MAXIMIZE PROFITS VAR BUSINESS

Transcription

1 HOW TO MAXIMIZE PROFITS IN A LOW MARGIN VAR BUSINESS

2 Introduction With each passing day, VAR business is getting more and more competitive. As a result, margins have shrunk considerably which has reduced overall earnings of VARS. Without getting an adequate gross profit margin, a business cannot pay its expenses and enhance earnings for future growth. Hence VARS are looking for different ways to improve their profit margin so as to run their business efficiently. Here is your complete guide to increase margin and ensure that your business remains in the pink of health and your books of account are in the black always.

3 1) Automate key business Areas - Automation is a great tool to enhance margins. The biggest thing a VAR can do for his business is automate the areas that can be automated. There are various software applications that can automate various business processes like quoting, sales, procurement, catalog management, procurement etc. It makes sense to use such tools. However automation should not become a burden to the business. If the software you use is too much for your current needs, you will spend a lot of time in administration. At the same time if it cannot handle your growth then you will always be in the phase of looking for new software tools to manage your growth. Hence you should understand your growth needs and look for a software that can grow along with your business so that it does not burden your small business and can also handle your needs as you grow. Also it is advisable that you try to manage most of your functions in one software or use software that integrates well with your existing applications. Otherwise you will spend a lot of time entering same data in multiple places, wasting time and also making it error prone.

4 2) Get handle on pricing and profitability You cannot correct your business processes unless you are aware of them. So identify the areas on which you are getting low and high margins. Find out how you are pricing your products and what kind of profitability you are getting. Understand the business environment, see what your competitors are doing. Learn from the bigger players in the industry. This will help you to identify the changes that need to be done in your business processes so as to maximize profit.

5 3) Have an online presence / setup an ecommerce store According to a Forrester Consulting Thought Leadership Paper, 52% of B2B buyers say they expect half of their purchases to be made online by In fact, 49% of them are already using consumer websites to make work-related purchases. So having an ecommerce store is no longer a luxury but more of a necessity, particularly for low margin VAR business. Online shopping is really convenient and will definitely save time and effort of your customers. With an Ecommerce store, your customer can shop at any time of the day from the comforts of their home. Moreover, your online store is not limited by any geographical area or time zone constraints, thereby helping to gain new customers. All this can contribute to improving your VAR business health.

6 However, it is important for a B2B enterprise to know where to strike the balance as not all aspects of your business can be moved online. For instance, in the process of building your ecommerce store, you may actually lose customers who are not comfortable buying online. So understand your customers and identify who can buy online and who prefer shopping in a physical store. If possible, find out the reasons why some of your customers are not willing to shop online. Also, look for customers who are willing to go online immediately. This will help you decide whether to setup an online store at the earliest. 4) Push commodity sales or low value/ low margins items online as much as possible Know your product catalog well, which will help you to identify low value/margin items. Low value/ margin items like laptops, keywords, mouse, and printers etc., should be moved online as much as possible. It is not really worth spending time creating quotes for such items. So try to move these items online as much as possible to boost sales and increase your profit margin.

7 5) Reduce touch Every time you touch a quote/so/po, there is a cost associated with it. Reduce touch in any area as much as possible. For instance, you can setup an ecommerce store for low commodity items, it will definitely help to reduce cost as you don t have to create quotes for all items. In a B2B environment, if you are doing business on drop ship then there are software applications available which can push low value items that are purchased online and automatically create and send purchase order (PO) to the distributor and then the product can be drop shipped. Take advantage of such software applications that eliminate the need to touch such items. So when customer buys the item from the store, the software automatically creates a PO and sends it to the distributor. The distributor then drop ships the order. You are running the entire business but at the same time you are not touching anything. This means you are not spending your sales and procurement hours on repetitive tasks, which can help to improve your margin. Please however note that, although these software applications are helpful to automate the process, you need to have some control over the process. So add some control and check mechanism to ensure that no fake transactions are being carried out as well as the transactions created are indeed executed by the customers.

8 6) Be omnipresent catalog export to market places etc. In a study by Acquity Group, a unit of Accenture Interactive, it was revealed that 34% of B2B buyers use third-party marketplace sites to do product search. The study signifies that online marketplaces are an important sales channel for B2B enterprises. In order to improve your margins and overall revenue, try to sell through multiple channels. For instance, there are software platforms available that allow you to export your product catalog to popular marketplaces like Amazon, ebay, and Google shopping etc. So use of these software platforms will make your products available at most of these marketplaces. This will help you to get additional sales, thereby ensuring greater margin and revenue.

