The IT SalesPulse™ Issue Four

FIVE STEPS TO IMPROVING YOUR MARGINS – CREATE VALUE OR DIE - Part 2

BUILD A LARGE PROSPECT BASE


There is no doubt that having a large base of prospects helps grow margins through volume and through quality. The more you have the better your chance of converting them and you can be choosy about which ones you really want. On the other land companies with poor prospect bases are under pressure and as a result do not take business at the best possible margin.
Most companies have three classes of customer;
· The first group, often known as key accounts or strategic accounts, comprise the most profitable, or potentially most profitable ones
· “Good” customers (Nobody likes to be a non key customer) provide regular if not spectacular income and also include one off purchasers
· Targeted customers are generally the ones you would like to win or just include a large number of local or national companies.
It is important to carry out this analysis as it provides a steer as to how you go about generating a prospect base. Starting with last group, the first thing you need to do is to create a lead generation programme that will establish contact. This can be done very cheaply and our “guide to cost effective lead generation” has many low cost methods for you to establish contact and identify their needs. The key issue in any such programme is to identify what it is you can do to improve their business performance.
The second group is a where you already have a relationship and the issue here is how you find ways to up sell and cross sell. You probably don’t want to deploy masses of resources in this area, rather do it through electronic means or via some form of telemarketing. Once again our guide will help here. It is important to maintain contact with this group as if you are not on their radar they will go away. There is some research which says that it takes seven times as much work to win a new customer as it does to get the same amount of business out of an existing one.
The first group, the most important ones can be kept abreast of your developments through any number of mechanisms, but the real benefits come from account planning. There is a myth that says account planning is a chore. If sales people are asked to provide huge account plans that take ages to produce, and that no-one ever looks at, then we would agree whole heartedly. We believe that an account plan can be documented on a few sheets of paper, making them easy to produce and easy for management to monitor and more importantly support. The most important element in producing an account plan is a detailed understanding of your customer’s business. This will help you determine where you can deploy your products and services to improve your customers business, and your value to them. In an industry dominated by commodity products and services, you have to create value, if not your margins will erode. This is borne out by research from the UK CIO Connect Census 2007.
“The outlook for IT spending varies but there was a major trend towards tighter supplier management in 2007. The objective of negotiating tougher terms with suppliers of commodity systems and services to enable more spending on strategic application development and other business change investment programmes was a top priority for 83pc of respondents.”
Even if your core offerings are commodity based, by building your prospect base with customer value bearing solutions you will be in a position to manage or avoid margin erosion.



Steve Rowe

steve.rowe@korusales.com

The IT SalesPulse™ Issue Three

FIVE STEPS TO IMPROVING YOUR MARGINS -
CREATE VALUE OR DIE!

In the first issue of the IT SalesPulse™ I recounted how the IT services industry got to the position where everything had become commoditised, and in issue 2 I identified how 2 major companies were exacerbating the situation. (For more details see below)

In this and subsequent issues I will identify how you can start to increase margins, but before reading on, answer one simple question.

“What value do my customers get from my services?”

A few answers might be; peace of mind; certainty and reliability; value for money; responsiveness etc. These are all good but wouldn’t your customers expect this. If you have an answer that says my service saves my customer £x000, or increases their productivity by 5% per annum or increases sales by £y000, then you are delivering value because without you the customer would be worse off.

You only get one chance to make a first impression and prospective customers will in 95% of cases go to your website as their first contact with you. This is the point at which you have to start creating value, as at this time your website is your company. Having looked at over 700 IT services companies’ web sites in the last few months there are some recurring themes which contribute to low margins:

* References to price or the phrase “low cost”. All this does is to set a negotiating point from which it is difficult to charge more
* Talking about IT as being a problem or being difficult to manage. If prospects see IT as a necessary evil, they will pay as little as possible
* Too much about the vendors business, and not enough about the prospects business

These are easily rectified. Just get rid of all references to price or cost. Work up some case studies that demonstrate how IT and your services have delivered tangible (pounds!) value, and ensure that your site delivers useful information relating to their business. Clearly the case studies will help, but also offer free advice on business issues such as web site design, business and IT security and continuity, and details of projects you have undertaken in their industry. While you will inevitably talk about IT, write your material in business terms. Make sure your sales collateral is aligned with your site.

