SERVICES: Money Inside!

To make services a real USP, a
reseller must bring about a change in the mindset and pro-actively explore
service opportunities; more than pure product selling opportunities.

As a software reseller my self, I have observed a very peculiar phenomenon.
Whenever we (resellers) meet each other, there is only one topic which dominates
our discussions and that is: ´There isn’t enough margins!´.

This is very true and is also beyond our control. But in this article I am
going to highlight on something that is very much within our control.

And believe me, this is not just any other philosophical article cut and
pasted from various sources or based upon analysis of some big market
researchers or consulting firms. This article is based entirely upon my own
experiences in this business.

So what am I talking about? Here it is in a nutshell: "The real margin
in selling boxes comes from services. The margin you get per box is nothing more
but just handling charges!"

GAP
BETWEEN FEATURES AND UTILIZATION

Suppose a user, say a corporate, has just purchased one or more boxes of
some product. The product could be a server or database or anti-virus or
anything else.

Now the question arises as to why did the company purchase it? Obviously,
because they need it. And why do they need it? Simply put, because it does
something beneficial for their business. And what is that benefit that they will
enjoy? Do you know?

In any business, you need to know why a customer purchase products you sell.
IT is probably the only field where this question seems to be completely
irrelevant!

I have seen resellers fulfilling orders worth as much as Rs 3 crore each and
never even asking the question, "Sir, what are you going to do with this
product?" to the customer. Show me another industry where this would
happen.

The problem is, we don´t care. As long as our margins come in, we are not
really bothered about what the customer does with the boxes we just sold.

Now let’s consider the position of the customer. I know we have never been
required to do so. But let us do it for a change.

The customer after having bought a product (we will consider the product to
be a packaged software, though the same would hold true for hardware as well),
would need to get the business benefit out of it. However, when the customer
opens the box, the only thing which comes out of it is the license!

Now the customer needs to learn how to utilize the software or needs some
third party who can help him out. Now, who would be the natural choice for the
third party? If you were the customer, would you not ask the reseller first
whether they have the required skills to deploy, train, customize and support
the product?

Obviously yes. But as a reseller don’t you often say, "We are only
into selling." And this is where exists an obvious gap.

This gap exists between features and its utilization and you as a reseller
are ideally suited to bridge the gap. And when you bridged some gaps between
their needs and actual fulfillment - you generate revenue.

WHAT IS YOUR USP?

As resellers what is your Unique Selling Point? Traditionally you have one
or more of the following points which helps you bag a particular order.

1. Pricing (would ´under-cutting´ be a better word?)

2. Rapport with key customer contacts

3. Lack of competition (yes, in some cases this is true)

4. Rapport with vendor

5. Being the exclusive reseller for a given product (rare, but possible)

Now, all of us know how dicey and uncertain it is to maintain these USPs on a
long-term basis with customers.

Moreover,
in today´s competitive world, bagging an order may not be as beneficial as it
was few years back. This is because margins are reducing day by day. And one
cannot rule out default or delay in payment, even in the case of most
established corporates.

So would it not be nice if you had a more credible, long-lasting and
revenue-generating USP? The real USP should be your service offerings in
addition to products that you are selling.

How often have vendors asked you to develop these skills? How often have they
pro-actively taken efforts to increase your service capabilities? How many of
these initiatives go beyond the routine three-day training at exotic locations?

Let us face the facts. Vendors are interested in developing a channel. This
channel is their bread and butter. If they need to retain their jobs, they need
to meet revenue targets. And the ´channel´ is just that–a channel which
helps employees of the vendor retain comfortable jobs.

How many vendors are genuinely concerned about effective utilization of
features by customers? How many are taking active effort to make that happen?
The situation is really pathetic.

Remember, I am not criticizing the entire industry. I am a part of the
industry. I am only highlighting some facts which many choose to ignore.

Given this grim scenario, there in only one way in which you can enhance your
business and increase revenue as well as profits–­ start offering services
along with products.

SERVICE: A MINDSET, NOT A DELIVERABLE

Most customers demand freebies along with product sale. These are typically
installation, few days of training or some similar low-end stuff.

Now, as a reseller, when your margins are already thin, why would you like to
have skilled staff on your payroll to provide free training and deployment
services? It does not make sense.

So what happens in the end? You keep low-end, low-cost staff with minimal (if
any) skills and use them to provide these freebies.

Actually you are making it appear as though these freebies have been given.
Customer feels happy for some time. You feel happy because your money comes. And
the story ends there.

But what you have ended up doing is of no advantage to any of the buyer. Here’s
how:

Customer Disadvantage

Customers have actually not got any value out of the freebie. In fact, I
have observed that such free deployments cost a lot to the customer eventually.

I have handled several cases of such freebie-based deployments where things
were goofed up right from planning to deployment and testing. Naturally, the
system misbehaves or fails soon.

At that time, the customer needs to find a real service provider who knows
the subject, has experienced manpower and can rectify the error. This naturally
costs much more than what it would cost to do a clean, professional and
knowledge-driven deployment.

Reseller Disadvantage

You may ask what is the disadvantage to the reseller here? As the seller,
you have got your money but the real problem is that you have helped promote
this run-of-the-mill and low-end mentality.

You have convinced yourself that focusing more on skilled manpower, putting
some money in retaining them is simply a waste of time. This is where you are
killing a business which can give you 50 percent margin.

Are you doing this to protect and nurture your existing business which gives
you as low as 0.5 percent margins?

