This blog post is very practical but extremely important. If you’ve read my previous posts and took action, then you’ve figured out the basic packages you offer your customers (silver, gold, platinum), but the reality is that your consulting business will sell many more things than that.
Generally speaking, you will sell six kinds of products and services:
• Standardized hardware, software, and materials
This is called your Line Card. This is what you sell “every day.”
• Specialty hardware, software, and materials
These are low-volume sales that you have the opportunity to sell.
• Managed Services
This is labor sold as blocks of time or as flat-rate monthly services.
• Hourly labor or project labor
This is all maintenance sold outside the managed service contract.
• Cloud services
This includes virtualization, hosting, remote backup, etc.
• Specialty products and services
This category includes customized software, specific line of business applications for which you are a reseller, such as telephone systems and services, etc.
All businesses eventually evolve so they have a standard set of offerings. It is a good idea to formalize this list. It will be the official list of products you provide to your customer most frequently. This is the “physical” stuff that has to exist at a customer’s office.
Picture in your mind the pieces of a customer’s network: firewall, switches, cables, desktops, laptops, printers, software, battery backups, and so forth.
I’ll give you an example of what we sell. Scratch out brand names you don’t prefer and add in the ones you do prefer. Here's the vast majority of what we sell:
• HP servers
• HP workstations
• HP desktops
• HP monitors
• HP thin customers
• HP tape drives (various)
• HP or Aficio printers
• APC UPSs (various)
• SonicWall or WatchGuard firewalls
• Microsoft Windows Server (various kinds)
• CALs as needed for all software
• MS SQL Server
• MS Exchange Server
• MS Windows
• MS Office (various)
• Backup software
• Diskeeper defragmentation
• Brand-name Cat6 cables
• Brand-name tapes (various)
• Brand-name USB discs (various)
• Brand-name switches
• Brand-name peripherals
Now, that's not everything, of course. We sell the occasional network card, video card, memory upgrade, KVM switch, Adobe suite, etc. But we don't attempt to know or carry every brand of computer on earth and we don't change brands at the drop of a hat.
Keeping your Line Card consistent over time maximizes your relationship with the vendors you choose. It also increases your knowledge of those specific products, including your knowledge of their marketing promotions, rebates, etc.
Of all the products on this core list, we have only made a few changes every five years or so. It’s hard to explain until you’ve been in business for a while, but the longer you stay with a (good) brand, the more profitable that brand will be for you.
If you don't have an official Line Card already, I recommend you get one in place. All you need is a skinny ½-inch binder. Collect the current SKUs for the products you sell the most. If there's a current promotion, put notes in there. But be sure to clean it out on a regular basis. This is not just another junk pile.
It's also a good idea to make notes about preferred sources. You can use a tool such as QuoteWerks or Quosal to compare prices at different suppliers, but you also need to know about buying direct, current rebates, sales contests, etc.
The truth is, the smaller you are, the less likely you are to participate in the promotions being put on by your vendors. We all know that larger outfits get some serious advantages because they take advantage of all the promotions and programs. At the same time, we have limited time and this stuff adds a layer of bureaucracy.
Even if you can't take advantage of all the programs out there, look at them from time to time. Try to do a few of them. Gradually, you'll work your way into some good deals.
As for the Line Card generally: Just do it. It takes almost zero administration, and it will give you a good sense of what you sell and a sense of consistency over time.
Special-order hardware, software, and materials
Special-order products include items that you order one-off but do not normally carry. They also include higher-end products that you have the opportunity to sell.
These products are often a great opportunity. But you need to remember two things. First, you must be very careful to make sure you earn a decent profit. I consider 20% to be a decent profit; you might settle for 15% or even 10%, but no less.
Second, you need to make sure that you have the skills and experience to install or set up these products. If you do not, then you will either look incompetent to your customer or you will put in many, many long hours “figuring it out.”
The question of profitability is very important. With products you do not normally sell, you may be tempted to compete with some online source the customer finds. This is extremely dangerous. Those companies probably buy in large quantities and get huge discounts.
In other words, you cannot compete on price.
When you combine the danger of pricing in this market with the unknown skill level required to implement the solution, these sales can be very bad for your company. On the up side, you can make a lot of money. On the downside you can lose time, money, and the confidence of your customer.
I highly recommend that you avoid the temptation of cutting your prices. In these situations, I simply take my cost multiplied by 1.25. So I sell a product that costs me $100 for $125. It is very handy that 20% of $125 is $25. This simple calculation always makes it easy for me to work out my margin.