9 7) Streamline your procurement Every time you spend a dollar in procurement, it has a direct impact on your margin. So it is extremely critical to streamline your procurement so that you are able to remain competitive at the same time not compromising on your margins. Ability to see multi supplier pricing & inventory Know which of your distributor are selling what kind of items. There are different software applications that will give complete visibility on the distributor pricing and availability. You need to utilize these software applications to know exactly which distributors are selling the product and at what price. With this information, you can find out the distributor that is giving the product at the best price. This will help you to streamline your procurement process and increase margin. Buy right quantity at right time do not overstock Most of the VAR business happens on drop ship. However, there are a number of VARS who stock items. But every time you stock items, you are introducing capital which leads to additional cost. So keep stock of products only

10 when needed. Run on drop ship as much as possible. At the same time, drop ship has its lacunas. For instance, in some cases customers want their orders to be delivered within 24 hours. A drop ship model does not support such orders. In such a scenario, it is necessary to stock items. So understand your business and customers and accordingly stock items that need to be stocked. Club your purchasing Many times when you buy items of a certain value or quantity from your distributor, you get offers and better pricing. In case there are no offers, the possibility of negotiation always exists. So find out the number of orders that can be clubbed and purchased from a single distributor. This can help you to get better cost and subsequently higher profit margin. Remain in Touch with all the Promotions and offers going on VARS generate majority of their revenue from promotions and offers. So use a software application that gives you visibility of all the promos and offers going on with your distributors. For instance, there might be a laptop available from Distributors A for $100, while the same laptop would be available with Distributor B

11 for $105. However, there might be a promo going on with A that says that if you buy today, you will get 10% off which essentially means that buying it from A even though it is more expensive price wise is cheaper when the promo is utilized. Similarly, many distributors run a promotion where you get an additional 5% off when your total monthly sales is worth a million dollars. This 5% savings proves to be very valuable than a dollar that you will save from buying from a source that sells products at a cheaper price. 8) Price your products right (Get market insight) It is very important that you are not leaving any money on the table and at the same time you are not losing any customers due to overpricing. So have knowledge about the market value of products. Looking at product pricing of multiple vendors can help you to find out what is generally the accepted price for that kind of products. So analyze, have the market insights and do the right pricing so that you do not lose the business but also ensure that you don t cut down your price so much that you don t unnecessarily lose the margin.

12 9) Analyze and control At all points of time, you need to analyze how you are pricing your products and how your competitors are pricing their products. Moreover, you should also evaluate, which products are selling better and giving more margin, which are selling less and accordingly employ control measures to reduce inefficiencies in these areas. At all costs, keep your prices competitive so that your profit margins are not compromised. 10) Keep customers happy/provide great service The cost of acquiring new customers is 7 times higher than retaining an existing customer. Also the cost of doing the same amount of business with new customers is always high as compared to that of existing customers. Also, you have to be very competitive in order to win new business. In most cases, it is necessary to give promotional offers in order to attract new customers. You would be spending much more in

13 getting new customers to get the same amount of business that you are doing with your existing customers. Dealing with existing customers is far easier. So keeping the existing customers happy and providing them great service will encourage them to do repeat business and increase your margin. 11) Improve your turnaround time It is a known fact that the quicker you respond to customer requirements, the better are your chances of closing the deal at a higher margin. If your customer has requested for a quote and you take days to fulfill that request, then it is likely that he has received the quote from multiple vendors. This in turn will decrease your chances of grabbing the deal at a higher margin. So improve your turnaround time for any customer requirements to sell the products at a better price. 12) Add value to your customers Rather than simply responding, sellers must create value by encouraging clients to think about their business issues and needs in a new way. This includes overcoming buyer misunderstandings and misperceptions in order to help clients make the best decisions for the business.

14 deal with him. There has been instances wherein the VAR who wins the deal is not the one who is providing products at a cheaper price but who has added more value by speaking so confidently and persuasively about his offerings that the customer is more comfortable in making a So try to add value in everything that you do. That value can come from your services, great product knowledge, customer support and even quick turnaround time. So add value as much as you can, which can always help to get more from your customers. You can get repeat business from the customers as well as more margin from the same deal itself. 13) Add services It is very important that you are not leaving any money on the table and at the same time you are not losing any customers due to overpricing. So have knowledge about the market value of products. Looking at product pricing of multiple vendors can help you to find out what is generally the accepted price for that kind of products. So analyze, have the market insights and do the right pricing so that you do not lose the business but also ensure that you don t cut down your price so much that you don t unnecessarily lose the margin.

