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Positive and Negative Margin Drivers in the Channel 

Posted July 29, 2015by Stephanie Moncayo

The current business environment for managed service providers (MSPs) is extremely competitive, forcing solution providers to find a way to stand out from the crowd. In Operational Efficiency: A Practical Guide for Solution Providers, CompTIA examines challenges and opportunities within the IT industry and how they affect MSPs' bottom lines. Introducing new business solutions isn't "likely to be successful if a company is not operating effectively in its current model, for its current customer, on its current solutions." The first step to achieving operational efficiency is to identify the negative and positive margin drivers in the channel to secure a revenue stream. Here's a breakdown of these drivers for you to apply to your business! 

Negative Margin Drivers

Although the combination and difficulty of margin varies among solution providers there are some clear and consistent factors that threaten profitability. 

  • The "commoditization" of IT functionality: This problem has been caused by "improvements in vendor offerings, over-distribution and easy access to product information."
  • Pricing: Customers have stronger negotiating power due to expanded alternatives. Economic challenges force customers to look for the most affordable solution, driving prices down and forcing solution providers to surrender pricing control. 
  • Inefficient sales process: This problem drives costs up! These costs include, "complexity of configuring solutions, getting pre-sales support from vendors, navigating vendor channel program requirements, gaining access to financial decision makers, and advancing opportunities toward a successful close." 
  • Inefficient service delivery: This is due to a couple factors like "inaccurate scoping of product delivery requirements, unscheduled time for billable resources, project management, high levels of labor processes, and lack of repeatable processes."
  • Ineffective management control: This problem pertains primarily to financial performance and a lack of meaningful metrics and accurate data. It also ties into "infrequent changes to operating process, and low levels of organizational control across critical business functions."

Positive Margin Drivers 

You can already see room for improvement and a way to save money by addressing some of these negative margin drivers. For instance, you could optimize service delivery and scale your business by extending your IT team with a Network Operations Center (NOC). On the other hand, there are also positive margin drivers that you can leverage to improve performance. The following conditions have allowed MSPs to see positive results when their competition, operating under the same conditions, selling similar products, and targeting similar customers, suffer consistent declines. Take notes!

  • Strong management: This team/individual should be responsible for discrete business functions and access to performance data. This data should be analyzed at regular intervals and directly influence business activities. 
  • Defined processes: These processes should be specific, documented and repeatable across multiple business functions that can be used for particular operations depending on the size and complexity of the partner and the availability of particular resources. 
  • Aligned compensation packages: Ensuring appropriate revenue, incentives, and rebates motivate sales teams and company objectives.
  • Proper mix of products: Each of your products should meet a set of needs for your target market and should be based on the structure and capabilities of your business mode.

Want to learn more strategies specific to managed services? Join us at CompTIA ChannelCon 2015 in Chicago this year! ChannelCon is a premier training and partnering event for the IT channel. Attendees will have the opportunity to learn and network with the best solution providers, vendors, distributors and media. They will also get the chance to earn business credentials and executive certificates onsite as well as learn from the industry's most successful thought-leaders and more! We are offering complimentary tickets ($250 value) to our partners! The event takes place August 3rd through August 5th, so stop by and visit our booth to win exciting prizes and learn about our different products and services. 

We are also very excited to be partnering with CompTIA to offer complimentary certifications to Navigate 2015 attendees! Navigate is this year's must-attend user conference hosted in Las Vegas. The first part of the certification will be a webinar and the second part must be completed at Navigate in Las Vegas on September 27 at 8:30 AM. Please find a description of each certification and the date and time for each webinar below. Please keep in mind that you can only choose one.

  • Cloud Solution Success
    • This is an intermediate Cloud course that addresses the specific how of profitably integrating cloud-based IT services into a solution provider's business. While much of the cloud-focused training currently available addresses generalities about business model transformation, this certificate program delves into the specifics of growing cloud-based businesses.
    • This webinar will take place on Wednesday, September 9th, 2015 at 2-3:30 PM EDT
  • Disaster Recovery/Business Continuity 
    • The Executive Certificate in BC and DR addresses the ongoing need for BC/DR planning and provides an opportunity for solution providers to learn more about making BC/DR part of their offerings.
    • This webinar will take place on Thursday, September 17th, 2015 at 2-3:30 PM EDT 

Get the full CompTIA guide!


See also:

Stephanie Moncayo is a graduate of Northeastern University, and is passionate about dancing and traveling, as well as studying market trends and behavior.

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