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/
Wednesday, 29 November 2006
Thursday, 16 November 2006
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
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
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