15 14) Cut avoidable costs As your business grows and sales expand, you tend to lose control of avoidable costs. But, ignoring these costs can have a negative effect on your bottom line. If you have a good handle on business cost, you can cut costs in areas wherever possible. This will also help to increase your overall margin. So put someone in your organization in charge of cost management. 15) Choose a software that grows with you Though automation is the key, but if you own a small business and you buy a sophisticated software then it is likely to be a great burden for you. On the other hand, if you are a pretty large organization and you choose a rather simple software, it might not meet your needs. So choose a business

16 management platform that grows with your business stays simple initially but as your business expands, the software is flexible enough to handle your growing needs. 16) Increase upsell / cross-sell Try to increase the value of each deal that you do with your customers. So if you are selling a computer, see if a printer can be sold. If you are selling a 32 inch TV, see if a 40 inch TV can be sold. If you are selling servers, see if any service can be served along with it. Do up selling and cross-selling as much as possible so that your profit margin goes up. This is because with the other sale (upsell or cross-sell) you are not incurring much cost. So your overall margin percentage in that business deal will go up. 17) Improve sales productivity Provide the right software applications and tools to your sales people so as to improve their overall performance. This will enable you to do more business with the same number of people. This means as your organization grows, you don t have to hire new people, which will help to reduce overall business costs.

17 18) Get bigger business volumes As your business grows, your cost of procuring the product goes down. For instance, if you are buying 5 laptops, each costing $100, the same distributor may give each laptop for $98, if you are buying 50 pieces. So it is necessary to improve your business volume. So as you improve your business volume, it will help you to get better pricing, in turn increasing your profit margin. 19) Hire vs. Contract Both have their own pros and cons. When you are hiring for a highly specialized activity or looking for a long-term position, a full time employee is your best bet. However, there are high fixed costs involved since you need to provide them office space, work devices and mandatory pay benefits. It makes more sense to hire contract employees when there is no clarity for the position you are hiring or the work is such that it can be contracted. However, contract employees may not offer the stability or commitment of work. Therefore it is

18 necessary to strike the right balance between full time and contract employees so that you don t have to incur the high fixed cost when you don t need it. 20) Fixed vs. Ongoing costs Try to keep your fixed cost to the minimum which otherwise could add up to huge monthly expenses, irrespective of your sales volume. Analyze and understand your fixed and ongoing cost, and keep your fixed cost minimal so that you are incurring your ongoing cost only when your business is up. For instance, in a particular month, if your business is huge, you incur only that ongoing cost but not the fixed cost. If you are a new business, maybe you can rent a shared office space or buy second-hand furniture. If you are a large organization, you can ask employees to work for lesser hours in the days of low volume sales or may be lease the spare capacity in your premises. These strategies will help you to keep your fixed cost under control.

19 21) Add complementary product lines Do not sell just one type of products. Broaden your offers by selling different types of products that are complementary to what you are offering. This can help you to meet your evolving customer requirements and allow you to do business at a higher profit margin. 22) Consider partnerships/ outsourcing Do not try to do everything yourself. There are people who are specialized in doing certain things. They can do those things better than you and at better cost. So think of outsourcing certain business processes as it will cost you less than if you do it yourself.

20 23) Build relationships not customers The mantra to increase your sales and enhance brand image of your business is to nurture long-term relationships with your customers. You can acquire new customers, but if you don t retain them, you stand to lose huge revenues. A 2015 Global Report on What It Takes to Win Business research by TeleTech reveals that B2B customers want relationships, not sales. They want salespeople to do more, listen more, find out more, and be more disciplined in their approach. In fact, relationship plays a crucial role in their purchasing decision. Relationships pay in the long run. Invest time in Selling however utilize that investment to grow the relationship with the customer as it does pay very well in the long run. In order to build these relationships, you must - Make your customers feel respected, valued and comfortable right from the first contact point.

21 Train your sales reps to listen to customer requirements and address all their queries/concerns with patience. Reward your customers with loyalty programs. They should feel special in doing business with you. Be honest and transparent in business dealings. If customers feel cheated, they will not come back to you. At the same time, it will earn you a bad word of mouth of publicity. Go beyond the obvious to provide a wow experience to your customers. Know about their buying preferences and make them suitable recommendations along with providing exceptional services. Be attentive to their feedback and complaints, and promptly respond to their grievances. 24) Build a niche There will always be some products that will give very high margin, while others tend to give relatively low margin. The key to building a niche is to offer a curated selection of products that sell the most or by adding value to your customer s experience in terms of superior service support and a quick turnaround time. Understand and build a niche for yourself that always gives you a very good margin. This will help you to compensate on low margins that you are getting from certain products.

22 Thank You! VARStreet Inc