Adding products and services to any business doesn’t automatically mean the business will grow or be more profitable. It seems the process used most often is to shove the new products into the sales bag and push the reps out the door. When adding new products, one should always focus intensely to assure the best results possible.
Analyzing a sales team’s performance isn’t as simple as just reviewing top-line revenue. The assumption that one is successful because last year’s number was lower than this year’s number is wrong. I won’t argue that a higher number isn’t better necessarily; I will argue that it doesn’t mean your business is better off. I always want to know: where did the increase come from? Is your entire sales team successful or just a few? Is your market penetration strategy working?
Achieving sustainable growth and profit levels especially when new products are introduced demands a well-balanced strategy and implementation process.
Even if your business produces a healthy profit now, it doesn’t mean you’ll maintain that profit level once products are launched, so be careful. Any large distraction like adding managed IT services can take one’s eye off the ball. I can’t tell you how many times a business owner has told me, “I used to make a lot of money before we added IT services!” So, the question you should be asking yourself is: is your business ready to expand to add IT services and can you do it profitably?
I believe that expertly managed sales organizations have an easier time achieving this position. The problem is they are few and far between. What do I mean by expertly managed? This would be a sales organization where 80 percent of the sales team is successful, and sales forecast is 70 percent accurate, consistently. IF THAT DOESN’T DESCRIBE YOUR COMPANY, wait on adding managed IT services in your company. Raise your sales execution to an expert level, and then add your services. It’ll create a more solid growth opportunity.
I remember years ago on the confidence course in boot camp, there were several obstacles that were more difficult than others and the drill sergeant would hover around those specific obstacles and yell and scream at anyone who couldn’t master them. For some, no amount of yelling and screaming made a difference. Some just couldn’t get through them. Like today, it doesn’t matter how much a vendor, manufacturer or NOC provider tells you; “You can sell IT services!” Some just can’t.
So, if you are one of the companies that can sell managed IT services, how will you assure yourself that it’s a profitable venture? As the copier lifecycle is now mature, you must have some plan for the future and new products or services that will take its place. One of the first priorities in setting up managed IT is to watch it very closely. Set up your accounting so it tracks everything — all costs and income associated with managed IT services. Your advertising, business development, sales, admin and support personnel and all overhead costs need to be tracked. This sets up your ability to know if your managed IT program is a positive or negative addition. Make sure you protect your core business revenue.
A long time ago, the auto insurance industry created the multi-car discount program that resulted in a major win-win situation. Customers with more than one vehicle got better rates and protection, and the insurance company expanded their market-share exponentially. This program contributed greatly to the growth of the insurance titans.
Taking this kind of approach for managed services seems to be a no-brainer. Most dealers raise their lease and maintenance agreement rates annually anyway, so in the next increase throw in a few “transformation” products (antivirus, security, firewall, help desk, etc.) giving your customers a small taste of your IT services and giving your sales team an entry point to discuss upgrading to more comprehensive coverage.
One of the highest profit opportunities for managed IT providers is finding smaller businesses (clients or not) that have grown enough to where their network’s performance is becoming a problem and yet they haven’t begun to solve those problems. If you have an effective market penetration process, they should be easy to identify. Also ask your technicians who are in five businesses each day. They certainly notice clients who are growing. Managing networks is a very competitive environment so nurturing those smaller “growing” clients through their technology evolution is a great way to develop profitable engagements.
Managing networks carries with it a major responsibility. Developing that type of reputation doesn’t come easy and certainly dictates that you hire the highest level of expertise in your market. And hiring can be a very expensive venture — one of the reasons why network providers often operate at a loss when starting out.
Back in Black?
Once your IT services are in the black, protecting contract renewals becomes a very important topic. Be careful; once your client’s network problems go away, it’s easy for them to lose sight of your value and whether they should renew.
Knowing that renewals have a definite impact on your profitability, your communication with each network client must be paramount. Learn their business, their industry and the challenges they face. Helping them blueprint their network requirements for the future will drive your renewals and thus your profits. Show them extreme value and don’t let them forget!
Where in your marketplace can you go to find prospects that “most likely” would see your managed IT as a value? There is an appropriate target size. When you zero in on that, it’s possible you can create a stronger pipeline sooner than you think.
Let’s look at growth and profit drivers for managed IT services:
- Consider your customer base for your first approach. Build IT services that your clients “need” that produce high value for them and multi-level profits for you.
- When building your pipeline for your high-value managed IT deliverables, make sure your business development team has a strategy to find first-time managed IT prospects within your marketplace.
- Your business development team for managed IT services should include a focused approach to both existing and new customers.
- Turn on your service techs as an additional customer base vehicle. They’re a great team to walk managed IT deliverables into your existing customer base. They can create a wonderful addition to your pipeline.
- You’re a full office technology provider— bundle your managed IT services into all copier proposals. Create packages that other IT service providers can’t.
- Make sure your managed IT service agreements are easy to explain, sell and implement. If it takes an abacus and slide rule to create a proposal, that’s bad. If sales reps can’t say it, they can’t sell it.
- Lead your marketplace; don’t be a follower. Flexible technology that grows and shrinks with the customer should be a strong consideration.
Finally, a key driver for strong managed IT profits is your comp plan. If you’ve designed a highly competitive, affordable and flexible managed IT package, your sales team will sell it. I’ve been asked to address the comp plan that would accompany a managed IT agreement that can flex up or down as the client’s business changes. Please remember the old saying; don’t put all your eggs in the same basket, so keep a strong portion of your business on traditional models.
Not every client can be attached to an agreement with no bottom. Flexible technology agreements seem to be a more popular topic than ever before. To deliver flex-tech you must be able to compensate for it. It’s a mindset and you must change your thinking from hardware profit to an invisible services profit model.
Specifically, you as a company have to figure out how much profit is generated in each inbound “IT services” dollar and then build a compensation program around that profit. A compensation plan built on flex-tech services would have a total monthly consideration and an overall profit percentage consideration. This can get confusing so let me give an example.
The Flex-Tech Sales Reps comp matrix below shares the inbound monthly revenue for a single sales rep, a monthly profit percentage result and the growth hit/bonus opportunity to assure continual growth. Use the lower table to obtain the payout multiplier percentages that feed the upper table.
Obviously, the below rates and bonus percentages are placeholders to show how the math on this commission plan works. You might choose completely different rates and percentages for your company. The goal is to establish compensation that is not based on hardware profit, but rather based on a sales rep bringing in monthly contracted “profitable” revenue that accommodates the potential of a client flexing up or down inside of any agreement.
The flex-tech sales compensation matrix pays off total monthly inbound revenue blended with a rolling profit percentage which changes their payout as each new month contributes new results. Reps must grow their monthly revenue to achieve their growth bonus. The shrink “hit” deduction is executed when a sales rep fails to grow their revenue-profit numbers. If built correctly they care about keeping those numbers as high and as profitable as they can, resulting in a win-win situation for all.