Vendor Disadvantage

Vendors and their local representatives may not say that they are unaffected
by this state of affairs. But no vendor can survive without repeated sales or
version upgrades.

In the current scenario, with utilization of existing versions itself at a
pitiably low level, further purchases of upgrades will become more and more
difficult.

If you deliver services for the sake of it, you are ensuring that users are
not aware of full benefits of the product sold, thereby eliminating chances of
an upgrade enquiry at a later date.

Change The Mindset

If you want to survive and make profits in this industry, just being the
best reseller won’t going to help. You need to understand that having a
service offering is mandatory. It is no longer optional.

It is an undisputed fact that volumes as well as margins are shrinking. A few
years down the line, the reseller community itself may become redundant, at
least for the big players (who are your bread and butter now).

So it is in your interest to change your mindset, accept the reality and
explore service opportunities. Remember service given as freebie is not a
service. It is an eyewash which you are compelled to offer because customers are
ignorant and do not understand the eventual price they will end up paying.

FROM TRADING TO PREMIUM SERVICES

Somehow everyone seems to be lackadaisical about starting a new line of
business, even if it is an adjunct to current business.

However, I feel this is the best time for exploring service opportunities. It
is not something which will transform your business overnight. But even Rome was
not built in a day.

All you have to do is understand that somewhere a customer maybe paying a
very substantial amount for the same deployment that you may be giving as a
freebie.

Whom does he pay that to? Almost invariably it is not a reseller. It is to an
established service provider. Why is that so?

Simply because resellers have not created a credible service delivery
mechanism.

It is important to start small in the beginning. Take a product which you are
selling well and also has an existing installed base.

That way you don´t have to put additional effort in looking for prospects.

Find out what the customer did with the product. This may be a revealing
experience. You may actually come to know, first hand, how much the customer has
spent on the product, over and above the procurement itself. The investment may
be in terms of internal manpower usage or outsourced services.

Now make a list of what were the service offerings. Typically few of them
apply to almost all products:

1. Training

2. Planning and deployment

3. Ongoing support

4. Customization/integration/development

HOW TO DO IT

Of course, you need not offer all services upfront. But you can at least map
the services with the type of manpower required.

Find out if that kind of manpower is available in your area and also find out
the market rates for employing such people.

Now you recruit two persons. Ensure that you provide them with adequate
hardware, software and training (from vendor) so that they are adept in the
delivery of whatever services you have chosen.

To start with, send them on courtesy calls to your existing customers and let
them try and add some value free of cost. This gives your customer additional
confidence that you are scaling up and also provides them with some live
technical exposure.

Gather customer feedback actively and fine-tune your team and service
deliverables. Now you are ready to actively sell your service.

Don´t hesitate to go and penetrate the so called ´stronghold´ accounts of
your competitors. In IT nothing is a stronghold because almost all parties
involved (customer, channel, vendor) are fairly ignorant.

That´s all that is required to start your service offering. Very low risk
with very good chances of return.

MANPOWER ISSUES

Having qualified manpower costs. And if your employees think that working
with you is not adding value to their career, then the costs are higher and
loyalty is lower.

This means that if you wish to retain your trained personnel, you have to pay
well. The latent period will be at least three months. So that is your
investment. KRAs for your technical team need to be stringent. Otherwise you
will end up paying for their browsing and chatting costs!

It is a good idea to have an escalation mechanism to keep your team on their
toes. One problem of having a tech team is that they can take you for a ride.
They will give all sorts of excuses and jargon which may not always be true.

To avoid this issue, you need a formal tie up with someone with requisite
depth of skills in the given area. It could be the vendor itself or some other
partner with proven skill sets.

Again, the problem here is of mindsets. Most resellers feel that exposing
their problems to other, more knowledgeable parties, may make them lose
customers. It is not true. There is enough playing field in the market.

HANDLING CUSTOMER EXPECTATIONS

Now you have your technical team organized, but customers still expect
freebies. So what do you do? You have to restrict giving freebies to a bare
minimum and with clearcut deliverables.

You will not be able to convert all freebies to paid services just because
you have a great team. But there is another way.

Give freebies, let the team deliver freebies as promised. But during the
process, you ensure that the customer actually understands and appreciates the
skill set of your team.

Moreover, a smart team can unearth more opportunities for services during
this period. These opportunities are never going to be freebies. These are
obviously paid services.

Once the customer is confident of your team, he will want to depend on it.
And that is when he will stop asking for freebies.

OBSOLESCENCE IS ON THE HORIZON

Vendors are not the correct source ones to assess the future of packaged
software industry. The real benchmark is the customer. Vendors keep coming with
newer products and versions one after another. And this leads to a fear of
obsolescence in the minds of customers. At the same time buyers use lesser and
lesser features because there are simply too many to digest.

The end result is inevitable confusion and inundation.

However, vendors will not survive unless customers continue purchasing from
them. Very few vendors can recruit hundreds of persons on their own payroll to
ensure that all users use their products to the fullest extent and ensure that
they wait eagerly for the new features of future versions and pay for it
willingly.

This is an opportunity which is not even considered as a possibility by the
entire industry today. Though it may sound far-fetched, take a closer look at it
and you will know what opportunities are waiting to be tapped by the reseller
community.

So don’t just sit there and wait for orders to drop onto your laps. Become
a service provider and watch your business grow.

Dr Nitin Paranjape is CMD, Mediline
Equipment & Computer Systems (I) Ltd