the staffing, expenses and other requirements to earn a healthy profit. The examples below are just a few of thousands of possibilities for every partner to model the optimal mix for their business. Your resellers need the ability to simulate these product mix alternatives instantly to review and select the best revenue and profit outcome for their business.
2) Model Hybrid Reseller’s Growth Plans: If you were to ask some of your resellers how much they think they can sell this year, next year, and the year after, they will probably say “I am not sure, how much do other resellers like us sell?” They appreciate access to preloaded forecasts based on the experience of other reseller experiences. Here are some examples of potential forecast options that your partners may review to help select their custom forecast.
A partner should be able to select from a modest, average, accelerated forecast or create-your-own custom forecast.
In addition to all the product mix options, there are thousands of other possibilities to model to help build a custom business plan. Resellers appreciate the opportunity to choose from a set of prepackaged forecasts like the one above to input into their own custom forecast.
3) Model Hybrid Reseller’s Marketing Investment Levels: Your partners also need help to build marketing plans to achieve their growth goals. They appreciate marketing investment options to pick from or to create their own custom marketing investment plan. Partners what to build an ROI-focused marketing investment plan that will support the achievement of their growth forecast.
4) Model Hybrid Reseller’s Staffing Expenses: Partners / resellers are services business and need to be able to model different staffing investment levels and hours-per-deal assumptions. The reseller’s transition to a hybrid services model is particularly challenging because they each require different types of staff, with different skills and different compensation levels. This analysis step allows partners the flexibility to plan staffing levels and modify their assumptions for the time required to support one sale.
Enabling your partner to instantly model their staffing and service hours by product can help them understand how to staff and how to make a hybrid model profitable for their business.
5) Model Hybrid Reseller’s Pricing and Margin Assumptions: The pricing and margin levels by product line can vary widely by service type. Resellers need to be able to do sensitivity analyses on the impact of different weights of services. This helps partners model the optimal mix of product and services sales to generate profitable growth.
6) Analyze each alternative with a Full Profit and Loss (P&L): This is where the rubber meets the road for partners that straddle multiple business models. Resellers need to look at each line of business individually and all lines of business collectively to determine the best mix of premise, cloud, and services to operate an efficient and profitable growth business. The strength of this analysis is the ability to model different assumptions to determine the optimal mix for a particular partner.
Each change in every variable will alter the partner’s business performance either positively or negatively. Services are the most attractive line of business in the above example but these services are only realized with the sale of the other premise or cloud solutions.
7) Model Alternative Scenarios to Optimize Business Performance: This is where the fun begins. Now that you have all of these values loaded into your model, you can start to play with different levers to determine the best mix for your business. A model like this allows a partner to select different revenue, investment, expense, and margin levels to determine the optimal strategy for profitable growth. All of the following levers can be modified to determine the optimal strategy for a reseller organization.
Resellers are doing their best to adapt to the new realities of the IT market, but are struggling with how to organize the right staff and expense investment levels, define realistic sales forecasts, and define mix strategies to build a profitable business. Tools to help them model their business and conduct scenario analyses before they make the investments is invaluable to their stability and profitable growth. Streamlining this process with an efficient modelling tool to manage this transition is essential to achieving long term reseller financial health.
For more information on applications designed to help partners (resellers) model their move to hybrid business mixes, check out Successful Channel’s Simulation tool suite for enabling accelerated reseller business growth.