Sometimes my price is higher than the MSRP (manufacturer’s suggested retail price) or the price from online sources. I don’t care. I quote the price I need to get. Below that, I will not make enough money.
This is a philosophy you have to simply believe. You can learn it a hundred times from bad experiences or once by adopting the policy early in your career.
We justify this to the customer as follows:
1) You could order something online, but I can’t guarantee that it’s exactly the same.
2) I will stand by the product I sell you, so if I order the wrong thing, I’ll make it right.
Believe it or not, this works most of the time. Most customers are not really interested in saving a few bucks. Their relationship with you is important. And you are telling them that the price difference basically amounts to an insurance policy that they’ll get the right thing.
Alternatively, I also offer to help the customer find and buy the right product. This is billable labor at our contract rate. So if the customer doesn’t want to buy from you, then you can sit down and help them buy the right thing. Thus you make some decent money.
It is okay if you let your customer buy hardware, software, and materials from someone other than you. Just make sure you have policies so that you make money either way!
I won’t go into more detail on managed services here, since I’ve covered this in many of my other posts.
Hourly labor is easily divided into projects and break/fix. A project is normally something a bit larger in scope than our day-to-day work. For example, moving email from in-house to hosted exchange is a project. Migrating a server is a project.
We love to quote projects as flat-fee. You need to develop a system so that you have a decent cushion and don’t lose money. You’ll get better at this over time.
Hourly break/fix labor happens even with customers under managed services. Adds, moves, and changes (AMC) are not covered. So if someone wants a program installed, that’s billable.
Some customers might pay only for monitoring services. Thus any labor is billable. Or maybe their contract covers only remote work, so onsite is billable. The same applies to after-hours work.
We estimate that a customer will spend an additional 25% of their monthly managed services bill on additional billable labor. Some customers are well below that and some are well above.
Your managed services agreement should spell out clearly when otherwise-covered work will be billable (e.g., after hours, add-move-change, etc.). It should also specify the “contract” rate for labor, which should be discounted from the rate charged to those without a contract.
Most of us offer some assortment of hosted services, backups, storage services, and so forth. The specific services you sell depend on the kind of networks you support and the kind of customers you support. It is important to “right-size” your cloud service offerings to match the rest of your offerings.
Specialty products and services
This category is different from the special-order topic above. It includes customized software, specific line of business applications for which you are a reseller, telephone systems, and services, etc.
LOBs or line of business applications exist for just about any business you’ll work with. For some – such as attorneys and accountants – there are many options. For other industries there are fewer options.
Some of these products are hosted and some must be installed on site. More and more we are seeing LOBs move to a hosted model.
This makes them much easier to manage (and less lucrative for you). Whether hosted or not, some LOBs require a good deal of training in order for you to support them properly. Some even require that you take specific training, which can be quite expensive.
Generally speaking, the more time, effort, and money you need to invest in order to support it, the more money you will make. If you have a specific niche market (or two), then a high level of training in those software packages can be very profitable.
These six kinds of offerings make up what you sell. Please do not simply fall into a set of offerings simply because you’re responding to customers. At some level you should intentionally create your Line Card and your other catalog of products and services.
The combination should make sense in combination with the managed services you sell. Don’t sell only the stuff that’s easy or the products that people tell you about at conferences. Create YOUR offering and your packages that work with your business.
I personally have a commitment to first-class business-class equipment. I sell HP servers and desktops because their business-class machines simply work all the time with almost zero failures. We sell business-class firewalls, switches, and battery backups. These cost a little more, but are significantly more reliable than the lower-end non-business alternatives.
We choose software and hardware vendors who work well with partners. We prefer programs that allow us to have a direct relationship with the customer, so the customer is never approached by the vendor.
One of the primary reasons I love to attend professional conferences is to learn about the tools, products, and services available. It is amazing how many different partner programs there are. Making good choices requires self-education. A few good contacts with the vendors doesn’t hurt either.
So once again, choose the products in your catalog. Make your catalog serve your business. Don’t just let it happen.
Here’s some additional resources that you might want to explore. Note: I’m skipping brand names from the Line Card section.
• Rent Manager – www.rentmanager.com
• Quosal – www.quosal.com
• Quotewerks – www.quotewerks.com
• Yardi Yoyager – www.yardi.com
On the quoting process:
• The Network Migration Workbook by Karl W. Palachuk and Manuel Palachuk
• The Super-Good Project Planner for Technical Consultants by Karl W. Palachuk
(Used with permission of Karl W. Palachuk, SmallBizThoughts.com)