Distributing & Selling IT Has a Declining Profitability Curve

Here’s my tips for winning in the IT game

Back when I started my first IT distribution company, we could get margins of around 20-30%. In those days, the market was less saturated, so winning deals wasn’t as hard as it is today.

Unfortunately those days are over. The profitability of selling IT has declined, and not surprisingly the market has become a lot more competitive. By the way, these two things are correlated as well as the pace of technology change.

Today, if you can get 10% margin on what you’re selling or distributing you’re doing well. As a founding director of an IT distribution company, there’s a few things I’ve learnt over time to help compensate for the profitability decline as well as keep my company in the game.

1. Be picky with your vendors

Not every vendor offers the same partnership opportunities, review vendor programs carefully and work out whether they fit with your organisation’s goals. Vendors need to sell to the channel as much as the channel needs to sell the vendor.

2. Be strategic with your focus 

Identify the stage of your sales process at which you offer the most value. Once identified, focus your messages to your partners and customers around your strengths.

3. Streamline your operations and logistics team

While I’m not suggesting you compromise on the effectiveness of your operations in terms of timeliness, consistency and quality, do look for cost improvement areas. (For example, one I found in my company was to build systems to reduce errors in quoting and sales ordering).

4. Maximise your recurring revenue

This is probably the biggest tip I have. Recurring revenue can have such a large impact on your total revenue, that any IT company that’s not actively managing it is missing out on millions. If you find that you don’t have the data to manage your recurring revenue, you are not alone. Indeed this is one of the most challenging data processes to manage. But the results are worth it – today my distribution company generates a whopping 43% of total revenue from recurring streams. For most companies, this number is less than 10%.

Regardless of whether you’re a vendor, distributor or reseller, contact us if you’re interested in maximising your recurring revenue streams. Our mission is to boost every customer’s renewal rate from an average 40% to above 90%.