Is Your Solutions Business Driving Revenue or Driving You Crazy?
Tonight we discuss ”the rise in importance of the channel and solutions providers” of document solutions. In a recent article in ImageSource titled Top 10 Industry Trends, authored by John Mancini, the President of AIIM, outlines what he believes to be the top 10 drivers within the DMS space… Let’s continue our discussion with the number 6 influencer in the DMS space this year:
6. The rise in importance of the channel and solution providers. As the core technologies become viewed more as infrastructure, the capabilities of those who actually deliver and implement solutions becomes critical.
This is a critical role many solutions providers count on in order to drive professional services revenue. I would be interested in what others in the industry are seeing as there is definitely some truth in what John says, but not to the extend I would call it a fire sale just yet. The solutions providers’ business models still vary widely from company to company, as do the expected results.
I would propose there are two general schools of thought at the solutions provider level. The first revolves around the transitional copier dealer attempting to play in the arena of “solutions”. Typically a dealer will take on one (maybe two) lower-end, and easy to implement, file cabinet replacement. The professional services engagements are minimal, so they will typically train the connected technician or “IT Manager” to handle the installations. This allows them to maintain gross profit generally and many customers are quite fine with this presentation. All in all, it is not a predatory relationship, but it is definitely not a strategic relationship either.
The second is a provider who invests in an infrastructure of more highly trained engineers and sales staff. This is much more costly, runs the risk of side-tracking the current sales, and overall has the greatest risk of flopping. So why even risk this? Well, the profit margins can be substantially higher, the deals much larger, and the customers tend to be arguably longer-term. While this has the greatest potential for overall revenue generation, if serving your customer is not the focus, customers can begin to view their long-time provider of copiers, printers, and faxes as just another software company trying to turn a buck. Be cautious of this slippery slope.
Some dealers have found a hybrid model works, much like the territory and major/named account divisions in mid-sized to larger dealers. This is an equitable model so long as your staff is competent to understand the differences between the types of clients and their respective needs. In other word, it can be disastrous to attempt to force a lower-end solution into a more enterprise environment; conversely, it can leave a bad taste in the small business owner’s mouth if you leave them with an over-powered (and over-priced) solution.
In general, it should be expected to see a fair amount of professional services revenue as a result of a document solutions sale, and generally can equal or exceed the revenue of the software itself. But do not expect to see a run on the bank for phase two engagements at the outset. Most clients are content to renew their maintenance and call in for helpdesk support as needed (another key component to a successful document solutions program, by the way). This is understandable and to be expected as a business grows its base, and the base will most likely be a smaller percentage of total revenue if a company is to maintain stability of profit.
Outside of this, my contention would be that clients aren’t really pressing for phase two engagements because they were looking for a very specific solution, which was met (thinking tactically again). It should be expected that most companies will begin to ask questions about expanding between years 2-4 of a current solution if they are on-track with proper growth strategies. If not, then why not bring these questions up in your account reviews?
Interestingly, both customer and solutions provider have a choice to make: The former must choose whether to invest in a tactical solution to meet today’s needs or invest in a partner to help them achieve their goals today and tomorrow. The latter must choose which professional services model they will follow given their goals for revenue generation, customer retention, customer acquisition, and growth.
Everyone has an opinion about what is right and what is wrong. Only you know your business (customer or provider). So sit down, take a deep breath, and think about what’s important to you. After all, it is your business isn’t it?
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ChangeForge... a catalyst to affect the paradigm by Ken Stewart is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
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