By doing this you will retain the interest of the prospect, generate credibility for your company and increase the value of your offerings.


Steve Rowe

The IT SalesPulse Issue Two November 2006

WHERE HAVE OUR MARGINS GONE? - IT'S GETTING WORSE!

First of all let me start with an apology. In the last issue of the IT SalesPulse™ (please see below) I said I would tell you how to start escaping from the low margin syndrome. Unfortunately two very large companies have made it worse in their attempts to get into the SMB market. These are PC World Corporate and BT. You may already be aware of what they are doing, in which case I apologise (again). Even if you do, please read on.
Let’s start with BT; they are running an advertising campaign called “You dreamt of running your own company not your IT department”. This is being promoted by the British Chamber of Commerce through their weekly newsletter. Their offer is a server and five PCs for £37 per user per month. However, this includes the price of the hardware, from HP, as well! - An extremely attractive proposition for a naïve buyer. PC World’s offer is not so aggressive but as a sponsor of the Daily Telegraph Business Club they are getting a great amount of publicity through their weekly newspaper comments, the Business Club weekly newsletter and web site. It is a pure remote support agreement, but isn’t everyone’s these days and for a server and 8 PCs it is £300 per month discounted to £240 per month for Business Club members. That’s £30 per user per month. The many IT services companies I know charge this for PC support alone, generating real margins from the Server side of the business but both PC World and BT are giving this away!
If your customers are being seduced by this financial argument you need to lean heavily on your value to them, with a few questions like:

- What is it you are really getting?
- Will they come out to site if you have a real business threatening issue?
- What will the extra charges be?
- How dedicated is your “IT Manager”?
- What are they going to do to help you use IT strategically?
- Where will you be supported from?
- Are they paying their people fair trade wages/minimum wage?

There is of course the “if you pay peanuts you get monkeys” comment but I can’t say whether you should use this line; that is dependent on your relationship with your customer. What I will say though is, if your customer is really contemplating a move you need to honestly examine your value to them.
I will definitely start the process of helping you improve your margins in the next issue of the IT SalesPulse™.

In the mean time, good selling and best regards.


Steve Rowe

To see our general industries newsletter go to http://www.koruconsulting.com/

The IT SalesPulse Issue One, November 2006

WHERE HAVE OUR MARGINS GONE?

A straight forward answer to this question is that the IT industry has commoditised everything including people.
If you have been in this business for 25 years you will know how we got to where we are today, and you can call me to have a long nostalgic chat. However, as I do not anticipate a lot of reminiscing I will give you a brief potted history.
In the late 1970’s margins on everything to do with IT were huge. 70% was not seen as a particularly good gross margin. Most of this wealth went to IBM, their 70% global market share left all the other companies scrapping with each other for the crumbs IBM didn’t have or want. So they decided to gang up on “Big Blue” and formed the Open Systems movement (OSI). They could connect their distributed systems to each other, but IBM continued with its proprietary architecture. The result was IBM lost a bit of market share as the OSI movement gained momentum. Then came the biggest gaff in the history of this industry, the IBM PC; yes it gained massive market share, but unlike anything IBM had ever done before it was built with proprietary components, from Intel and Microsoft, and a bunch of bits you could buy anywhere. It was immediately cloned and this is where commoditisation started. The internet, or rather IP, brought about cheap and pervasive communications leaving just mainframes, and there are still some around, that run proprietary operating systems. Well, Windows and its derivatives are proprietary, they just appear relatively cheap.
As the IT services industry proliferated around cheap infrastructures, service differentiation became difficult and so we have ended up in a position where many IT people are charged out at lower hourly rates than plumbers or Jaguar motor mechanics. Clearly stopping dripping taps and keeping the Jag running is more important than some people’s businesses.
I am sure that reading this newsletter are business people who are saying this is not the way we do things, our margins are as good if not better than everyone else. To this I would pose a few questions.
Are everyone else’s margins a good benchmark?
Is better than everyone else good enough?
Do your margins reflect the true value you bring to your customers?
In an ideal world what would be your target margins?

In the next IT SalesPulse I will examine further the low margin syndrome, and how you can start to improve your margins.

Steve Rowe

To see our general industries sales newsletter go to www.koruconsulting.com